[Title 12 CFR ]
[Code of Federal Regulations (annual edition) - January 1, 2012 Edition]
[From the U.S. Government Printing Office]



[[Page i]]

          

          Title 12

Banks and Banking


________________________

Parts 900 to 1099

                         Revised as of January 1, 2012

          Containing a codification of documents of general 
          applicability and future effect

          As of January 1, 2012
                    Published by the Office of the Federal Register 
                    National Archives and Records Administration as a 
                    Special Edition of the Federal Register

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As of January 1, 2012

Title 12, Part 900 to End

Revised as of January 1, 2011

Is Replaced by

Title 12, Parts 900 to 1099

and

Title 12, Part 1100 to End



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                            Table of Contents



                                                                    Page
  Explanation.................................................     vii

  Title 12:
          Chapter IX--Federal Housing Finance Board                  3
          Chapter X--Bureau of Consumer Financial Protection        85
  Finding Aids:
      Table of CFR Titles and Chapters........................    1131
      Alphabetical List of Agencies Appearing in the CFR......    1151
      List of CFR Sections Affected...........................    1161

[[Page vi]]





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

                     Cite this Code: CFR
                     To cite the regulations in 
                       this volume use title, 
                       part and section number. 
                       Thus,  12 CFR 900.1 refers 
                       to title 12, part 900, 
                       section 1.

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

[[Page vii]]



                               EXPLANATION

    The Code of Federal Regulations is a codification of the general and 
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parts covering specific regulatory areas.
    Each volume of the Code is revised at least once each calendar year 
and issued on a quarterly basis approximately as follows:

Title 1 through Title 16.................................as of January 1
Title 17 through Title 27..................................as of April 1
Title 28 through Title 41...................................as of July 1
Title 42 through Title 50................................as of October 1

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[[Page viii]]

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[[Page ix]]

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    Director,
    Office of the Federal Register.
    January 1, 2012.







[[Page xi]]



                               THIS TITLE

    Title 12--Banks and Banking is composed of nine volumes. The parts 
in these volumes are arranged in the following order: Parts 1-199, 200-
219, 220-229, 230-299, 300-499, 500-599, part 600-899, 900-1099 and 
1100-end. The first volume containing parts 1-199 is comprised of 
chapter I--Comptroller of the Currency, Department of the Treasury. The 
second, third and fourth volumes containing parts 200-299 are comprised 
of chapter II--Federal Reserve System. The fifth volume containing parts 
300-499 is comprised of chapter III--Federal Deposit Insurance 
Corporation and chapter IV--Export-Import Bank of the United States. The 
sixth volume containing parts 500-599 is comprised of chapter V--Office 
of Thrift Supervision, Department of the Treasury. The seventh volume 
containing parts 600-899 is comprised of chapter VI--Farm Credit 
Administration, chapter VII--National Credit Union Administration, 
chapter VIII--Federal Financing Bank. The eighth volume containing parts 
900-1099 is comprised of chapter IX--Federal Housing Finance Board, and 
chapter X--Bureau of Consumer Financial Protection. The ninth volume 
containing part 1100-end is comprised of chapter XI--Federal Financial 
Institutions Examination Council, chapter XIV--Farm Credit System 
Insurance Corporation, chapter XV--Department of the Treasury, chapter 
XVII--Office of Federal Housing Enterprise Oversight, Department of 
Housing and Urban Development and chapter XVIII--Community Development 
Financial Institutions Fund, Department of the Treasury. The contents of 
these volumes represent all of the current regulations codified under 
this title of the CFR as of January 1, 2012.

    For this volume, Jonn V. Lilyea was Chief Editor. The Code of 
Federal Regulations publication program is under the direction of 
Michael L. White, assisted by Ann Worley.

[[Page 1]]



                       TITLE 12--BANKS AND BANKING




                 (This book contains parts 900 to 1099)

  --------------------------------------------------------------------
                                                                    Part

chapter ix--Federal Housing Finance Board...................         900

chapter x-- Bureau of Consumer Financial Protection.........        1004

[[Page 3]]



                CHAPTER IX--FEDERAL HOUSING FINANCE BOARD




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

                    SUBCHAPTER A--GENERAL DEFINITIONS
Part                                                                Page
900             General definitions applying to all Finance 
                    Board regulations.......................           5
 SUBCHAPTER B--FEDERAL HOUSING FINANCE BOARD ORGANIZATION AND OPERATIONS
905             Description of organization and functions...           8
906             Operations..................................          12
907             Procedures..................................          13
911             Availability of unpublished information.....          22
912             Information regarding meetings of the Board 
                    of Directors of the Federal Housing 
                    Finance Board...........................          27
 SUBCHAPTER C--GOVERNANCE AND MANAGEMENT OF THE FEDERAL HOME LOAN BANKS
914             Data availability and reporting.............          33
917             Powers and responsibilities of Bank boards 
                    of directors and senior management......          33
  SUBCHAPTER D--FEDERAL HOME LOAN BANK MEMBERS AND HOUSING ASSOCIATES 
                               [RESERVED]
    SUBCHAPTER E--FEDERAL HOME LOAN BANK RISK MANAGEMENT AND CAPITAL 
                                STANDARDS
930             Definitions applying to risk management and 
                    capital regulations.....................          41
931             Federal Home Loan Bank capital stock........          42
932             Federal Home Loan Bank capital requirements.          46
933             Bank capital structure plans................          58
         SUBCHAPTER F--FEDERAL HOME LOAN BANK MISSION [RESERVED]
 SUBCHAPTER G--FEDERAL HOME LOAN BANK ASSETS AND OFF-BALANCE SHEET ITEMS
952             Community Investment Cash Advance Programs..          64

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955             Acquired member assets......................          68
       SUBCHAPTER H--FEDERAL HOME LOAN BANK LIABILITIES [RESERVED]
   SUBCHAPTER I--MISCELLANEOUS FEDERAL HOME LOAN BANK OPERATIONS AND 
                               AUTHORITIES
975             Collection, settlement, and processing of 
                    payment instruments.....................          72
977             Miscellaneous bank authorities..............          74
978             Bank requests for information...............          74
     SUBCHAPTER J--NEW FEDERAL HOME LOAN BANK ACTIVITIES [RESERVED]
               SUBCHAPTER K--OFFICE OF FINANCE [RESERVED]
                 SUBCHAPTER L--NON-BANK SYSTEM ENTITIES
995             Financing Corporation operations............          77
996             Authority for bank assistance of the 
                    Resolution Funding Corporation..........          80
997             Resolution Funding Corporation obligations 
                    of the banks............................          80
            SUBCHAPTER M--FEDERAL HOME LOAN BANK DISCLOSURES
998             Registration of Federal Home Loan Bank 
                    equity securities.......................          83

[[Page 5]]



                    SUBCHAPTER A_GENERAL DEFINITIONS





PART 900_GENERAL DEFINITIONS APPLYING TO ALL FINANCE BOARD 
REGULATIONS--Table of Contents



Sec.
900.1 Basic terms relating to the Finance Board, the Bank System and 
          related entities.
900.2 Terms relating to Bank operations, mission and supervision.
900.3 Terms relating to other entities and concepts used throughout 12 
          CFR chapter IX.

    Authority: 12 U.S.C. 1422b(a).

    Source: 67 FR 12842, Mar. 20, 2002, unless otherwise noted.



Sec. 900.1  Basic terms relating to the Finance Board, the Bank System
and related entities.

    As used throughout this chapter, the following basic terms relating 
to the Finance Board, the Bank System and related entities have the 
meanings set forth below, unless otherwise indicated in a particular 
subchapter, part, section, or paragraph:
    Act means the Federal Home Loan Bank Act, as amended (12 U.S.C. 1421 
through 1449).
    Bank, written in title case, means a Federal Home Loan Bank 
established under section 12 of the Act (12 U.S.C. 1432).
    Bank System means the Federal Home Loan Bank System, consisting of 
the 12 Banks and the Office of Finance.
    Board of Directors, written in title case, means the Board of 
Directors of the Federal Housing Finance Board; the term board of 
directors, written in lower case, has the meaning indicated in context.
    Chairperson means the Chairperson of the Board of Directors of the 
Finance Board.
    Executive Secretary means an employee within the Office of 
Management of the Finance Board who is responsible for records 
management.
    Finance Board means the Federal Housing Finance Board established by 
section 2A of the Act (12 U.S.C. 1422a).
    Financing Corporation or FICO means the Financing Corporation 
established and supervised by the Finance Board under section 21 of the 
Act (12 U.S.C. 1441) and part 995 of this chapter.
    Housing associate means an entity that has been approved as a 
housing associate pursuant to part 926 of this chapter.
    Member means an institution that has been approved for membership in 
a Bank and has purchased capital stock in the Bank in accordance with 
Sec. Sec. 925.20 or 925.24(b) of this chapter.
    Office of Finance or OF means the Office of Finance, a joint office 
of the Banks referred to in section 2B of the Act (12 U.S.C. 1422b) and 
established under part 985 of this chapter.
    Resolution Funding Corporation or REFCORP means the Resolution 
Funding Corporation established by section 21B of the Act (12 U.S.C. 
1441b) and addressed in parts 996 and 997 of this chapter.
    Secretary to the Board means employees within the Office of General 
Counsel of the Finance Board who are responsible for issues concerning 
meetings of the Board of Directors.

[67 FR 12842, Mar. 20, 2002, as amended at 68 FR 38169, June 27, 2003]



Sec. 900.2  Terms relating to Bank operations, mission and supervision.

    As used throughout this chapter, the following terms relating to 
Bank operations, mission and supervision have the meanings set forth 
below, unless otherwise indicated in a particular subchapter, part, 
section or paragraph:
    Acquired member assets or AMA means those assets that may be 
acquired by a Bank under part 955 of this chapter.
    Advance means a loan from a Bank that is:
    (1) Provided pursuant to a written agreement;
    (2) Supported by a note or other written evidence of the borrower's 
obligation; and
    (3) Fully secured by collateral in accordance with the Act and part 
950 of this chapter.
    Affordable Housing Program or AHP means the Affordable Housing 
Program, the CICA program that each Bank is required to establish 
pursuant

[[Page 6]]

to section 10(j) of the Act (12 U.S.C. 1430(j)) and part 951 of this 
chapter.
    Capital plan means the capital structure plan required for each Bank 
by section 6(b) of the Act, as amended (12 U.S.C. 1426(b)), and part 933 
of this chapter, as approved by the Finance Board, unless the context of 
the regulation refers to the capital plan prior to its approval by the 
Finance Board.
    CIP means the Community Investment Program, an advance program under 
CICA required to be offered pursuant to section 10(i) of the Act (12 
U.S.C. 1430(i)).
    Community Investment Cash Advance or CICA means any advance made 
through a program offered by a Bank under section 10 of the Act (12 
U.S.C. 1430) and parts 951 and 952 of this chapter to provide funding 
for targeted community lending and affordable housing, including 
advances made under a Bank's Rural Development Funding (RDF) program, 
offered under section 10(j)(10) of the Act (12 U.S.C. 1430(j)(10)); a 
Bank's Urban Development Funding (UDF) program, offered under section 
10(j)(10) of the Act (12 U.S.C. 1430(j)(10)); a Bank's Affordable 
Housing Program (AHP), offered under section 10(j) of the Act (12 U.S.C. 
1430(j)); a Bank's Community Investment Program (CIP), offered under 
section 10(i) of the Act (12 U.S.C. 1430(i)); or any other program 
offered by a Bank that meets the requirements of part 952 of this 
chapter.
    Community lending means providing financing for economic development 
projects for targeted beneficiaries, and, for community financial 
institutions (as defined in Sec. 925.1 of this chapter), purchasing or 
funding small business loans, small farm loans or small agri-business 
loans (as defined in Sec. 950.1 of this chapter).
    Consolidated obligation or CO means any bond, debenture, or note 
authorized under part 966 of this chapter to be issued jointly by the 
Banks pursuant to section 11(a) of the Act, as amended (12 U.S.C. 
1431(a)), or any bond or note issued by the Finance Board on behalf of 
all Banks pursuant to section 11(c) of the Act (12 U.S.C. 1431(c)), on 
which the Banks are jointly and severally liable.
    Data Reporting Manual or DRM means a manual issued by the Finance 
Board and amended from time to time containing reporting requirements 
for the Banks.
    Excess stock means that amount of a Bank's capital stock owned by a 
member or other institution in excess of that member's or other 
institution's minimum investment in capital stock required under the 
Bank's capital plan, the Act, or the Finance Board's regulations, as 
applicable.
    Financial Management Policy or FMP means the Financial Management 
Policy For The Federal Home Loan Bank System approved by the Finance 
Board pursuant to Finance Board Resolution No. 96-45 (July 3, 1996), as 
amended by Finance Board Resolution No. 96-90 (Dec. 6, 1996), Finance 
Board Resolution No. 97-05 (Jan. 14, 1997), and Finance Board Resolution 
No. 97-86 (Dec. 17, 1997).

[67 FR 12842, Mar. 20, 2002, as amended at 71 FR 35499, June 21, 2006; 
71 FR 78050, Dec. 28, 2006]



Sec. 900.3  Terms relating to other entities and concepts used 
throughout 12 CFR chapter IX.

    As used throughout this chapter, the following terms relating to 
other entities and concepts used throughout 12 CFR chapter IX have the 
meanings set forth below, unless otherwise indicated in a particular 
subchapter, part, section or paragraph:
    Appropriate Federal banking agency has the meaning set forth in 
section 3(q) of the Federal Deposit Insurance Act (12 U.S.C. 1813(q)) 
and, for federally-insured credit unions, means the NCUA.
    Appropriate state regulator means any state officer, agency, 
supervisor or other entity that has regulatory authority over, or is 
empowered to institute enforcement action against, a particular 
institution.
    Fannie Mae means the Federal National Mortgage Association 
established under authority of the Federal National Mortgage Association 
Charter Act (12 U.S.C. 1716, et seq.).
    FDIC means the Federal Deposit Insurance Corporation.
    FRB means the Board of Governors of the Federal Reserve System.

[[Page 7]]

    Freddie Mac means the Federal Home Loan Mortgage Corporation 
established under authority of the Federal Home Loan Mortgage 
Corporation Act (12 U.S.C. 1451, et seq.).
    Generally Accepted Accounting Principles or GAAP means accounting 
principles generally accepted in the United States.
    Ginnie Mae means the Government National Mortgage Association 
established under authority of the Federal National Mortgage Association 
Charter Act (12 U.S.C. 1716, et seq.).
    GLB Act means the Gramm-Leach-Bliley Act (Pub. L. 106-102 (1999)).
    HUD means the United States Department of Housing and Urban 
Development.
    NCUA means the National Credit Union Administration.
    NRSRO means a credit rating organization regarded as a Nationally 
Recognized Statistical Rating Organization by the Securities and 
Exchange Commission.
    OCC means the Office of the Comptroller of the Currency.
    OTS means the Office of Thrift Supervision.
    SBIC means a small business investment company formed pursuant to 
section 301 of the Small Business Investment Act (15 U.S.C. 681).
    SEC means the United States Securities and Exchange Commission.
    State means a state of the United States, American Samoa, the 
Commonwealth of the Northern Mariana Islands, the District of Columbia, 
Guam, Puerto Rico, or the United States Virgin Islands.
    1934 Act means the Securities Exchange Act of 1934 (15 U.S.C. 78a et 
seq.).

[67 FR 12842, Mar. 20, 2002, as amended at 69 FR 38811, June 29, 2004]

[[Page 8]]



 SUBCHAPTER B_FEDERAL HOUSING FINANCE BOARD ORGANIZATION AND OPERATIONS





PART 905_DESCRIPTION OF ORGANIZATION AND FUNCTIONS--Table of Contents



        Subpart A_Functions and Responsibilities of Finance Board

Sec.
905.1 [Reserved]
905.2 General statement and statutory authority.
905.3 Location and business hours.
905.4 Duties of the Finance Board.

Appendix A to Subpart A of Part 905--Federal Home Loan Banks

                     Subpart B_General Organization

905.10 Board of Directors.
905.11 Office of Inspector General.
905.12 Office of Management.
905.13 Office of Supervision.
905.14 Office of General Counsel.

                         Subpart C_Miscellaneous

905.25 Forms.
905.26 Official logo and seal.
905.27 OMB control numbers assigned under the Paperwork Reduction Act.

    Authority: 5 U.S.C. 552; 12 U.S.C. 1422b(a) and 1423; 44 U.S.C. 
3507; 5 CFR 1320.5 and 1320.8.

    Source: 56 FR 67155, Dec. 30, 1991, unless otherwise noted. 
Redesignated at 65 FR 8256, Feb. 18, 2000.



        Subpart A_Functions and Responsibilities of Finance Board



Sec. 905.1  [Reserved]



Sec. 905.2  General statement and statutory authority.

    (a) The Finance Board is an independent, executive agency in the 
Federal Government, responsible for regulating the Bank System. It is 
funded through assessments levied upon the Banks. These funds are not 
considered Government Funds or appropriated monies. The Finance Board is 
governed by a five-member Board of Directors and administered by a full-
time staff.
    (b) The members of the Board of Directors individually are referred 
to as Directors. Other than the Office of Inspector General and the 
Office of General Counsel, the heads of the administrative units, called 
offices, also are called Directors. The head of the Office of Inspector 
General is called the Inspector General and the head of the Office of 
General Counsel is called the General Counsel.
    (c) The Finance Board administers the Act and is authorized to issue 
rules, regulations and orders affecting the Bank System. The Finance 
Board performs all such duties and responsibilities as may be required 
by statute. As required by section 302(b)(2) of the Federal National 
Mortgage Association Charter Act (12 U.S.C. 1717(b)), it also conducts a 
monthly survey of all major lenders to calculate a national average for 
interest rates on mortgages for one-family homes, on behalf of the 
Fannie Mae. As required by section 305(b) of the Federal Home Loan 
Mortgage Corporation Act (12 U.S.C. 1454(b)), it conducts a similar 
survey for the Freddie Mac.

[56 FR 67155, Dec. 30, 1991, as amended at 65 FR 8256, Feb. 18, 2000; 67 
FR 12843, Mar. 20, 2002; 68 FR 38169, June 27, 2003]



Sec. 905.3  Location and business hours.

    (a) Location. All office units of the Finance Board are located at 
1777 F Street, NW., Washington, DC 20006.
    (b) Hours of operation. The regular hours of operation of the 
Finance Board are from 8:30 a.m. to 5:30 p.m., Monday through Friday.



Sec. 905.4  Duties of the Finance Board.

    (a) Bank System. The Finance Board supervises and regulates the 
Banks and the Office of Finance. Specifically, its duties are:
    (1) To ensure that the Banks operate in a safe and sound manner;
    (2) To supervise all business operations of the Banks, which may 
include:
    (i) Prescribing conditions upon which Banks may advance funds to 
their members and housing associates;
    (ii) Prescribing rules and conditions under which a Bank may borrow 
funds,

[[Page 9]]

pay interest on those funds, or issue obligations;
    (iii) Requiring examinations of the Banks; and
    (iv) Appointing the public interest members of the boards of 
directors of the Banks;
    (3) To ensure that the Banks fulfill their housing finance and 
community lending mission;
    (4) To ensure that the Banks remain adequately capitalized; and
    (5) To ensure that the Banks are able to raise funds in the capital 
markets.
    (b) Financing Corporation. The Finance Board also oversees the 
operations of the Financing Corporation, including its issuance of 
obligations.

[67 FR 12843, Mar. 20, 2002]



    Sec. Appendix A to Subpart A of Part 905--Federal Home Loan Banks

                    Federal Home Loan Bank District 1

(Connecticut, Maine, Massachusetts, New Hampshire, Rhode Island, 
Vermont)

                    Federal Home Loan Bank of Boston

111 Huntington Avenue, 24th Floor, Boston, MA 02199-7614

                    Federal Home Loan Bank District 2

(New Jersey, New York, Puerto Rico, Virgin Islands)

                   Federal Home Loan Bank of New York

101 Park Avenue, New York, NY 10178-0599

                    Federal Home Loan Bank District 3

(Delaware, Pennsylvania, West Virginia)

                  Federal Home Loan Bank of Pittsburgh

601 Grant Street, Pittsburgh, PA 15219-4455

                    Federal Home Loan Bank District 4

(Alabama, District of Columbia, Florida, Georgia, Maryland, North 
Carolina, South Carolina, Virginia)

                    Federal Home Loan Bank of Atlanta

1475 Peachtree Street, NE., Atlanta, GA 30309

                    Federal Home Loan Bank District 5

(Kentucky, Ohio, Tennessee)

                  Federal Home Loan Bank of Cincinnati

221 East Fourth Street, Suite 1000, Cincinnati, OH 45202

                    Federal Home Loan Bank District 6

(Indiana, Michigan)

                 Federal Home Loan Bank of Indianapolis

8250 Woodfield Crossing Boulevard, Indianapolis, IN 46240

                    Federal Home Loan Bank District 7

(Illinois, Wisconsin)

                    Federal Home Loan Bank of Chicago

111 East Wacker Drive, Suite 700, Chicago, IL 60601

                    Federal Home Loan Bank District 8

(Iowa, Minnesota, Missouri, North Dakota, South Dakota)

                  Federal Home Loan Bank of Des Moines

907 Walnut Street, Des Moines, IA 50309

                    Federal Home Loan Bank District 9

(Arkansas, Louisiana, Mississippi, New Mexico, Texas)

                    Federal Home Loan Bank of Dallas

8500 Freeport Parkway South, Suite 100, Irving, TX 75063-2547

                   Federal Home Loan Bank District 10

(Colorado, Kansas, Nebraska, Oklahoma)

                    Federal Home Loan Bank of Topeka

One Security Benefit Place, Suite 100, Topeka, KS 66606-2444

                   Federal Home Loan Bank District 11

(Arizona, California, Nevada)

                 Federal Home Loan Bank of San Francisco

600 California Street, San Francisco, CA 94108

                   Federal Home Loan Bank District 12

(Alaska, American Samoa, the Commonwealth of the Northern Mariana 
Islands, Guam, Hawaii, Idaho, Montana, Oregon, Utah, Washington, 
Wyoming)

                    Federal Home Loan Bank of Seattle

1501 Fourth Avenue, 19th Floor, Seattle, WA 98101-1693

[56 FR 67155, Dec. 30, 1991, as amended at 63 FR 3455, Jan. 23, 1998; 67 
FR 12843, Mar. 20, 2002; 68 FR 38170, June 27, 2003]



                     Subpart B_General Organization

    Source: 68 FR 38170, June 27, 2003, unless otherwise noted.

[[Page 10]]



Sec. 905.10  Board of Directors.

    (a) Board of Directors--(1) General. The Bank Act vests management 
of the Finance Board in a five-member Board of Directors consisting of 
four members appointed by the President with the advice and consent of 
the Senate to serve staggered seven-year terms, and one ex-officio 
member, the Secretary of the U.S. Department of Housing and Urban 
Development. The four appointed directors must have backgrounds in 
housing finance or a demonstrated commitment to providing specialized 
housing credit and at least one appointed director must have a 
background with an organization with a two-year record of representing 
consumer or community interests on either banking services, credit 
needs, housing or financial consumer protections. Not more than three of 
the five directors may belong to the same political party.
    (2) Responsibilities. The Board of Directors is responsible for 
setting agency policy and issuing resolutions, rules, regulations, 
orders and policies as necessary.
    (b) Chairperson--(1) General. The President designates an appointed 
director as chairperson of the Board of Directors.
    (2) Responsibilities. The responsibilities of the chairperson 
include:
    (i) Presiding over the meetings of the Board of Directors;
    (ii) Effecting the overall management, functioning and organization 
of the Finance Board;
    (iii) Ensuring effective coordination and communication with the 
Congress and interest groups on legislative issues pertaining to the 
Finance Board, the Bank System, and the Financing Corporation; and
    (iv) Disseminating information about the Finance Board to other 
government agencies, the public and the news media.



Sec. 905.11  Office of Inspector General.

    (a) General. The Inspector General reports directly to the 
chairperson of the Board of Directors and is subject to, and operates 
under, the provisions of the Inspector General Act of 1978, as amended 
(5 U.S.C. app. 3).
    (b) Responsibilities. The responsibilities of the Office of 
Inspector General under the Inspector General Act include:
    (1) Conducting and supervising audits and investigations relating to 
the programs and operations of the Finance Board;
    (2) Providing leadership and coordination, and recommending policies 
for Finance Board activities designed to promote the economy, efficiency 
and effectiveness of programs and operations, and preventing and 
detecting fraud and abuse in programs and operations; and
    (3) Providing a means for keeping the Board of Directors, agency 
managers and the Congress fully and currently informed regarding on-
going investigations and, if needed, the necessity for and progress of 
corrective action.



Sec. 905.12  Office of Management.

    (a) General. The Office of Management is the principal advisor to 
the chairperson and the Board of Directors on management and 
organizational policies and is responsible for the Finance Board's 
administrative management programs.
    (b) Responsibilities. The responsibilities of the Office of 
Management include:
    (1) Developing and managing agency policies and procedures governing 
employment and personnel action requirements, compensation and agency 
payroll requirements, travel, awards, insurance, retirement benefits and 
other employee benefits;
    (2) Facilities and property management and supply requirements;
    (3) Procurement and contracting programs;
    (4) Agency financial management, budgeting and accounting;
    (5) Records management; and
    (6) Coordinating the design, programming, operation and maintenance 
of the Finance Board's technology and information systems.



Sec. 905.13  Office of Supervision.

    (a) General. The Office of Supervision is responsible for conducting 
on-site examinations of the twelve Federal

[[Page 11]]

Home Loan Banks and the Office of Finance and conducting off-site 
monitoring and analysis. The Office of Supervision also is responsible 
for providing expert policy advice and analyzing and reporting on 
economic, housing finance, community investment and competitive 
environments in which the Bank System and its members operate.
    (b) Responsibilities. The responsibilities of the Office of 
Supervision include:
    (1) Conducting examinations, at least annually, of the Banks, the 
Office of Finance and the Financing Corporation and resolving 
outstanding examination issues;
    (2) Monitoring Bank and Bank System market, credit and operational 
risks;
    (3) Analyzing the financial performance of the Banks;
    (4) Preparing the Monthly Survey of Rates and Terms of Conventional 
One-Family Nonfarm Mortgage Loans (MIRS) and determining the conforming 
loan limit for Federal National Mortgage Association (Fannie Mae) and 
Federal Home Loan Mortgage Corporation (Freddie Mac) purchases and 
guarantees;
    (5) Analyzing the Banks' performance and policy issues arising under 
the Affordable Housing Program and the Community Investment Program; and
    (6) Collecting and analyzing data on the housing and community and 
economic development activities of the Banks.



Sec. 905.14  Office of General Counsel.

    (a) General. The General Counsel is the chief legal officer of the 
Finance Board and is responsible for advising the Board of Directors, 
the chairperson and other Finance Board officials on interpretations of 
law, regulation and policy.
    (b) Responsibilities. The responsibilities of the Office of General 
Counsel include:
    (1) Preparing all legal documents on behalf of the Finance Board 
such as opinions, regulations and memoranda of law;
    (2) Representing the Finance Board in all administrative 
adjudicatory proceedings before the Board of Directors and in all other 
administrative matters involving the agency;
    (3) Representing the Finance Board in judicial proceedings involving 
the agency's supervisory or regulatory authority over the Federal Home 
Loan Banks;
    (4) Administering the Finance Board's Ethics, Freedom of Information 
Act, Privacy Act, Paperwork Reduction Act, and Government in the 
Sunshine Act programs; and
    (5) Secretary to the Board functions.



                         Subpart C_Miscellaneous



Sec. 905.25  Forms.

    The following forms are available at the Finance Board headquarters 
facility and shall be used for the purpose indicated:

                                  Form

10-91--Monthly Survey of Rates and Terms on Conventional 1 Family 
          Nonfarm Mortgage Loans.
9102--Certificate of Nomination, Election of Federal Home Loan Bank 
          Directors.
9103--Election Ballot, Election of Federal Home Loan Bank Directors.
A-1--Appointive Director Candidates--Personal Certification and 
          Disclosure Form.
E-1--Elective Director Nominees--Personal Certification and Disclosure 
          Form.
90-T04--Local Travel Claim.

[60 FR 49199, Sept. 22, 1995, as amended at 63 FR 65687, Nov. 30, 1998; 
65 FR 8257, Feb. 18, 2000. Redesignated and amended at 67 FR 12843, Mar. 
20, 2002]



Sec. 905.26  Official logo and seal.

    This section describes and displays the logo adopted by the Board of 
Directors as the official symbol representing the Finance Board. It is 
displayed on correspondence and selected documents. This logo also 
serves as the official seal used to certify and authenticate official 
documents of the Board of Directors.
    (a) Description. The logo is a disc with its center consisting of 
three polygons arranged in an irregular line partially overlapping--each 
polygon drawn in a manner resembling a silhouette of a pitched roof 
house and with distinctive eaves under its roof--encircled by a 
designation scroll having an outer and inner border of plain heavy lines 
and containing the words ``FEDERAL

[[Page 12]]

HOUSING FINANCE BOARD'' in capital letters with serifs, with two mullets 
on the extreme left and right of the scroll.
    (b) Display. The Finance Board's official seal and logo appears 
below:
[GRAPHIC] [TIFF OMITTED] TR20MR02.004


[67 FR 12843, Mar. 20, 2002]



Sec. 905.27  OMB control numbers assigned under the Paperwork Reduction
Act.

    (a) Purpose. This section collects and displays the control numbers 
assigned to information collection requirements contained in Finance 
Board regulations by the Office of Management and Budget (OMB) under the 
Paperwork Reduction Act of 1995 (44 U.S.C. chapter 35) and OMB 
regulations (5 CFR 1320.5 and 1320.8). The Finance Board may not sponsor 
or conduct, and a person is not required to respond to, an information 
collection unless the agency displays a currently valid OMB control 
number.
    (b) Display.

------------------------------------------------------------------------
    12 CFR part or section where          OMB
      identified and  described       control No.     Expiration date
------------------------------------------------------------------------
906.5...............................    3069-0001  July 2007.
915.3...............................    3069-0002  Nov. 2007.
915.4...............................    3069-0002  Nov. 2007.
915.5...............................    3069-0002  Nov. 2007.
915.6...............................    3069-0002  Nov. 2007.
915.7...............................    3069-0002  Nov. 2007.
915.8...............................    3069-0002  Nov. 2007.
915.10..............................    3069-0002  Nov. 2007.
915.12..............................    3069-0002  Nov. 2007.
925.2...............................    3069-0004  May 2007.
925.3...............................    3069-0004  May 2007.
925.5...............................    3069-0004  May 2007.
925.6...............................    3069-0004  May 2007.
925.7...............................    3069-0004  May 2007.
925.8...............................    3069-0004  May 2007.
925.9...............................    3069-0004  May 2007.
925.11..............................    3069-0004  May 2007.
925.12..............................    3069-0004  May 2007.
925.13..............................    3069-0004  May 2007.
925.15..............................    3069-0004  May 2007.
925.16..............................    3069-0004  May 2007.
925.17..............................    3069-0004  May 2007.
925.18..............................    3069-0004  May 2007.
925.22..............................    3069-0004  May 2007.
925.24..............................    3069-0004  May 2007.
925.26..............................    3069-0004  May 2007.
925.31..............................    3069-0004  May 2007.
926.1...............................    3069-0005  Nov. 2005.
926.2...............................    3069-0005  Nov. 2005.
926.3...............................    3069-0005  Nov. 2005.
926.4...............................    3069-0005  Nov. 2005.
926.5...............................    3069-0005  Nov. 2005.
926.6...............................    3069-0005  Nov. 2005.
931.3...............................    3069-0059  Feb. 2007.
931.7...............................    3069-0004  May 2007.
933.2...............................    3069-0059  Feb. 2007.
944.2...............................    3069-0003  Feb. 2006.
944.3...............................    3069-0003  Feb. 2006.
944.4...............................    3069-0003  Feb. 2006.
944.5...............................    3069-0003  Feb. 2006.
950.17..............................    3069-0005  Nov. 2005.
951.1...............................    3069-0006  July 2007.
951.3...............................    3069-0006  July 2007.
951.4...............................    3069-0006  July 2007.
951.6...............................    3069-0006  July 2007.
951.7...............................    3069-0006  July 2007.
951.8...............................    3069-0006  July 2007.
951.10..............................    3069-0006  July 2007.
951.11..............................    3069-0006  July 2007.
951.13..............................    3069-0006  July 2007.
951.15..............................    3069-0006  July 2007.
955.4...............................    3069-0058  Mar. 2007.
------------------------------------------------------------------------


[70 FR 9508, Feb. 28, 2005]



PART 906_OPERATIONS--Table of Contents



Subpart A [Reserved]

              Subpart B_Monthly Interest Rate Survey (MIRS)

Sec.
906.5 Monthly interest rate survey.

Subpart C [Reserved]

    Authority: 12 U.S.C. 4516.

    Source: 70 FR 9509, Feb. 28, 2005, unless otherwise noted.

Subpart A [Reserved]



              Subpart B_Monthly Interest Rate Survey (MIRS)



Sec. 906.5  Monthly interest rate survey.

    The Finance Board conducts its Monthly Survey of Rates and Terms on 
Conventional One-Family Non-farm Mortgage Loans in the following manner:

[[Page 13]]

    (a) Initial survey. Each month, the Finance Board samples savings 
institutions, commercial banks, and mortgage loan companies, and asks 
them to report the terms and conditions on all conventional mortgages 
(i.e., those not federally insured or guaranteed) used to purchase 
single-family homes that each such lender closes during the last five 
working days of the month. In most cases, the information is reported 
electronically in a format similar to Finance Board Form FHFB 10-91. The 
initial weights are based on lender type and lender size. The data also 
is weighted so that the pattern of weighted responses matches the actual 
pattern of mortgage originations by lender type and by region. The 
Finance Board tabulates the data and publishes standard data tables late 
in the following month.
    (b) Adjustable-rate mortgage index. The weighted data, tabulated and 
published pursuant to paragraph (a) of this section, is used to compile 
the Finance Board's adjustable-rate mortgage index, entitled the 
``National Average Contract Mortgage Rate for the Purchase of Previously 
Occupied Homes by Combined Lenders.'' This index is the successor to the 
index maintained by the former Federal Home Loan Bank Board and is used 
for determining the movement of the interest rate on renegotiable-rate 
mortgages and on some other adjustable-rate mortgages.

Subpart C [Reserved]



PART 907_PROCEDURES--Table of Contents



                          Subpart A_Definitions

Sec.
907.1 Definitions.

    Subpart B_Waivers, Approvals, No-Action Letters, and Regulatory 
                             Interpretations

907.2 Waivers.
907.3 Approvals.
907.4 No-Action Letters.
907.5 Regulatory Interpretations.
907.6 Submission requirements.
907.7 Issuance of Waivers, Approvals, No-Action Letters, and Regulatory 
          Interpretations.

 Subpart C_Case-by-Case Determinations; Review of Disputed Supervisory 
                             Determinations

907.8 Case-by-Case Determinations.
907.9 [Reserved]
907.10 Petitions.
907.11 Requests to Intervene.
907.12 Finance Board procedures.
907.13 Consideration and Final Decisions.
907.14 Meetings of the Board of Directors to consider Petitions.
907.15 General provisions.
907.16 Rules of practice.

    Authority: 12 U.S.C. 1422b(a)(1).

    Source: 64 FR 30883, June 9, 1999, unless otherwise noted. 
Redesignated at 65 FR 8256, Feb. 18, 2000.

    Editorial Note: Nomenclature changes to part 907 appear at 67 FR 
12844, Mar. 20, 2002.



                          Subpart A_Definitions



Sec. 907.1  Definitions.

    As used in this part:
    Approval means a written statement issued to a Bank or the Office of 
Finance approving a transaction, activity, or item that requires Finance 
Board approval under the Act or a Finance Board rule, regulation, 
policy, or order.
    Case-by-Case Determination means a Final Decision concerning any 
matter that requires a determination, finding, or approval by the Board 
of Directors under the Act or Finance Board regulations, for which no 
controlling statutory, regulatory, or other Finance Board standard 
previously has been established, and that, in the judgment of the Board 
of Directors, is best resolved on a case-by-case basis by a ruling 
applicable only to the Petitioner and any Intervenor, and not by 
adoption of a rule of general applicability.
    Final Decision means a decision rendered by the Board of Directors 
on issues raised in a Petition or Request to Intervene that have been 
accepted for consideration.
    Intervenor means a Bank, Member, or other entity that has been 
granted leave to intervene in the consideration of a Petition by the 
Board of Directors.

[[Page 14]]

    Managing Director means the Managing Director of the Finance Board.
    No-Action Letter means a written statement issued to a Bank or the 
Office of Finance providing that Finance Board staff will not recommend 
supervisory or other action to the Board of Directors for failure to 
comply with a specific provision of the Act or a Finance Board rule, 
regulation, policy, or order, if a requester undertakes a proposed 
transaction or activity.
    Party means a Petitioner, an Intervenor, or the Finance Board.
    Petition means a Petition for Case-by-Case Determination or a 
Petition for Review of a Disputed Supervisory Determination.
    Petitioner means the Office of Finance or a Bank that has filed a 
Petition.
    Regulatory Interpretation means written guidance issued by Finance 
Board staff with respect to application of the Act or a Finance Board 
rule, regulation, policy, or order to a proposed transaction or 
activity.
    Requester means an entity or person that has submitted an 
application for a Waiver or Approval or a request for a No-Action Letter 
or Regulatory Interpretation.
    Supervisory determination means a Finance Board finding in a report 
of examination, order, or directive, or a Finance Board order or 
directive concerning safety and soundness or compliance matters that 
requires mandatory action by a Bank or the Office of Finance.
    Waiver means a written statement issued to a Bank, a Member, or the 
Office of Finance that waives a provision, restriction, or requirement 
of a Finance Board rule, regulation, policy, or order, or a required 
submission of information, not otherwise required by law, in connection 
with a particular transaction or activity.

[64 FR 30883, June 9, 1999, as amended at 65 FR 8257, Feb. 18, 2000; 67 
FR 12844, Mar. 20, 2002]



    Subpart B_Waivers, Approvals, No-Action Letters, and Regulatory 
                             Interpretations



Sec. 907.2  Waivers.

    (a) Authority. The Board of Directors reserves the right, in its 
discretion and in connection with a particular transaction or activity, 
to waive any provision, restriction, or requirement of this chapter, or 
any required submission of information, not otherwise required by law, 
if such waiver is not inconsistent with the law and does not adversely 
affect any substantial existing rights, upon a determination that 
application of the provision, restriction, or requirement would 
adversely affect achievement of the purposes of the Act, or upon a 
showing of good cause.
    (b) Application. A Bank, a Member, or the Office of Finance may 
apply for a Waiver in accordance with Sec. 907.6.

[64 FR 30883, June 9, 1999, as amended at 65 FR 8257, Feb. 18, 2000]



Sec. 907.3  Approvals.

    (a) Application. A Bank or the Office of Finance may apply for an 
Approval of any transaction, activity, or item that requires Finance 
Board approval under the Act or a Finance Board rule, regulation, 
policy, or order in accordance with Sec. 907.6, unless alternative 
application procedures are prescribed by the Act or a Finance Board 
rule, regulation, policy, or order for the transaction, activity, or 
item at issue.
    (b) Reservation. The Finance Board reserves the right, in its 
discretion, to prescribe additional or alternative procedures for any 
application for Approval of a transaction, activity, or item.

[64 FR 30883, June 9, 1999, as amended at 65 FR 8257, Feb. 18, 2000]



Sec. 907.4  No-Action Letters.

    (a) Authority. Finance Board staff, in its discretion, may issue a 
No-Action Letter to a Bank or the Office of Finance stating that staff 
will not recommend supervisory or other action to the Board of Directors 
for failure to comply with a specific provision of the

[[Page 15]]

Act or a Finance Board rule, regulation, policy, or order, if a 
requester undertakes a proposed transaction or activity. The Board of 
Directors may modify or supersede a No-Action Letter.
    (b) Requests. A Bank or the Office of Finance may request a No-
Action Letter in accordance with Sec. 907.6.

[64 FR 30883, June 9, 1999, as amended at 65 FR 8257, Feb. 18, 2000]



Sec. 907.5  Regulatory Interpretations.

    (a) Authority. Finance Board staff, in its discretion, may issue a 
Regulatory Interpretation to a Bank, a Member, an official of a Bank or 
Member, the Office of Finance, or any other entity or person, providing 
guidance with respect to application of the Act or a Finance Board rule, 
regulation, policy, or order to a proposed transaction or activity. The 
Board of Directors may modify or supersede a Regulatory Interpretation.
    (b) Requests. A Bank, a Member, an official of a Bank or Member, the 
Office of Finance, or any other entity or person may request a 
Regulatory Interpretation in accordance with Sec. 907.6.

[64 FR 30883, June 9, 1999, as amended at 65 FR 8257, Feb. 18, 2000]



Sec. 907.6  Submission requirements.

    Applications for a Waiver or Approval and requests for a No-Action 
Letter or Regulatory Interpretation shall comply with the following 
requirements:
    (a) Filing. Each application or request shall be in writing. The 
original and three copies shall be filed with the Secretary to the 
Board, Federal Housing Finance Board, 1777 F Street NW., Washington, DC 
20006.
    (b) Authorization--(1) Waivers and Approvals. Applications for 
Waivers and Approvals shall be signed by an official with authority to 
sign such applications on behalf of the requester. Applications for 
Waivers and Approvals from a Bank or the Office of Finance shall be 
accompanied by a resolution of the board of directors of the Bank or the 
Office of Finance concurring in the substance and authorizing the filing 
of the application.
    (2) Requests for No-Action Letters. The president of the Bank making 
a Request for a No-Action Letter shall sign the Request. Requests for a 
No-Action Letter from the Office of Finance shall be signed by the 
chairperson of the board of directors of the Office of Finance.
    (3) Requests for Regulatory Interpretations. The requester or an 
authorized representative of the requester shall sign a request for a 
Regulatory Interpretation.
    (c) Information requirements. Each application or request shall 
contain:
    (1) The name of the requester, and the name, title, address, 
telephone number, and electronic mail address, if any, of the official 
filing the application or request on its behalf;
    (2) The name, address, telephone number, and electronic mail 
address, if any, of a contact person from whom Finance Board staff may 
seek additional information if necessary;
    (3) The section numbers of the particular provisions of the Act or 
Finance Board rules, regulations, policies, or orders to which the 
application or request relates;
    (4) Identification of the determination or relief requested, 
including any alternative relief requested if the primary relief is 
denied, and a clear statement of why such relief is needed;
    (5) A statement of the particular facts and circumstances giving 
rise to the application or request and identifying all relevant legal 
and factual issues;
    (6) References to all relevant authorities, including the Act, 
Finance Board rules, regulations, policies, and orders, judicial 
decisions, administrative decisions, relevant statutory interpretations, 
and policy statements;
    (7) References to any Waivers, No-Action Letters, Approvals, or 
Regulatory Interpretations issued to the requester in the past in 
response to circumstances similar to those surrounding the request or 
application;
    (8) For any application or request involving interpretation of the 
Act or Finance Board regulations, a reasoned opinion of counsel 
supporting the relief or interpretation sought and distinguishing any 
adverse authority;

[[Page 16]]

    (9) Any non-duplicative, relevant supporting documentation; and
    (10) A certification by a person with knowledge of the facts that 
the representations made in the application or request are accurate and 
complete. The following form of certification is sufficient for this 
purpose: ``I hereby certify that the statements contained in the 
submission are true and complete to the best of my knowledge. [Name and 
Title].''
    (d) Waiver of requirements. The Managing Director may waive any 
requirement of this section for good cause. The Managing Director shall 
provide prompt notice of any such waiver to the Board of Directors. The 
Board of Directors may overrule any waiver granted by the Managing 
Director under this paragraph.
    (e) Withdrawal. Once filed, an application or request may be 
withdrawn only upon written request. The Finance Board will not consider 
a request for withdrawal after transmission by the Secretary to the 
Board to the requester of a response in final form.

[64 FR 30883, June 9, 1999, as amended at 65 FR 8257, Feb. 18, 2000; 67 
FR 12844, Mar. 20, 2002]



Sec. 907.7  Issuance of Waivers, Approvals, No-Action Letters, and
Regulatory Interpretations.

    (a) Board of Directors review. At least three business days prior to 
issuance to the requester, the Secretary to the Board shall transmit 
each Approval, No-Action Letter, or Regulatory Interpretation issued by 
the Chairperson or Finance Board staff to the Board of Directors for 
review.
    (b) Issuance and effectiveness. A Waiver, Approval, No-Action 
Letter, or Regulatory Interpretation is not effective until the 
Secretary to the Board has transmitted it in final form to the 
requester.
    (c) Abbreviated form. The Finance Board may respond to an 
application or request in an abbreviated form, consisting of a concise 
statement of the nature of the response, without restatement of the 
underlying facts.



 Subpart C_Case-by-Case Determinations; Review of Disputed Supervisory 
                             Determinations



Sec. 907.8  Case-by-Case Determinations.

    (a) Petition for Case-by-Case Determination. A Bank or the Office of 
Finance may seek a Case-by-Case Determination concerning any matter that 
may require a determination, finding or approval under the Act or 
Finance Board regulations by the Board of Directors, and for which no 
controlling statutory, regulatory or other Finance Board standard 
previously has been established. The Office of Finance or a Bank seeking 
a Case-by-Case Determination shall file a Petition for Case-by-Case 
Determination in accordance with Sec. 907.10.
    (b) Intervention. A Member, a Bank, or the Office of Finance may 
file a Request to Intervene in the consideration of the Petition in 
accordance with Sec. 907.11 if it believes its rights may be affected.

[64 FR 30883, June 9, 1999, as amended at 65 FR 8257, Feb. 18, 2000]



Sec. 907.9  [Reserved]



Sec. 907.10  Petitions.

    Each Petition brought pursuant to this subpart shall comply with the 
following requirements:
    (a) Filing. The Petition shall be in writing. The original and three 
copies shall be filed with the Secretary to the Board, Federal Housing 
Finance Board, 1777 F Street NW., Washington, DC 20006.
    (b) Information requirements. Each Petition shall contain:
    (1) The name of the Petitioner, and the name, title, address, 
telephone number, and electronic mail address, if any, of the official 
filing the Petition on its behalf;
    (2) The name, address, telephone number, and electronic mail 
address, if any, of a contact person from whom Finance Board staff may 
seek additional information if necessary;
    (3) The section numbers of the particular provisions of the Act or 
Finance Board rules, regulations, policies, or orders to which the 
Petition relates, and, if the Petition is for Review

[[Page 17]]

of a Disputed Supervisory Determination, identification of the disputed 
Supervisory Determination;
    (4) Identification of the determination or relief requested, 
including any alternative relief requested if the primary relief is 
denied, and a clear statement of why such relief is needed;
    (5) A statement of the particular facts and circumstances giving 
rise to the Petition and identifying all relevant legal and factual 
issues;
    (6) A summary of any steps taken to date by the Petitioner to 
address or resolve the dispute or issue; or, in cases involving safety 
and soundness or compliance issues, a summary of any actions taken by 
the Petitioner in the interim to implement corrective action;
    (7) The Petitioner's argument in support of its position, including 
citation to any supporting legal opinions, policy statements, or other 
relevant precedent and supporting documentation, if any;
    (8) References to all relevant authorities, including the Act, 
Finance Board rules, regulations, policies, and orders, judicial 
decisions, administrative decisions, relevant statutory interpretations, 
and policy statements;
    (9) A reasoned opinion of counsel supporting the relief or 
interpretation sought and distinguishing any adverse authority;
    (10) Any non-duplicative, relevant supporting documentation; and
    (11) A certification by a person with knowledge of the facts that 
the representations made in the Petition are accurate and complete. The 
following form of certification is sufficient for this purpose: ``I 
hereby certify that the statements contained in the Petition are true 
and complete to the best of my knowledge. [Name and Title].''
    (c) Authorization. Each Petition shall be accompanied by a 
resolution of the Petitioner's board of directors concurring in the 
substance and authorizing the filing of the Petition.
    (d) Request to Appear. The Petition may contain a request that staff 
or an agent of the Petitioner be permitted to make a personal appearance 
before the Board of Directors at any meeting convened to consider the 
Petition pursuant to these procedures. A statement of the reasons a 
written presentation would not suffice shall accompany a Request to 
Appear. The statement shall specifically:
    (1) Identify any questions of fact that are in dispute;
    (2) Summarize the evidence that would be presented at the meeting; 
and
    (3) Identify any proposed witnesses, and state the substance of 
their anticipated testimony.

[64 FR 30883, June 9, 1999, as amended at 65 FR 8257, Feb. 18, 2000]



Sec. 907.11  Requests to Intervene.

    (a) Filing--(1) Date. Any Request to Intervene in consideration of a 
Petition under this subpart shall be in writing and shall be filed with 
the Secretary to the Board within 45 days from the date the Petition is 
filed.
    (2) Information requirements. A Request to Intervene shall include 
the information required by Sec. 907.10(b), where applicable, and a 
concise statement of the position and interest of the Intervenor and the 
grounds for the proposed intervention.
    (3) Authorization. If the entity requesting intervention is a Bank 
or the Office of Finance, the Request to Intervene shall be accompanied 
by a resolution of the Petitioner's board of directors concurring in the 
substance and authorizing the filing of the Request. If the entity 
requesting intervention is not a Bank or the Office of Finance, the 
Request to Intervene shall be signed by an official of the entity with 
authority to authorize the filing of the Request, and shall include a 
statement describing such authority.
    (4) Request to Appear. A Request to Intervene may include a Request 
to Appear before the Board of Directors in any meeting conducted under 
these procedures to consider a Petition. A Request to Appear shall be 
accompanied by a statement containing the information required by Sec. 
907.10(d), and, in addition, setting forth the likely impact that 
intervention will have on the expeditious progress of the meeting. A 
Request to Appear shall be filed with the Secretary to the Board either 
with the Request to Intervene or at least 20 days prior to the meeting 
scheduled to consider the Petition.
    (5) Intervenor is bound. Any Request to Intervene shall include a 
statement

[[Page 18]]

that, if such leave to intervene is granted, the Intervenor shall be 
bound expressly by the Final Decision of the Board of Directors, as 
described in Sec. 907.13(b), subject only to judicial review or as 
otherwise provided by law.
    (b) Grounds for approval. The Managing Director may grant leave to 
intervene if the entity requesting intervention has complied with 
paragraph (a) of this section and, in the judgment of Managing Director:
    (1) The presence of the entity requesting intervention would not 
unduly prolong or otherwise prejudice the adjudication of the rights of 
the original parties; and
    (2) The entity requesting intervention may be adversely affected by 
a Final Decision on the Petition.

[64 FR 30883, June 9, 1999, as amended at 65 FR 8257, Feb. 18, 2000]



Sec. 907.12  Finance Board procedures.

    (a) Notice of Receipt of Petition or Request to Intervene. No later 
than three business days following receipt of a Petition or Request to 
Intervene, the Secretary to the Board shall transmit a written Notice of 
Receipt to the Petitioner or Intervenor. In the case of a Petition for 
Case-by-Case Determination, the Finance Board shall promptly publish a 
notice of receipt of Petition, including a brief summary of the issue(s) 
involved, in the Federal Register.
    (b) Transmittal of filings. The Secretary to the Board shall 
promptly transmit copies of any Petition, Request to Intervene, or other 
filing under this subpart to the Board of Directors and all other 
parties to the filing.
    (c) Opportunity to cure defects. The Managing Director shall afford 
the Petitioner or Intervenor a reasonable opportunity to cure any 
failure to comply with the requirements of Sec. 907.10.
    (d) Information request. The Managing Director may request 
additional information from the Petitioner or Intervenor. No later than 
20 calendar days after the date of a request under this paragraph, the 
Petitioner shall provide to the Secretary to the Board all information 
requested.
    (e) Supplemental information. Upon good cause shown, the Managing 
Director may grant permission to a Petitioner or Intervenor to submit 
supplemental written information pertaining to the Petition or Request 
to Intervene.
    (f) Consolidation and severance--(1) Consolidation. The Managing 
Director may consolidate any or all matters at issue in two or more 
meetings on Petitions where:
    (i) There exist common parties or common questions of fact or law;
    (ii) Consolidation would expedite and simplify consideration of the 
issues; and
    (iii) Consolidation would not adversely affect the rights of parties 
engaged in otherwise separate proceedings.
    (2) Severance. The Managing Director may order any meetings and 
issues severed with respect to any or all parties or issues.
    (g) Notice of Board Consideration. Within 30 calendar days of 
receipt of a Petition deemed by the Managing Director to be in 
compliance with the requirements of Sec. 907.10, or, if the Petition 
has been the subject of a request under paragraph (d) of this section, 
within 30 calendar days of receipt of a response from the Petitioner 
deemed by the Managing Director to complete the information necessary 
for the Board of Directors to consider the Petition, the Managing 
Director, after consultation with the Board of Directors, through the 
Secretary to the Board, shall provide all parties with a Notice of Board 
Consideration containing the following information:
    (1) Identification of the issues accepted for consideration;
    (2) Any decision to consolidate or sever pursuant to paragraph (f) 
of this section;
    (3) Whether the Petition will be considered by the Board of 
Directors on the written record pursuant to Sec. 907.13(a)(1), or at a 
meeting pursuant to Sec. 907.13(a)(2); and
    (4) If the Petition will be considered by the Board of Directors at 
a meeting:
    (i) The date, time and place of the meeting; and

[[Page 19]]

    (ii) A decision as to any Request to Appear filed pursuant to 
Sec. Sec. 907.10(d) or 907.11(a)(4).

[64 FR 30883, June 9, 1999, as amended at 65 FR 8257, Feb. 18, 2000]



Sec. 907.13  Consideration and Final Decisions.

    (a) Consideration by Board of Directors. The Board of Directors may 
consider a Petition and render a decision:
    (1) Solely on the basis of the written record; or
    (2) At a regularly scheduled meeting or a meeting convened 
specifically for the purpose of considering the Petition. Consideration 
of a Petition at a meeting shall be governed by the procedures described 
in Sec. 907.14.
    (b) Final Decision. The Board of Directors shall render a Final 
Decision on the issue(s) presented in a Petition or Request to Intervene 
that has been accepted for consideration, based upon consideration of 
the entire record of the proceeding. The terms and conditions of the 
Final Decision shall bind the parties as to any issue(s) presented in 
the Petition or Request to Intervene and decided by the Board of 
Directors. The decision of the Board of Directors is a final decision 
for purposes of obtaining judicial review or as otherwise provided by 
law.
    (c) Time periods. Subject to extension by such additional time as 
may reasonably be required, the Board of Directors shall render a Final 
Decision within 120 calendar days of the date the Petition is received 
in a form deemed by the Managing Director to be in compliance with the 
requirements of Sec. 907.10 or, if the Petition has been the subject of 
a request under Sec. 907.12(d), within 120 calendar days of receipt of 
a response from the Petitioner deemed by the Managing Director to 
complete the information necessary for the Board of Directors to 
consider the Petition.
    (d) Transmittal of Final Decision. The Secretary to the Board shall 
transmit the Final Decision of the Board of Directors to all parties to 
the submission.

[64 FR 30883, June 9, 1999, as amended at 65 FR 8257, Feb. 18, 2000]



Sec. 907.14  Meetings of the Board of Directors to consider Petitions.

    (a) Full and fair opportunity to be heard. Any meeting of the Board 
of Directors to consider a Petition shall be conducted in a manner that 
provides the parties a full and fair opportunity to be heard on the 
issues accepted for consideration. Any such meeting shall be conducted 
so as to permit an expeditious presentation of such issues.
    (b) Participation in meeting. (1) The presence of a quorum of the 
Board if Directors is required to conduct a meeting under this section. 
Members of the Board of Directors are deemed present if they appear in 
person or by telephone.
    (2) An act of the Board of Directors requires the vote of a majority 
of the members of the Board of Directors voting at a meeting at which a 
quorum of the Board of Directors is present.
    (3) A Final Decision may be reached by a vote of the Board of 
Directors after the meeting at which the Petition has been considered. 
Only those members of the Board of Directors present at the meeting at 
which the Petition was considered may vote on issues presented in the 
Petition and accepted for consideration. A vote of the majority of the 
members of the Board of Directors eligible to vote and voting shall be 
an act of the Board of Directors.
    (c) Chairperson--(1) Presiding officer. The Chairperson, or a member 
of the Board of Directors designated by the Chairperson, shall preside 
over a meeting of the Board of Directors convened under this section.
    (2) Authority of the Chairperson. The Chairperson shall have all 
powers and discretion necessary to conduct the meeting in a fair and 
impartial manner, to avoid unnecessary delay, to regulate the course of 
the meeting and the conduct of the parties and their counsel, and to 
discharge the duties of a presiding officer.
    (3) Board of Directors may overrule the Chairperson. Any member of 
the Board of Directors may, by motion, challenge any action, finding, or 
determination made by the Chairperson in the course of the meeting, and 
the Board of Directors, by majority vote, may overrule any action, 
finding or determination of the Chairperson.

[[Page 20]]

    (d) Meeting may be closed. A party may request that the meeting, or 
portion thereof, be closed to public observation. A request to close a 
meeting shall be processed in accordance with the requirements of the 
Government in the Sunshine Act (5 U.S.C. 552b) and the Finance Board's 
implementing regulation (12 CFR part 912).
    (e) Location of meeting. Unless otherwise specified, all meetings of 
the Board of Directors will be held in the Board Room of the Finance 
Board at 1777 F Street, NW., Washington, DC, at the time specified in 
the notice of meeting issued pursuant to 12 CFR 912.6.
    (f) Presentation of issues--(1) Stipulations. Subject to the 
Chairperson's discretion, the parties may agree to stipulations of law 
or fact, including stipulations as to the admissibility of exhibits, and 
present such stipulations at the meeting. Stipulations shall be made a 
part of the record of the proceeding.
    (2) Order of presentation. The Chairperson shall determine the order 
of presentation of the issues, testimony of any witnesses, presentation 
of any other information or document, and all other procedural matters 
at the meeting.
    (g) Record. The meeting shall be recorded and transcribed. 
Transcripts of the proceedings shall be governed by 12 CFR 912.5(c). The 
Petition and all supporting documentation shall be made a part of the 
record, unless otherwise determined by the Chairperson. The Chairperson 
may order the record corrected, upon motion to correct, upon stipulation 
of the parties, or at the Chairperson's discretion.
    (h) Admissibility of documents and testimony. (1) The Chairperson 
has discretion to admit and make a part of the record documents and 
testimony that are relevant, material, and reliable, and may elect not 
to admit documents and testimony that are privileged, unduly 
repetitious, or of little probative value.
    (2) The Board of Directors shall give such weight to documents and 
testimony admitted and made part of the record as it may deem reasonable 
and appropriate.
    (3) The Chairperson may admit and make a part of the record, in lieu 
of oral testimony, statements of fact or opinion prepared by a witness. 
The admissibility of the information contained in the statement shall be 
subject to the same rules as if the testimony were provided orally.
    (i) Official notice. All matters officially noticed by the 
Chairperson shall appear on the record.
    (j) Exhibits and documents--(1) Copies. A legible duplicate copy of 
a document shall be admissible to the same extent as the original.
    (2) Exhibits. Witnesses may use existing or newly created charts, 
exhibits, calendars, calculations, outlines, or other graphic materials 
to summarize, illustrate, or simplify the presentation of testimony. 
Subject to the Chairperson's discretion, such materials may be used with 
or without being admitted into the record.
    (3) Identification. All exhibits offered into the record shall be 
numbered sequentially and marked with a designation identifying the 
sponsor. The original of each exhibit offered into the record or marked 
for identification shall be retained in the record of the meeting, 
unless the Chairperson permits substitution of a copy for the original.
    (4) Exchange of Exhibits. One copy of each exhibit offered into the 
record shall be furnished to each of the parties and to each member of 
the Board of Directors. If the Chairperson does not fix a time for the 
exchange of exhibits, the parties shall exchange copies of proposed 
exhibits at the earliest practicable time before the commencement of the 
meeting to consider the Petition. Parties are not required to exchange 
exhibits submitted as rebuttal information before the meeting commences 
if submission of the exhibits is not reasonably certain at that time.
    (5) Authenticity. The authenticity of all documents submitted or 
exchanged as proposed exhibits prior to the meeting shall be admitted 
unless written objection is filed before the commencement of the 
meeting, or unless good cause is shown for failing to file such a 
written objection.
    (k) Sanction for obstruction of the proceedings. The Board of 
Directors may

[[Page 21]]

impose sanctions it deems appropriate for violation of any applicable 
provision of this subpart or any applicable law, rule, regulation, or 
order, or any dilatory, frivolous, or obstructionist conduct by any 
witness or counsel during the course of a meeting.

[64 FR 30883, June 9, 1999, as amended at 65 FR 8257, Feb. 18, 2000]



Sec. 907.15  General provisions.

    (a) Waiver of requirements. The Managing Director may waive any 
filing requirement or deadline in this subpart for good cause shown. The 
Managing Director shall provide prompt notice of any such waiver to the 
Board of Directors.
    (b) Actions of the Managing Director subject to the authority of the 
Board of Directors. The Board of Directors may overrule any action by 
the Managing Director under this subpart.
    (c) Withdrawal. At any time prior to the issuance by the Managing 
Director of a Notice of Board Consideration pursuant to Sec. 907.12(g), 
an authorized representative of a Petitioner may withdraw the Petition, 
or an authorized representative of an Intervenor may withdraw the 
Request to Intervene, by filing a written request to withdraw with the 
Secretary to the Board. Only the Board of Directors may grant a request 
to withdraw after issuance by the Managing Director of a Notice of Board 
Consideration pursuant to Sec. 907.12(g). Unless otherwise agreed, 
withdrawal of a Petition or Request to Intervene shall not foreclose a 
Petitioner from resubmitting a Petition, or an Intervenor from 
submitting a Request to Intervene, on the same or similar issues.
    (d) Settlement agreement. (1) At any time during the course of 
proceedings pursuant to this subpart, the Finance Board shall give 
Petitioners and Intervenors the opportunity to submit offers of 
settlement when the nature of the proceedings and the public interest 
permit. With the approval of the Managing Director, an authorized 
representative of a Petitioner or Intervenor may enter into a proposed 
settlement agreement with the Finance Board disposing of some or all of 
the issues presented in a Petition or Request to Intervene.
    (2) No proposed settlement agreement shall be final until approved 
by the Board of Directors. The Board of Directors shall consider any 
proposed settlement agreement within 30 calendar days of receiving a 
notice of the proposed settlement agreement. If the Board of Directors 
disapproves or fails to approve a proposed settlement agreement within 
30 days, the proposed settlement agreement shall be null and void and 
the previously filed Petition or Request to Intervene shall be 
considered in accordance with this subpart.
    (3) A settlement agreement approved by the Board of Directors shall 
be deemed final and binding on all parties to the agreement. At the time 
a proposed settlement agreement becomes final, a Petition or Request to 
Intervene previously filed by a party to the agreement shall be deemed 
withdrawn as to all issues resolved in the agreement, and the parties to 
the agreement shall be estopped from raising objection to those issues 
or to the terms of the settlement agreement.
    (e) No rights created; Finance Board not prohibited. Nothing in this 
subpart shall be deemed to create any substantive or discovery right in 
any party. Nothing in this subpart shall limit in any manner the right 
of the Finance Board to conduct any examination or inspection of any 
Bank or the Office of Finance, or to take any action with respect to a 
Bank or the Office of Finance, or its directors, officers, employees or 
agents, otherwise authorized by law.
    (f) Exhaustion requirement. When seeking a Case-by-Case 
Determination of any matter or review by the Board of Directors of any 
Supervisory Determination, a Bank or the Office of Finance shall follow 
the procedures in this subpart as a prerequisite to seeking judicial 
review. Failure to do so shall be deemed to be a failure to exhaust all 
available administrative remedies.
    (g) Improper conduct prohibited. No party shall, by act or omission, 
unduly burden or frustrate the efforts of the Board of Directors to 
carry out its duties under the laws and regulations of

[[Page 22]]

the Finance Board. A Petitioner or Intervenor shall confine its 
communications with the Board of Directors, or any individual member 
thereof, concerning issues raised in a pending Petition, to written 
communications for inclusion in the record of the proceeding, filed with 
the Secretary to the Board.
    (h) Costs. Petitioners are encouraged to contain costs associated 
with the preparation and filing of Petitions and related personal 
appearances, if any, at any meeting held by the Board of Directors under 
this subpart. The Petitioner shall be solely responsible for all costs 
associated with any such Petitions and appearances.
    (i) Procedures are exclusive. All Case-by-Case Determinations by the 
Board of Directors and all Reviews of Disputed Supervisory 
Determinations shall be considered exclusively pursuant to the 
procedures described in this subpart.

[64 FR 30883, June 9, 1999, as amended at 65 FR 8257, Feb. 18, 2000]



Sec. 907.16  Rules of practice.

    In connection with any matter initiated or pending pursuant to this 
part, petitioners, requestors or intervenors, or their representatives, 
shall be subject to the provisions of subpart F of 12 CFR part 908. No 
other provision of part 908 shall apply under this part

[67 FR 9903, Mar. 5, 2002]



PART 911_AVAILABILITY OF UNPUBLISHED INFORMATION--Table of Contents



Sec.
911.1 Definitions.
911.2 Purpose and scope.
911.3 Prohibition on unauthorized use and disclosure of unpublished 
          information.
911.4 Requests for unpublished information by document or testimony.
911.5 Consideration of requests.
911.6 Persons and entities with access to unpublished information.
911.7 Availability of unpublished information by testimony.
911.8 Availability of unpublished information by document.
911.9 Fees.

    Authority: 5 U.S.C. 301; 12 U.S.C. 1422b(a)(1).

    Source: 64 FR 44106, Aug. 13, 1999, unless otherwise noted. 
Redesignated at 65 FR 8256, Feb. 18, 2000.



Sec. 911.1  Definitions.

    As used in this part:
    Legal proceeding means any administrative, civil, or criminal 
proceeding, including a grand jury or discovery proceeding, in which 
neither the Finance Board nor the United States is a party.
    Supervised entity means a Bank, the Office of Finance, and the 
Financing Corporation.
    Unpublished information means information and documents created or 
obtained by the Finance Board in connection with the performance of 
official duties, whether the information or documents are in the 
possession of the Finance Board, a current or former Finance Board 
employee or agent, a supervised entity, a Bank member, government 
agency, or some other person or entity; and information and documents 
created or obtained by, or in the memory of, a current or former Finance 
Board employee or agent, that was acquired in the person's official 
capacity or in the course of performing official duties. It does not 
include information or documents the Finance Board must disclose under 
the Freedom of Information Act (5 U.S.C. 552), Privacy Act (5 U.S.C. 
552a), or the Finance Board's implementing regulations (12 CFR parts 910 
and 913, respectively). It also does not include information or 
documents that were previously published or disclosed or are customarily 
furnished to the public in the course of the performance of official 
duties such as the annual report the Finance Board submits to Congress 
pursuant to section 2B(d) of the Act (12 U.S.C. 1422b(d)), press 
releases, Finance Board forms, and materials published in the Federal 
Register.

[64 FR 44106, Aug. 13, 1999, as amended at 65 FR 8258, Feb. 18, 2000; 67 
FR 12844, Mar. 20, 2002]



Sec. 911.2  Purpose and scope.

    (a) Purpose. The purposes of this part are to:
    (1) Maintain the confidentiality and control the dissemination of 
unpublished information;

[[Page 23]]

    (2) Conserve the time of employees for official duties and ensure 
that Finance Board resources are used in the most efficient manner;
    (3) Maintain the Finance Board's impartiality among private 
litigants; and
    (4) Establish an orderly mechanism for the Finance Board to process 
expeditiously and respond appropriately to requests for unpublished 
information.
    (b) Scope. (1) This part applies to a request for and use and 
disclosure of unpublished information, including a request for 
unpublished information by document or testimony arising out of a legal 
proceeding in which neither the Finance Board nor the United States is a 
party. It does not apply to a request for unpublished information in a 
legal proceeding in which the Finance Board or the United States is a 
party or a request for information or records the Finance Board must 
disclose under the Freedom of Information Act, Privacy Act, or the 
Finance Board's implementing regulations.
    (2) This part does not, and may not be relied upon to create any 
substantive or procedural right or benefit enforceable against the 
Finance Board.



Sec. 911.3  Prohibition on unauthorized use and disclosure of
unpublished information.

    (a) In general. Possession or control by any person, supervised 
entity, Bank member, government agency, or other entity of unpublished 
information does not constitute a waiver by the Finance Board of any 
privilege or its right to control, supervise, or impose limitations on, 
the subsequent use and disclosure of the information.
    (b) Current and former employees and agents. Except as authorized by 
this part or otherwise by the Finance Board, no current or former 
Finance Board employee or agent may disclose or permit the disclosure in 
any manner of any unpublished information to anyone other than a Finance 
Board employee or agent for use in the performance of official duties.
    (c) Other persons or entities possessing unpublished information. 
(1) Except as authorized in writing by the Finance Board, no person, 
supervised entity, Bank member, government agency, or other entity in 
possession or control of unpublished information may disclose or permit 
the use or disclosure of such information in any manner or for any 
purpose.
    (2) All unpublished information made available under this part 
remains the property of the Finance Board and may not be used or 
disclosed for any purpose other than that authorized under this part 
without the prior written permission of the Finance Board.
    (3) Reports of examination, supervisory correspondence, and other 
unpublished information lawfully in the possession of a supervised 
entity, Bank member, or government agency remains the property of the 
Finance Board and may not be used or disclosed for any purpose other 
than that authorized under this part without the prior written 
permission of the Finance Board.
    (4) Any person or entity that discloses or uses unpublished 
information except as expressly authorized under this part may be 
subject to the penalties provided in 18 U.S.C. 641 and other applicable 
laws. A current Finance Board, Bank, or Office of Finance employee also 
may be subject to administrative or disciplinary proceedings.
    (d) Exception for supervised entities and Bank members. When 
necessary or appropriate for business purposes, a supervised entity, 
Bank member, or any director, officer, employee, or agent thereof, may 
disclose unpublished information, including information contained in, or 
related to, supervisory correspondence or reports of examination, to a 
person or entity officially connected with the supervised entity or Bank 
member as officer, director, employee, attorney, agent, auditor, or 
independent auditor. A supervised entity, Bank member, or a director, 
officer, employee, or agent thereof, also may disclose unpublished 
information to a consultant under this paragraph if the consultant is 
under a written contract to provide services to the supervised entity or 
Bank member and the consultant has agreed in writing:
    (1) To abide by the prohibition on the disclosure of unpublished 
information contained in this section; and
    (2) That it will not to use the unpublished information for any 
purposes

[[Page 24]]

other than those stated in its contract to provide services to the 
supervised entity or Bank member.
    (e) Government agencies. The Finance Board may make reports of 
examination, supervisory correspondence, and other unpublished 
information available to another federal agency or a state agency for 
use where necessary in the performance of the agency's official duties. 
As used in this paragraph, the term agency does not include a grand 
jury.

[64 FR 44106, Aug. 13, 1999, as amended at 65 FR 8258, Feb. 18, 2000; 67 
FR 12844, Mar. 20, 2002]



Sec. 911.4  Requests for unpublished information by document or 
testimony.

    (a) Form of requests. A request for unpublished information must be 
submitted to the Finance Board in writing and include a detailed 
description of the basis for the request. At a minimum, the request must 
demonstrate that:
    (1) The requested information is highly relevant to the purpose for 
which it is sought;
    (2) The requested information is not available from any other 
source;
    (3) The need for the information clearly outweighs the need to 
maintain its confidentiality; and
    (4) The need for the information clearly outweighs the burden on the 
Finance Board to produce it.
    (b) Requests for documents. If the request is for unpublished 
information by document, the request must include the elements in 
paragraph (a) of this section and also must adequately describe the 
record or records sought by type and date.
    (c) Requests for testimony. (1) If the request is for unpublished 
information by testimony, the request must include the elements in 
paragraph (a) of this section and also must set forth the intended use 
of the testimony, a summary of the scope of the testimony requested, and 
a showing that no document or the testimony of other non-Finance Board 
persons, including retained experts, could be provided and used in lieu 
of the testimony.
    (2) Upon submitting a request to the Finance Board for unpublished 
information by testimony, the requester must notify all other parties to 
the matter at issue of the request.
    (3) After receipt of a request for unpublished information by 
testimony but before the requested testimony occurs, a party to the 
matter at issue who did not join in the request and who wishes to 
question the witness beyond the scope of the testimony sought by the 
request, must timely submit its own request for unpublished information 
pursuant to this part.
    (d) Requests in connection with legal proceedings. If the request 
for unpublished information arises out of a legal proceeding, the 
Finance Board generally will require that the legal proceeding already 
be filed before it will consider the request. In addition to the 
elements in paragraph (a) of this section, requests in connection with 
legal proceedings must include the caption and docket number of the 
case; the forum; the name, address, phone number, and electronic mail 
address, if available, of counsel to all other parties to the legal 
proceeding; the requester's interest in the case; a summary of the 
issues in litigation; and the reasons for the request, including the 
relevance of the unpublished information and how the requested 
information will contribute substantially to the resolution of one or 
more specifically identified issues in the legal proceeding.
    (e) Expedited requests. If a requester seeks a response in less than 
60 days, the request must explain why the request was not submitted 
earlier and why the Finance Board should expedite the request.
    (f) Where to submit requests. Send requests for unpublished 
information to the Office of General Counsel, Federal Housing Finance 
Board, 1777 F Street, NW., Washington, DC 20006.
    (g) Additional information--(1) From the requester. The Office of 
General Counsel may consult with the requester to refine and limit the 
scope of the request to make compliance less burdensome or to obtain 
information necessary to make an informed determination on the request. 
A requester's failure to cooperate in good faith with the Office of 
General Counsel may serve as the basis for a determination not to grant 
the request.

[[Page 25]]

    (2) From others. The Office of General Counsel may inquire into the 
facts and circumstances underlying a request for unpublished information 
and rely on sources of information other than the requester, including 
other parties to the matter at issue.



Sec. 911.5  Consideration of requests.

    (a) Discretion. Each decision concerning the availability of 
unpublished information is at the sole discretion of the Finance Board 
based on a weighing of all appropriate factors. The decision is a final 
agency action that exhausts administrative remedies for disclosure of 
the information.
    (b) Time to respond. The Finance Board generally will respond in 
writing to a request for unpublished information within 60 days of 
receipt absent exigent or unusual circumstances and dependent upon the 
scope and completeness of the request.
    (c) Factors the Finance Board may consider. The factors the Finance 
Board may consider in making a determination regarding the availability 
of unpublished information include:
    (1) Whether and how the requested information is relevant to the 
purpose for which it is sought;
    (2) Whether information reasonably suited to the requester's needs 
other than the requested information is available from another source;
    (3) Whether the requested information is privileged;
    (4) If the request is in connection with a legal proceeding, whether 
the proceeding has been filed;
    (5) The burden placed on the Finance Board to respond to the 
request;
    (6) Whether production of the information would be contrary to the 
public interest; and
    (7) Whether the need for the information clearly outweighs the need 
to maintain the confidentiality of the information.
    (d) Disclosure of unpublished information by others. When a person 
or entity other than the Finance Board has a claim of privilege 
regarding unpublished information and the information is in the 
possession or control of that person or entity, the Finance Board, at 
its sole discretion, may respond to a request for the information by 
authorizing the person or entity to disclose the information to the 
requester pursuant to an appropriate confidentiality order. Finance 
Board authorization to disclose information under this paragraph does 
not preclude the person or entity in possession of the unpublished 
information from asserting its own privilege, arguing that the 
information is not relevant, or asserting any other argument to protect 
the information from disclosure.
    (e) Notice to supervised entities and Bank members. The Finance 
Board generally will notify a supervised entity or Bank member that it 
is the subject of a request, unless the Finance Board, in its sole 
discretion, determines that to do so would advantage or prejudice any of 
the parties to the matter at issue.

[64 FR 44106, Aug. 13, 1999, as amended at 65 FR 8258, Feb. 18, 2000]



Sec. 911.6  Persons and entities with access to unpublished information.

    (a) Notice to Finance Board. Any person, including a current or 
former Finance Board employee or agent, or any entity, including a 
supervised entity, Bank member, or government agency that receives a 
request for, or is served with a subpoena, order, or other legal process 
to disclose unpublished information by document or testimony, must 
immediately notify the Office of General Counsel.
    (b) Response of person or entity served with request. Unless the 
Finance Board has authorized in writing disclosure of the requested 
information:
    (1) A current or former Finance Board employee or agent or a 
supervised entity that must respond to a subpoena, order, or other legal 
process, must decline to disclose the requested information, citing this 
part as authority.
    (2) A non-Finance Board person or entity may not disclose 
unpublished information unless:
    (i) The requester has sought the information from the Finance Board 
under this part; and
    (ii) After the Finance Board or the Department of Justice has had 
the opportunity to appear and oppose disclosure, a Federal court has 
ordered the person or entity to disclose the information.

[[Page 26]]

    (c) Finance Board response. If the Finance Board does not authorize 
in writing disclosure of the requested information, the Finance Board 
will provide a copy of this part to the person or entity at whose 
instance the process was issued and advise that person or entity or the 
court or other body that the Finance Board has prohibited disclosure of 
the information under this part. The Finance Board or the Department of 
Justice may intervene in the matter at issue, attempt to have the 
compulsory process withdrawn, or register other appropriate objections.

[64 FR 44106, Aug. 13, 1999, as amended at 65 FR 8258, Feb. 18, 2000]



Sec. 911.7  Availability of unpublished information by testimony.

    (a) Scope. (1) The scope of permissible testimony is limited to that 
set forth in the written authorization granted by the Finance Board. The 
Finance Board may act to ensure that the scope of testimony provided is 
consistent with the written authorization.
    (2) A party to the matter at issue that did not join in a request 
for unpublished information who wishes to question a witness beyond the 
authorized scope must request expanded authorization under this part. 
The Finance Board will attempt to render decisions on such requests in 
an expedited manner.
    (3) The Finance Board generally will not authorize a current 
employee or agent to provide expert or opinion testimony for a private 
party.
    (b) Manner in which testimony is given. (1) The Finance Board 
ordinarily will make the authorized testimony of a former or current 
employee or agent available only through written interrogatories or 
deposition. The Finance Board will not authorize testimony at a trial or 
hearing unless the requester shows that properly developed deposition 
testimony could not be used or would be inadequate at the trial or 
hearing.
    (2) If the Finance Board has authorized testimony in connection with 
a legal proceeding, the requester must cause a subpoena to be served on 
the employee in accordance with applicable rules of procedure, with a 
copy by registered or certified mail to the Office of General Counsel.
    (3) If the authorized testimony is through deposition, the 
deposition ordinarily will take place at the Finance Board's offices at 
a time that will avoid substantial interference with the performance of 
the employee's official duties.
    (4) The requester is responsible for all costs associated with an 
employee's appearance, including provision of a copy of a transcript of 
the deposition at the request of the Office of General Counsel. The 
person whose deposition was transcribed does not waive his or her right 
to review the transcript and note errors.
    (c) Restrictions on use and disclosure. The Finance Board may 
condition its authorization of deposition testimony on an agreement of 
the parties to appropriate limitations, such as an agreement to keep the 
transcript of the testimony under seal or to make the transcript 
available only to the parties, the court or other body, or the jury. 
Upon request made pursuant to this part or on its own initiative, the 
Finance Board may authorize use of a deposition transcript in another 
legal proceeding or non-adversarial matter.
    (d) Responsibility of litigants. If the testimony is disclosed in 
connection with a legal proceeding, the requester is responsible for:
    (1) Promptly notifying all other parties to the legal proceeding of 
the disclosure, and, after entry of a protective order, providing copies 
of the testimony to the other parties who are signatories and subject to 
the protective order; and
    (2) At the conclusion of the legal proceeding, retrieving the 
testimony from the court or other body's file as soon as it is no longer 
required and certifying to the Finance Board that every party covered by 
the protective order has destroyed the unpublished information.



Sec. 911.8  Availability of unpublished information by document.

    (a) Scope. The scope of permissible document disclosure is limited 
to that set forth in the written authorization granted by the Finance 
Board. The Finance Board may act to ensure that

[[Page 27]]

the scope of documents provided is consistent with the written 
authorization.
    (b) Restrictions on use and disclosure. The Finance Board may 
condition a decision to disclose unpublished information by document on 
entry of a protective order satisfactory to the Finance Board by the 
court or other body presiding in a legal proceeding or, in non-
adversarial matters, on a written agreement of confidentiality that 
limits access of third parties to the unpublished information. In a 
legal proceeding in which a protective order already has been entered, 
the Finance Board may condition a decision to disclose unpublished 
information upon inclusion of additional or amended provisions in the 
protective order. Upon request made pursuant to this part or on its own 
initiative, the Finance Board may authorize use of the documents in 
another legal proceeding or non-adversarial matter.
    (c) Responsibility of litigants. If the documents are disclosed in 
connection with a legal proceeding, the requester is responsible for:
    (1) Promptly notifying all other parties to the legal proceeding of 
the disclosure, and, after entry of a protective order, providing copies 
of the documents to the other parties that are signatories and subject 
to the protective order; and
    (2) At the conclusion of the legal proceeding, retrieving the 
documents from the court or other body's file as soon as they are no 
longer required and certifying to the Finance Board that every party 
covered by the protective order has destroyed the unpublished 
information.
    (d) Certification or authentication. If the Finance Board has 
authorized disclosure of unpublished information by document, it will 
provide certified or authenticated copies of the document upon request.



Sec. 911.9  Fees.

    (a) Fees for records search, copying, and certification. Unless 
waived or reduced, a requester must pay a fee to the Finance Board for 
the costs of searching, copying, authenticating, or certifying 
unpublished information in accordance with 12 CFR 910.9. The Office of 
Resource Management generally will bill a requester upon completion of 
the production, but, in certain instances, may require a requester to 
remit payment prior to providing the requested information. To pay fees 
assessed under this section, a requester must deliver to the Office of 
Resource Management, located at the Federal Housing Finance Board, 1777 
F Street, NW., Washington, DC 20006, a check or money order made payable 
to the ``Federal Housing Finance Board.''
    (b) Witness fees and mileage--(1) Current Finance Board or federal 
employees. If the Finance Board authorizes disclosure of unpublished 
information by testimony of a current Finance Board employee or agent or 
a former Finance Board employee or agent who is still in the employ of 
the United States, upon completion of the testimonial appearance the 
requester must remit promptly to the Office of Resource Management 
payment for witness fees and mileage computed in accordance with 28 
U.S.C. 1821.
    (2) Former employees or agents. If the Finance Board authorizes 
disclosure of unpublished information by testimony of a former Finance 
Board employee or agent who is not currently employed by the United 
States, upon completion of the testimonial appearance the requester must 
remit promptly to the witness any witness fees or mileage due in 
accordance with 28 U.S.C. 1821.

[64 FR 44106, Aug. 13, 1999, as amended at 65 FR 8258, Feb. 18, 2000]



PART 912_INFORMATION REGARDING MEETINGS OF THE BOARD OF DIRECTORS 
OF THE FEDERAL HOUSING FINANCE BOARD--Table of Contents



Sec.
912.1 Definitions.
912.2 Purpose and scope.
912.3 Open meetings.
912.4 Closed meetings.
912.5 Procedures for closing meetings.
912.6 Notice of meetings.

    Authority: 5 U.S.C. 552b.

    Source: 58 FR 19202, Apr. 13, 1993, unless otherwise noted. 
Redesignated at 65 FR 8256, Feb. 18, 2000.

[[Page 28]]


    Effective Date Note: At 76 FR 74649, Dec. 1, 2011, part 912 was 
removed, effective January 3, 2012.



Sec. 912.1  Definitions.

    As used in this part:
    Board Director or Director means a member of the Board of Directors.
    Chairperson includes the Acting Chairperson.
    Meeting means any deliberations of three or more Directors of the 
Board of Directors, that determines or results in the joint conduct or 
disposition of official Finance Board business, but does not include:
    (1) Discussions to determine whether meetings will be open or closed 
or whether information pertaining to closed meetings will be disclosed;
    (2) Discussions to determine whether to schedule a meeting with less 
than seven days notice, or to change the time, place or subject matter 
of a scheduled meeting; and
    (3) Disposition of Finance Board business by circulation of written 
materials on proposed actions to individual Directors for proposed 
actions, and notational voting by the individual Directors on such 
proposed actions.
    Public observation means the right of the general public to attend 
open meetings of the Board of Directors, but does not include the right 
to participate therein unless invited to do so by the Chairperson.
    Secretary to the Board includes the Acting Secretary if the position 
of Secretary is vacant.
    Sunshine Act means the Government in the Sunshine Act (5 U.S.C. 
552b).

[58 FR 19202, Apr. 13, 1993, as amended at 65 FR 8258, Feb. 18, 2000. 
Redesignated and amended at 67 FR 12844, Mar. 20, 2002]



Sec. 912.2  Purpose and scope.

    (a) This part is issued by the Finance Board pursuant to the 
Sunshine Act, which requires Federal agencies, headed by collegial 
bodies, to promulgate regulations to implement its provisions. The 
purpose of these regulations is to provide the public with access to 
information regarding the decisionmaking processes of the Board of 
Directors of the Finance Board, while protecting the privacy rights of 
individuals and the ability of the Board of Directors to carry out its 
responsibilities.
    (b) The Board of Directors shall not jointly conduct or dispose of 
official Finance Board business other than in accordance with this part.

[58 FR 19202, Apr. 13, 1993, as amended at 65 FR 8258, Feb. 18, 2000. 
Redesignated and amended at 67 FR 12844, Mar. 20, 2002]



Sec. 912.3  Open meetings.

    (a) Except as provided in Sec. 912.4, every portion of every 
meeting of the Board of Directors shall be open to public observation.
    (b) Unless otherwise specified in the public notice, open meetings 
of the Board of Directors shall be held in the Board Room of the Finance 
Board at 1777 F Street, NW., Washington, DC, at the time specified in 
the public notice.

[58 FR 19202, Apr. 13, 1993, as amended at 65 FR 8258, Feb. 18, 2000]



Sec. 912.4  Closed meetings.

    (a) The Board of Directors may close a meeting, or portion thereof, 
to public observation, or withhold information from the public 
pertaining to a meeting, when it determines that opening the meeting, or 
a portion thereof, or the public disclosure of information pertaining to 
such meeting, or portion thereof, is likely to:
    (1) Disclose matters that are:
    (i) Specifically authorized under criteria established by an 
Executive Order to be kept secret in the interests of national defense 
or foreign policy; and
    (ii) Are, in fact, properly classified pursuant to such Executive 
Order;
    (2) Relate solely to the internal personnel rules and practices of 
the Finance Board;
    (3) Disclose matters specifically exempt from disclosure by statute 
(other than the Freedom of Information Act (5 U.S.C. 552)), provided 
that such statute:
    (i) Requires that the matters be withheld from the public in such a 
manner as to leave no discretion on the issue; or
    (ii) Establishes particular criteria for withholding matters from 
the public or refers to particular types of matters to be withheld;

[[Page 29]]

    (4) Disclose trade secrets or commercial or financial information 
that is obtained from a person and is privileged or confidential;
    (5) Involve accusing any person of a crime, or formally censuring 
any person;
    (6) Disclose information of a personal nature where disclosure would 
constitute a clearly unwarranted invasion of personal privacy;
    (7) Disclose investigatory records compiled for law enforcement 
purposes, or information which if written would be contained in such 
records, but only to the extent that the production of such records or 
information would:
    (i) Interfere with enforcement proceedings;
    (ii) Deprive a person of a right to a fair trial or an impartial 
adjudication;
    (iii) Constitute an unwarranted invasion of personal privacy;
    (iv) Disclose the identity of a confidential source and, in the case 
of a record compiled by a criminal law enforcement authority in the 
course of a criminal investigation or by an agency conducting a lawful 
national security intelligence investigation, confidential information 
furnished only by the confidential source;
    (v) Disclose investigative techniques and procedures; or
    (vi) Endanger the life or physical safety of law enforcement 
personnel;
    (8) Disclose information contained in or related to examination, 
operating, or condition reports prepared by, on behalf of, or for the 
use of the Finance Board or another agency responsible for the 
regulation or supervision of Banks or other financial institutions;
    (9) Disclose information the premature disclosure of which would be 
likely to:
    (i) (A) Lead to significant financial speculation in currencies, 
securities, or commodities;
    (B) Significantly endanger the stability of any of the Banks or any 
other financial institution; or
    (ii) Significantly frustrate implementation of a proposed Finance 
Board action, except that this paragraph shall not apply in any instance 
where the Finance Board has already disclosed to the public the content 
or nature of its proposed action, or where the Finance Board is required 
by law to make such disclosure on its own initiative prior to taking 
final action on such proposal; or
    (10) Specifically concern the issuance of a subpoena by the Board of 
Directors, or the Finance Board's participation in a civil action or 
proceeding, an action in a foreign court or international tribunal, or 
an arbitration, or the initiation, conduct or disposition of a 
particular case of formal adjudication pursuant to the procedures in 5 
U.S.C. 554 or otherwise involving a determination on the record after 
opportunity for a hearing.
    (b) A meeting or portions of a meeting shall not be closed nor 
information withheld pursuant to paragraph (a) of this section if the 
Board of Directors finds that the public interest requires otherwise.

[58 FR 19202, Apr. 13, 1993. Redesignated at 65 FR 8256, Feb. 18, 2000, 
as amended at 67 FR 12844, Mar. 20, 2002]



Sec. 912.5  Procedures for closing meetings.

    (a) Regular procedures. (1) Except as provided in paragraph (b) of 
this section, a meeting of the Board of Directors, or portion thereof, 
will be closed to public observation, and information pertaining to such 
meeting, or portion thereof, will be withheld from the public, when a 
majority of the Board of Directors determines by recorded vote that such 
meeting, or portion thereof, or the withholding of information qualifies 
for exemption under Sec. 912.4, and the Board of Directors does not 
find that the public interest requires otherwise.
    (2) Except as provided in paragraph (a)(3) of this section, a 
separate vote of the Board Directors will be taken with respect to the 
closing or the withholding of information as to each meeting or portion 
thereof that is proposed to be closed to public observation, or with 
respect to information that is proposed to be withheld pursuant to 
paragraph (a) of this section.
    (3) A single vote may be taken with respect to a series of meetings, 
a portion or portions of which are proposed to be closed to public 
observation, or with respect to any information concerning such series 
of meetings proposed to be withheld, so long as each

[[Page 30]]

meeting in such series involves the same particular matters and is 
scheduled to be held no more than thirty days after the initial meeting 
in such series.
    (4) The vote of each Board Director taken pursuant to paragraph (a) 
of this section shall be recorded, and no proxies shall be allowed.
    (5) Whenever any person's interests may be directly affected by any 
portion of a meeting for any of the reasons referred to in Sec. 
912.4(a)(5), (6), or (7), such person may send a written request to the 
Secretary to the Board asking that such portion of the meeting be closed 
to public observation. The Secretary to the Board will transmit the 
request to each Board Director, and upon the request of a Director, a 
recorded vote will be taken of the Board of Directors whether to close 
the meeting to public observation.
    (6)(i) Within one day of any vote taken pursuant to paragraph (a) of 
this section, the Finance Board will make publicly available through the 
Secretary to the Board a written copy of such vote reflecting the vote 
of each Board Director.
    (ii) If a meeting or portion thereof is to be closed to public 
observation, the Finance Board within one day of the vote taken pursuant 
to paragraph (a) of this section will make publicly available through 
the Secretary to the Board a full, written explanation of its action 
closing the meeting, or portion thereof, together with a list of all 
persons expected to attend the meeting and their affiliation, except to 
the extent such information is determined by the Board of Directors to 
be exempt from disclosure under Sec. 912.4(a).
    (7) Any person may request in writing to the Secretary to the Board 
that an announced closed meeting, or portion thereof, be open to public 
observation. The Secretary to the Board will transmit the request to 
each Board Director, and upon the request of a Director, a recorded vote 
will be taken of the Board of Directors on whether to open the meeting 
to public observation.
    (b) Expedited procedures. (1) Since a majority of the meetings, of 
the Board of Directors may be closed pursuant to Sec. 912.4(a)(4), (8), 
(9)(i) or (10), 5 U.S.C. 552b(d)(4) allows the Finance Board to use 
expedited procedures in closing such meetings. The following are 
examples of meetings of the Board of Directors, or portions thereof, 
that may be closed to the public under these expedited procedures: sale 
of consolidated obligations, and review of examination, operating or 
condition reports of Banks.
    (2) A decision to close a meeting, or portion thereof, under 
paragraph (b) of this section shall be made at the beginning of the 
meeting, or portion thereof, by majority vote of the Directors.
    (3)(i) The Finance Board shall maintain a record of each of the 
votes taken by its Board of Directors to close a meeting, or portion 
thereof, or to withhold public access to information thereof, under 
paragraph (b) of this section.
    (ii) A copy of such record, reflecting the vote of each Board 
Director on the question of closing a meeting, or portion thereof, or 
withhholding public access to information thereof, under this paragraph 
(b) of this section, shall be made available to any member of the public 
upon request to the Secretary to the Board.
    (4) Public announcement of the time, place and subject matter of 
meetings, or portions thereof, closed under this paragraph (b) of this 
section shall be made at the earliest practical time.
    (c) Records of closed proceedings--(1) Transcripts or electronic 
recording. Except as provided in paragraph (c)(2) of this section, the 
Finance Board shall make and maintain a complete transcript or verbatim 
electronic recording of the proceedings at each meeting, or portion 
thereof, closed to public observation under paragraph (a) or (b) of this 
section.
    (2) Minutes. The Finance Board may make and maintain a set of 
complete minutes, in lieu of such transcript or electronic recording, 
with respect to meetings, or portions thereof, closed or information 
withheld under Sec. 912.4(a)(8), (9)(i) or (10). Such set of minutes 
shall fully and clearly describe all matters discussed and provide a 
full and accurate summary of any action taken, and the reasons therefor, 
including a description of each of the views expressed on any item and 
the record of any roll

[[Page 31]]

call vote (reflecting the vote of each Board Director on the question). 
All documents considered in connection with any action shall be 
identified in such set of minutes.
    (3) Availability of Records. (i) The transcript, electronic 
recording or set of minutes of an item discussed, or of testimony 
received, at a meeting, shall be made available promptly to the public 
through the Secretary to the Board except in cases where the Board of 
Directors determines that the item or testimony contains information 
which may be withheld under Sec. 912.4(a).
    (ii) Copies of such transcript, electronic recording or set of 
minutes, disclosing the identity of each speaker, shall be furnished to 
any person at the actual cost of duplication or transcription.
    (iii) The Finance Board shall maintain a complete copy of the 
transcript, verbatim electronic recording or complete set of minutes of 
each meeting, or portion thereof closed to the public, for at least two 
years after such meeting, or until one year after the conclusion of any 
proceeding of the Board of Directors with respect to which the meeting 
or portion thereof was held, whichever occurs later.
    (d) Legal certification for closing meeting. (1) For every meeting, 
or portion thereof, of the Board of Directors closed pursuant to 
paragraphs (a) or (b) of this section, the General Counsel (or in the 
General Counsel's absence or incapacity the senior legal officer 
available) shall publicly certify that the meeting or portion thereof 
may be closed to the public pursuant to the Sunshine Act and this part, 
and specifically state the relevant exemption in support thereof.
    (2) A copy of the certification, together with a statement from the 
Chairperson or, when appropriate, the Acting Chairperson or designee, 
setting forth the time and place of the meeting and the persons present, 
shall be retained in the permanent files of the Finance Board.

[58 FR 19202, Apr. 13, 1993, as amended at 65 FR 8258, Feb. 18, 2000; 65 
FR 12844, Mar. 20, 2002]



Sec. 912.6  Notice of meetings.

    (a) Scope of notice. (1) Except as provided in Sec. 912.4(a) that 
such information is determined to be exempt from disclosure, each open 
meeting of the Board of Directors, or each meeting closed under the 
regular procedures in Sec. 912.5(a), will be preceded by public notice 
as described in this section.
    (2) The notices for meetings of the Board of Directors closed under 
the expedited procedures pursuant to Sec. 912.5(b) will be made in 
accordance with Sec. 912.5(b)(4).
    (b) Content of notice. A notice of an open meeting or a meeting 
closed under the regular procedures in Sec. 912.5(a) will state the 
time, place, and subject matter of the meeting, whether it is to be open 
or closed to the public, and the name and telephone number of the 
Secretary to the Board for information about the meeting. Each such 
notice shall be posted in the lobby of the Finance Board offices, and 
may be made available in addition by other means or at other locations 
as deemed desirable. Immediately following the posting of each such 
notice, the Finance Board will publish the notice in the Federal 
Register.
    (c) Time--(1) Seven days notice. Except as provided in paragraph 
(c)(2) of this section, a public notice of open meetings or meetings 
closed under Sec. 912.5(a) will be made at least seven days in advance 
of each meeting.
    (2) Less than seven days notice. When a majority of the Board of 
Directors determine by recorded vote that Finance Board business 
requires a meeting to be called at any earlier date, the seven-day prior 
notice rule may be suspended and notice shall be made at the earliest 
practicable time.
    (d) Amendment of notice--(1) Time and place. A change in the time or 
place of a meeting following public notice may be made only if announced 
at the earliest practicable time.
    (2) Subject matter. A change in the subject matter of a meeting or a 
re-determination to open or close a meeting, or portions thereof, may be 
made, after public notice, only if:
    (i) At least a majority of the Board Directors determines by 
recorded vote

[[Page 32]]

that Finance Board business so requires and that no earlier notice of 
the change was possible; and
    (ii) The Finance Board publicly announces the change and the vote of 
each Board Director by posting a notice thereof in the lobby of the 
Finance Board offices at the earliest practicable time.
    (3) Timing of amendment. A public announcement of a change in either 
the time, place or subject matter of a meeting may be made after the 
commencement of the meeting affected.
    (4) Publication of amendment. Each change to a notice of a meeting 
will be published in the Federal Register, following the Finance Board's 
public announcement of the change.

[58 FR 19202, Apr. 13, 1993, as amended at 65 FR 8258, Feb. 18, 2000; 67 
FR 12845, Mar. 20, 2002]

[[Page 33]]



  SUBCHAPTER C_GOVERNANCE AND MANAGEMENT OF THE FEDERAL HOME LOAN BANKS





PART 914_DATA AVAILABILITY AND REPORTING--Table of Contents



Sec.
914.1 Regulatory Report defined.
914.2 Filing Regulatory Reports.
914.3 [Reserved]

    Authority: 12 U.S.C. 1440 and 4526.

    Source: 71 FR 35499, June 21, 2006, unless otherwise noted.



Sec. 914.1  Regulatory Report defined.

    (a) Definition. Regulatory Report means any report of raw or summary 
data needed to evaluate the safe and sound condition and operations of a 
Bank or to determine compliance with any:
    (1) Provision in the Act or other law, order, rule, or regulation;
    (2) Condition imposed in writing by the Finance Board in connection 
with the granting of any application or other request by a Bank; or
    (3) Written agreement entered into between the Finance Board and a 
Bank.
    (b) Examples. Regulatory Report includes:
    (1) Call reports and reports of instrument-level risk modeling data;
    (2) Reports related to a Bank's housing mission achievement, such as 
reports related to AMA, AHP, CIP, and other CICA programs; and
    (3) Reports submitted in response to requests to one or more Banks 
for information on a nonrecurring basis.



Sec. 914.2  Filing Regulatory Reports.

    Each Bank shall file Regulatory Reports with the Finance Board in 
accordance with the forms, instructions, and schedules issued by the 
Finance Board from time to time. If no regularly scheduled reporting 
dates are established, Regulatory Reports shall be filed as requested by 
the Finance Board.



Sec. 914.3  [Reserved]



PART 917_POWERS AND RESPONSIBILITIES OF BANK BOARDS OF DIRECTORS 
AND SENIOR MANAGEMENT--Table of Contents



Sec.
917.1 Definitions.
917.2 General authorities and duties of Bank boards of directors.
917.3 Risk management.
917.4 Bank Member Products Policy.
917.5 Strategic business plan.
917.6 Internal control system.
917.7 Audit committees.
917.8 Budget preparation.
917.9 Dividends.
917.10 Bank bylaws.

    Authority: 12 U.S.C. 1422a(a)(3), 1422b(a)(1), 1426, 1427, 1432(a), 
1436(a), 1440.

    Source: 65 FR 25274, May 1, 2000, unless otherwise noted.



Sec. 917.1  Definitions.

    As used in this part:
    Business risk means the risk of an adverse impact on a Bank's 
profitability resulting from external factors as may occur in both the 
short and long run.
    Community financial institution has the meaning set forth in Sec. 
925.1 of this chapter.
    Contingency liquidity means the sources of cash a Bank may use to 
meet its operational requirements when its access to the capital markets 
is impeded, and includes:
    (1) Marketable assets with a maturity of one year or less;
    (2) Self-liquidating assets with a maturity of seven days or less;
    (3) Assets that are generally accepted as collateral in the 
repurchase agreement market; and
    (4) Irrevocable lines of credit from financial institutions rated 
not lower than the second highest credit rating category by an NRSRO.
    Credit risk means the risk that the market value, or estimated fair 
value if market value is not available, of an obligation will decline as 
a result of deterioration in creditworthiness.

[[Page 34]]

    Immediate family member means a parent, sibling, spouse, child, 
dependent, or any relative sharing the same residence.
    Internal auditor means the individual responsible for the internal 
audit function at the Bank.
    Liquidity risk means the risk that a Bank will be unable to meet its 
obligations as they come due or meet the credit needs of its members and 
associates in a timely and cost-efficient manner.
    Market risk means the risk that the market value, or estimated fair 
value if market value is not available, of a Bank's portfolio will 
decline as a result of changes in interest rates, foreign exchange 
rates, equity and commodity prices.
    Operational liquidity means sources of cash from both a Bank's 
ongoing access to the capital markets and its holding of liquid assets 
to meet operational requirements in a Bank's normal course of business.
    Operations risk means the risk of an unexpected loss to a Bank 
resulting from human error, fraud, unenforceability of legal contracts, 
or deficiencies in internal controls or information systems.
    Reportable conditions means matters that represent significant 
deficiencies in the design or operation of the internal control system 
that could adversely affect a Bank's ability to record, process, 
summarize and report financial data consistent with the assertions of 
management.

[65 FR 25274, May 1, 2000, as amended at 67 FR 12846, Mar. 20, 2002]



Sec. 917.2  General authorities and duties of Bank boards of directors.

    (a) Management of a Bank. The management of each Bank shall be 
vested in its board of directors. While Bank boards of directors may 
delegate the execution of operational functions to Bank personnel, the 
ultimate responsibility of each Bank's board of directors for that 
Bank's management is non-delegable.
    (b) Duties of Bank directors. Each Bank director shall have the duty 
to:
    (1) Carry out his or her duties as director in good faith, in a 
manner such director believes to be in the best interests of the Bank, 
and with such care, including reasonable inquiry, as an ordinarily 
prudent person in a like position would use under similar circumstances;
    (2) Administer the affairs of the Bank fairly and impartially and 
without discrimination in favor of or against any member;
    (3) At the time of appointment or election, or within a reasonable 
time thereafter, have a working familiarity with basic finance and 
accounting practices, including the ability to read and understand the 
Bank's balance sheet and income statement and to ask substantive 
questions of management and the internal and external auditors; and
    (4) Direct the operations of the Bank in conformity with the 
requirements set forth in the Act and this chapter.
    (c) Authority regarding staff and outside consultants. (1) In 
carrying out its duties and responsibilities under the Act and this 
chapter, each Bank's board of directors and all committees thereof shall 
have authority to retain staff and outside counsel, independent 
accountants, or other outside consultants at the expense of the Bank.
    (2) Bank staff providing services to the board of directors or any 
committee of the board under paragraph (c)(1) of this section may be 
required by the board of directors or such committee to report directly 
to the board or such committee, as appropriate.



Sec. 917.3  Risk management.

    (a) Risk management policy--(1) Adoption. Beginning August 29, 2000, 
each Bank's board of directors shall have in effect at all times a risk 
management policy that addresses the Bank's exposure to credit risk, 
market risk, liquidity risk, business risk and operations risk and that 
conforms to the requirements of paragraph (b) of this section and to all 
applicable Finance Board regulations and policies.
    (2) Review and compliance. Each Bank's board of directors shall:
    (i) Review the Bank's risk management policy at least annually;
    (ii) Amend the risk management policy as appropriate;
    (iii) Re-adopt the Bank's risk management policy, including interim

[[Page 35]]

amendments, not less often than every three years; and
    (iv) Ensure that policies and procedures are in place that are 
reasonably designed to achieve continuing Bank compliance with the risk 
management policy.
    (b) Risk management policy requirements. In addition to meeting any 
other requirements set forth in this chapter, each Bank's risk 
management policy shall:
    (1) After the Finance Board has approved a Bank's capital plan, but 
before the plan takes effect, the Bank shall amend its risk management 
policy to describe the specific steps the Bank will take to comply with 
its capital plan and to include specific target ratios of total capital 
and permanent capital to total assets at which the Bank intends to 
operate. The target operating capital-to-assets ratios to be specified 
in the risk management policy shall be in excess of the minimum leverage 
and risk-based capital ratios and may be expressed as a range of ratios 
or as a single ratio;
    (2) Set forth the Bank's tolerance levels for the market and credit 
risk components; and
    (3) Set forth standards for the Bank's management of each risk 
component, including but not limited to:
    (i) Regarding credit risk arising from all secured and unsecured 
transactions, standards and criteria for, and timing of, periodic 
assessment of the creditworthiness of issuers, obligors, or other 
counterparties including identifying the criteria for selecting dealers, 
brokers and other securities firms with which the Bank may execute 
transactions;
    (ii) Regarding market risk, standards for the methods and models 
used to measure and monitor such risk;
    (iii) Regarding day-to-day operational liquidity needs and 
contingency liquidity needs:
    (A) An enumeration of specific types of investments to be held for 
such liquidity purposes; and
    (B) The methodology to be used for determining the Bank's 
operational and contingency liquidity needs;
    (iv) Regarding operations risk, standards for an effective internal 
control system, including periodic testing and reporting; and
    (v) Regarding business risk, strategies for mitigating such risk, 
including contingency plans where appropriate.
    (c) Risk assessment. The senior management of each Bank shall 
perform, at least annually, a risk assessment that is reasonably 
designed to identify and evaluate all material risks, including both 
quantitative and qualitative aspects, that could adversely affect the 
achievement of the Bank's performance objectives and compliance 
requirements. The risk assessment shall be in written form and shall be 
reviewed by the Bank's board of directors promptly upon its completion.

[65 FR 25274, May 1, 2000, as amended at 66 FR 8308, Jan. 30, 2001; 67 
FR 12846, Mar. 20, 2002]



Sec. 917.4  Bank Member Products Policy.

    (a) Adoption and review of member products policy--(1) Adoption. 
Beginning November 15, 2000, each Bank's board of directors shall have 
in effect at all times a policy that addresses the Bank's management of 
products offered by the Bank to members and housing associates, 
including but not limited to advances, standby letters of credit and 
acquired member assets, consistent with the requirements of the Act, 
paragraph (b) of this section, and all applicable Finance Board 
regulations and policies.
    (2) Review and compliance. Each Bank's board of directors shall:
    (i) Review the Bank's member products policy annually;
    (ii) Amend the member products policy as appropriate; and
    (iii) Re-adopt the member products policy, including interim 
amendments, not less often than every three years.
    (b) Member products policy requirements. In addition to meeting any 
other requirements set forth in this chapter, each Bank's member 
products policy shall:
    (1) Address credit underwriting criteria to be applied in evaluating 
applications for advances, standby letters of credit, and renewals;
    (2) Address appropriate levels of collateralization, valuation of 
collateral and discounts applied to collateral

[[Page 36]]

values for advances and standby letters of credit;
    (3) Address advances-related fees to be charged by each Bank, 
including any schedules or formulas pertaining to such fees;
    (4) Address standards and criteria for pricing member products, 
including differential pricing of advances pursuant to Sec. 950.5(b)(2) 
of this chapter, and criteria regarding the pricing of standby letters 
of credit, including any special pricing provisions for standby letters 
of credit that facilitate the financing of projects that are eligible 
for any of the Banks' CICA programs under part 952 of this chapter;
    (5) Provide that, for any draw made by a beneficiary under a standby 
letter of credit, the member will be charged a processing fee calculated 
in accordance with the requirements of Sec. 975.6(b) of this chapter;
    (6) Address the maintenance of appropriate systems, procedures and 
internal controls; and
    (7) Address the maintenance of appropriate operational and personnel 
capacity.

[65 FR 44426, July 18, 2000, as amended at 67 FR 12846, Mar. 20, 2002]



Sec. 917.5  Strategic business plan.

    (a) Adoption of strategic business plan. Beginning on July 30, 2000, 
each Bank's board of directors shall have in effect at all times a 
strategic business plan that describes how the business activities of 
the Bank will achieve the mission of the Bank consistent with part 940 
of this chapter. Specifically, each Bank's strategic business plan 
shall:
    (1) Enumerate operating goals and objectives for each major business 
activity and for all new business activities, which must include plans 
for maximizing activities that enhance the carrying out of the mission 
of the Bank, consistent with part 940 of this chapter;
    (2) Discuss how the Bank will:
    (i) Address credit needs and market opportunities identified through 
ongoing market research and consultations with members, associates and 
public and private organizations; and
    (ii) Notify members and associates of relevant programs and 
initiatives;
    (3) Establish quantitative performance goals for Bank products 
related to multi-family housing, small business, small farm and small 
agri-business lending;
    (4) Describe any proposed new business activities or enhancements of 
existing activities; and
    (5) Be supported by appropriate and timely research and analysis of 
relevant market developments and member and associate demand for Bank 
products and services.
    (b) Review and monitoring. Each Bank's board of directors shall:
    (1) Review the Bank's strategic business plan at least annually;
    (2) Amend the strategic business plan as appropriate;
    (3) Re-adopt the Bank's strategic business plan, including interim 
amendments, not less often than every three years; and
    (4) Establish management reporting requirements and monitor 
implementation of the strategic business plan and the operating goals 
and objectives contained therein.
    (c) Report to Finance Board. Each Bank shall submit to the Finance 
Board annually a report analyzing and describing the Bank's performance 
in achieving the goals described in paragraph (a)(3) of this section.

[65 FR 25274, May 1, 2000, as amended at 67 FR 12846, Mar. 20, 2002]



Sec. 917.6  Internal control system.

    (a) Establishment and maintenance. (1) Each Bank shall establish and 
maintain an effective internal control system that addresses:
    (i) The efficiency and effectiveness of Bank activities;
    (ii) The safeguarding of Bank assets;
    (iii) The reliability, completeness and timely reporting of 
financial and management information and transparency of such 
information to the Bank's board of directors and to the Finance Board; 
and
    (iv) Compliance with applicable laws, regulations, policies, 
supervisory determinations and directives of the Bank's board of 
directors and senior management.
    (2) Ongoing internal control activities necessary to maintain the 
internal

[[Page 37]]

control system required under paragraph (a)(1) of this section shall 
include, but are not limited to:
    (i) Top level reviews by the Bank's board of directors and senior 
management, including review of financial presentations and performance 
reports;
    (ii) Activity controls, including review of standard performance and 
exception reports by department-level management on an appropriate 
periodic basis;
    (iii) Physical and procedural controls to safeguard, and prevent the 
unauthorized use of, assets;
    (iv) Monitoring for compliance with the risk tolerance limits set 
forth in the Bank's risk management policy;
    (v) Any required approvals and authorizations for specific 
activities; and
    (vi) Any required verifications and reconciliations for specific 
activities.
    (b) Internal control responsibilities of Banks' boards of directors. 
Each Bank's board of directors shall ensure that the internal control 
system required under paragraph (a)(1) of this section is established 
and maintained, and shall oversee senior management's implementation of 
such a system on an ongoing basis, by:
    (1) Conducting periodic discussions with senior management regarding 
the effectiveness of the internal control system;
    (2) Ensuring that an internal audit of the internal control system 
is performed annually and that such annual audit is reasonably designed 
to be effective and comprehensive;
    (3) Requiring that internal control deficiencies be reported to the 
Bank's board of directors in a timely manner and that such deficiencies 
are addressed promptly;
    (4) Conducting a timely review of evaluations of the effectiveness 
of the internal control system made by internal auditors, external 
auditors and Finance Board examiners;
    (5) Directing senior management to address promptly and effectively 
recommendations and concerns expressed by internal auditors, external 
auditors and Finance Board examiners regarding weaknesses in the 
internal control system;
    (6) Reporting any internal control deficiencies found, and the 
corrective action taken, to the Finance Board in a timely manner;
    (7) Establishing, documenting and communicating an organizational 
structure that clearly shows lines of authority within the Bank, 
provides for effective communication throughout the Bank, and ensures 
that there are no gaps in the lines of authority;
    (8) Reviewing all delegations of authority to specific personnel or 
committees and requiring that such delegations state the extent of the 
authority and responsibilities delegated; and
    (9) Establishing reporting requirements, including specifying the 
nature and frequency of reports it receives.
    (c) Internal control responsibilities of Banks' senior management. 
Each Bank's senior management shall be responsible for carrying out the 
directives of the Bank's board of directors, including the 
establishment, implementation and maintenance of the internal control 
system required under paragraph (a)(1) of this section, by:
    (1) Establishing, implementing and effectively communicating to Bank 
personnel policies and procedures that are adequate to ensure that 
internal control activities necessary to maintain an effective internal 
control system, including the activities enumerated in paragraph (a)(2) 
of this section, are an integral part of the daily functions of all Bank 
personnel;
    (2) Ensuring that all Bank personnel fully understand and comply 
with all policies, procedures and legal requirements applicable to their 
positions and responsibilities;
    (3) Ensuring that there is appropriate segregation of duties among 
Bank personnel and that personnel are not assigned conflicting 
responsibilities;
    (4) Establishing effective paths of communication upward, downward 
and across the organization in order to ensure that Bank personnel 
receive necessary and appropriate information, including:
    (i) Information relating to the operational policies and procedures 
of the Bank;
    (ii) Information relating to the actual operational performance of 
the Bank;

[[Page 38]]

    (iii) Adequate and comprehensive internal financial, operational and 
compliance data; and
    (iv) External market information about events and conditions that 
are relevant to decision making;
    (5) Developing and implementing procedures that translate the major 
business strategies and policies established by the Bank's board of 
directors into operating standards;
    (6) Ensuring adherence to the lines of authority and responsibility 
established by the Bank's board of directors;
    (7) Overseeing the implementation and maintenance of management 
information and other systems;
    (8) Establishing and implementing an effective system to track 
internal control weaknesses and the actions taken to correct them; and
    (9) Monitoring and reporting to the Bank's board of directors the 
effectiveness of the internal control system on an ongoing basis.

[65 FR 25274, May 1, 2000, as amended at 67 FR 12846, Mar. 20, 2002]



Sec. 917.7  Audit committees.

    (a) Establishment. The board of directors of each Bank shall 
establish an audit committee, consistent with the requirements set forth 
in this section.
    (b) Composition. (1) The audit committee shall comprise five or more 
persons drawn from the Bank's board of directors, each of whom shall 
meet the criteria of independence set forth in paragraph (c) of this 
section.
    (2) The audit committee shall include a balance of representatives 
of:
    (i) Community financial institutions and other members; and
    (ii) Appointive and elective directors of the Bank.
    (3) The terms of audit committee members shall be appropriately 
staggered so as to provide for continuity of service.
    (4) At least one member of the audit committee shall have extensive 
accounting or related financial management experience.
    (c) Independence. Any member of the Bank's board of directors shall 
be considered to be sufficiently independent to serve as a member of the 
audit committee if that director does not have a disqualifying 
relationship with the Bank or its management that would interfere with 
the exercise of that director's independent judgment. Such disqualifying 
relationships include, but are not limited to:
    (1) Being employed by the Bank in the current year or any of the 
past five years;
    (2) Accepting any compensation from the Bank other than compensation 
for service as a board director;
    (3) Serving or having served in any of the past five years as a 
consultant, advisor, promoter, underwriter, or legal counsel of or to 
the Bank; or
    (4) Being an immediate family member of an individual who is, or has 
been in any of the past five years, employed by the Bank as an executive 
officer.
    (d) Charter. (1) The audit committee of each Bank shall adopt, and 
the Bank's board of directors shall approve, a formal written charter 
that specifies the scope of the audit committee's powers and 
responsibilities, as well as the audit committee's structure, processes 
and membership requirements.
    (2) The audit committee and the board of directors of each Bank 
shall:
    (i) Review, assess the adequacy of and, where appropriate, amend the 
Bank's audit committee charter on an annual basis;
    (ii) Amend the audit committee charter as appropriate; and
    (iii) Re-adopt and re-approve, respectively, the Bank's audit 
committee charter not less often than every three years.
    (3) Each Bank's audit committee charter shall:
    (i) Provide that the audit committee has the responsibility to 
select, evaluate and, where appropriate, replace the internal auditor 
and that the internal auditor may be removed only with the approval of 
the audit committee;
    (ii) Provide that the internal auditor shall report directly to the 
audit committee on substantive matters and that the internal auditor is 
ultimately accountable to the audit committee and board of directors; 
and
    (iii) Provide that both the internal auditor and the external 
auditor shall have unrestricted access to the audit committee without 
the need for any

[[Page 39]]

prior management knowledge or approval.
    (e) Duties. Each Bank's audit committee shall have the duty to:
    (1) Direct senior management to maintain the reliability and 
integrity of the accounting policies and financial reporting and 
disclosure practices of the Bank;
    (2) Review the basis for the Bank's financial statements and the 
external auditor's opinion rendered with respect to such financial 
statements (including the nature and extent of any significant changes 
in accounting principles or the application therein) and ensure that 
policies are in place that are reasonably designed to achieve disclosure 
and transparency regarding the Bank's true financial performance and 
governance practices;
    (3) Oversee the internal audit function by:
    (i) Reviewing the scope of audit services required, significant 
accounting policies, significant risks and exposures, audit activities 
and audit findings;
    (ii) Assessing the performance and determining the compensation of 
the internal auditor; and
    (iii) Reviewing and approving the internal auditor's work plan;
    (4) Oversee the external audit function by:
    (i) Approving the external auditor's annual engagement letter;
    (ii) Reviewing the performance of the external auditor; and
    (iii) Making recommendations to the Bank's board of directors 
regarding the appointment, renewal, or termination of the external 
auditor;
    (5) Provide an independent, direct channel of communication between 
the Bank's board of directors and the internal and external auditors;
    (6) Conduct or authorize investigations into any matters within the 
audit committee's scope of responsibilities;
    (7) Ensure that senior management has established and is maintaining 
an adequate internal control system within the Bank by:
    (i) Reviewing the Bank's internal control system and the resolution 
of identified material weaknesses and reportable conditions in the 
internal control system, including the prevention or detection of 
management override or compromise of the internal control system; and
    (ii) Reviewing the programs and policies of the Bank designed to 
ensure compliance with applicable laws, regulations and policies and 
monitoring the results of these compliance efforts;
    (8) Review the policies and procedures established by senior 
management to assess and monitor implementation of the Bank's strategic 
business plan and the operating goals and objectives contained therein; 
and
    (9) Report periodically its findings to the Bank's board of 
directors.
    (f) Meetings. The audit committee shall prepare written minutes of 
each audit committee meeting.

[65 FR 25274, May 1, 2000, as amended at 67 FR 12846, Mar. 20, 2002]



Sec. 917.8  Budget preparation.

    (a) Adoption of budgets. Each Bank's board of directors shall be 
responsible for the adoption of an annual operating expense budget and a 
capital expenditures budget for the Bank, and any subsequent amendments 
thereto, consistent with the requirements of the Act, this section, 
other regulations and policies of the Finance Board, and with the Bank's 
responsibility to protect both its members and the public interest by 
keeping its costs to an efficient and effective minimum.
    (b) No delegation of budget authority. A Bank's board of directors 
may not delegate the authority to approve the Bank's annual budgets, or 
any subsequent amendments thereto, to Bank officers or other Bank 
employees.
    (c) Interest rate scenario. A Bank's annual budgets shall be 
prepared based upon an interest rate scenario as determined by the Bank.
    (d) Board approval for deviations. A Bank may not exceed its total 
annual operating expense budget or its total annual capital expenditures 
budget without prior approval by the Bank's board of directors of an 
amendment to such budget.



Sec. 917.9  Dividends.

    (a) A Bank's board of directors may declare and pay a dividend only 
from previously retained earnings or current net earnings and only in 
accordance

[[Page 40]]

with any other applicable limitations on dividends set forth in the Act 
or this chapter. Dividends on such capital stock shall be computed 
without preference.
    (b) A Bank's board of directors may not declare or pay a dividend 
based on projected or anticipated earnings and may not declare or pay a 
dividend if the par value of the Bank's stock is impaired or is 
projected to become impaired after paying such dividend.
    (c) The requirement in paragraph (a) of this section that dividends 
be computed without preference shall cease to apply to any Bank that has 
established any dividend preferences for 1 or more classes or subclasses 
of its capital stock as part of its approved capital plan, as of the 
date on which the capital plan takes effect.

[71 FR 78051, Dec. 28, 2006]



Sec. 917.10  Bank bylaws.

    A Bank's board of directors shall have in effect at all times bylaws 
governing the manner in which the Bank administers its affairs and such 
bylaws shall be consistent with applicable laws and regulations as 
administered by the Finance Board.



   SUBCHAPTER D_FEDERAL HOME LOAN BANK MEMBERS AND HOUSING ASSOCIATES 
                               [RESERVED]



[[Page 41]]



    SUBCHAPTER E_FEDERAL HOME LOAN BANK RISK MANAGEMENT AND CAPITAL 
                                STANDARDS





PART 930_DEFINITIONS APPLYING TO RISK MANAGEMENT AND CAPITAL 
REGULATIONS--Table of Contents



    Authority: 12 U.S.C. 1422a(a)(3), 1422b(a), 1426, 1436(a), 1440, 
1443, and 1446.



Sec. 930.1  Definitions.

    As used in this subchapter:
    Affiliated counterparty means a counterparty of a Bank that 
controls, is controlled by or is under common control with another 
counterparty of the Bank. For the purposes of this definition only, 
direct or indirect ownership (including beneficial ownership) of more 
than 50 percent of the voting securities or voting interests of an 
entity constitutes control.
    Certain drawdown means a legally binding agreement that commits the 
Bank to make an advance or acquire a loan, at or by a specified future 
date.
    Charges against the capital of the Bank means an other than 
temporary decline in the Bank's total equity that causes the value of 
total equity to fall below the Bank's aggregate capital stock amount.
    Class A stock means capital stock issued by a Bank, including 
subclasses, that has the characteristics specified by Sec. 931.1(a) of 
this subchapter.
    Class B stock means capital stock issued by a Bank, including 
subclasses, that has the characteristics specified by Sec. 931.1(b) of 
this subchapter.
    Contingency liquidity means the sources of cash a Bank may use to 
meet its operational requirements when its access to the capital markets 
is impeded, and includes:
    (1) Marketable assets with a maturity of one year or less;
    (2) Self-liquidating assets with a maturity of seven days or less;
    (3) Assets that are generally accepted as collateral in the 
repurchase agreement market; and
    (4) Irrevocable lines of credit from financial institutions rated 
not lower than the second highest credit rating category by an NRSRO.
    Credit derivative contract means a derivative contract that 
transfers credit risk.
    Credit risk means the risk that the market value, or estimated fair 
value if market value is not available, of an obligation will decline as 
a result of deterioration in creditworthiness.
    Derivative contract means generally a financial contract the value 
of which is derived from the values of one or more underlying assets, 
reference rates, or indices of asset values, or credit-related events. 
Derivative contracts include interest rate, foreign exchange rate, 
equity, precious metals, commodity, and credit contracts, and any other 
instruments that pose similar risks.
    Exchange rate contracts include cross-currency interest-rate swaps, 
forward foreign exchange rate contracts, currency options purchased, and 
any similar instruments that give rise to similar risks.
    General allowance for losses means an allowance established by a 
Bank in accordance with GAAP for losses, but which does not include any 
amounts held against specific assets of the Bank.
    Government Sponsored Enterprise, or GSE, means a United States 
Government-sponsored agency or instrumentality originally established or 
chartered to serve public purposes specified by the United States 
Congress, but whose obligations are not obligations of the United States 
and are not guaranteed by the United States.
    Interest rate contracts include, single currency interest-rate 
swaps, basis swaps, forward rate agreements, interest-rate options, and 
any similar instrument that gives rise to similar risks, including when-
issued securities.
    Investment grade means:
    (1) A credit quality rating in one of the four highest credit rating 
categories by an NRSRO and not below the fourth highest rating category 
by any NRSRO; or
    (2) If there is no credit quality rating by an NRSRO, a 
determination by a

[[Page 42]]

Bank that the issuer, asset or instrument is the credit equivalent of 
investment grade using credit rating standards available from an NRSRO 
or other similar standards.
    Market risk means the risk that the market value, or estimated fair 
value if market value is not available, of a Bank's portfolio will 
decline as a result of changes in interest rates, foreign exchange 
rates, equity and commodity prices.
    Marketable means, with respect to an asset, that the asset can be 
sold with reasonable promptness at a price that corresponds reasonably 
to its fair value.
    Market value at risk is the loss in the market value of a Bank's 
portfolio measured from a base line case, where the loss is estimated in 
accordance with Sec. 932.5 of this chapter.
    Minimum investment means the minimum amount of Class A and/or Class 
B stock that a member is required to own in order to be a member of a 
Bank and in order to obtain advances and to engage in other business 
activities with the Bank in accordance with Sec. 931.3 of this chapter.
    Operations risk means the risk of an unexpected loss to a Bank 
resulting from human error, fraud, unenforceability of legal contracts, 
or deficiencies in internal controls or information systems.
    Permanent capital means the retained earnings of a Bank, determined 
in accordance with GAAP, plus the amount paid-in for the Bank's Class B 
stock.
    Redeem or Redemption means the acquisition by a Bank of its 
outstanding Class A or Class B stock at par value following the 
expiration of the six-month or five-year statutory redemption period, 
respectively, for the stock.
    Regulatory risk-based capital requirement means the amount of 
permanent capital that a Bank is required to maintain in accordance with 
Sec. 932.3 of this chapter.
    Regulatory total capital requirement means the amount of total 
capital that a Bank is required to maintain in accordance with Sec. 
932.2 of this chapter.
    Repurchase means the acquisition by a Bank of excess stock prior to 
the expiration of the six-month or five-year statutory redemption period 
for the stock.
    Repurchase agreement means an agreement between a seller and a buyer 
whereby the seller agrees to repurchase a security or similar securities 
at an agreed upon price, with or without a stated time for repurchase.
    Sales of federal funds subject to a continuing contract means an 
overnight federal funds loan that is automatically renewed each day 
unless terminated by either the lender or the borrower.
    Total assets means the total assets of a Bank, as determined in 
accordance with GAAP.
    Total capital of a Bank means the sum of permanent capital, the 
amounts paid-in for Class A stock, the amount of any general allowance 
for losses, and the amount of other instruments identified in a Bank's 
capital plan that the Finance Board has determined to be available to 
absorb losses incurred by such Bank.
    Walkaway clause means a provision in a bilateral netting contract 
that permits a nondefaulting counterparty to make a lower payment than 
it would make otherwise under the bilateral netting contract, or no 
payment at all, to a defaulter or the estate of a defaulter, even if the 
defaulter or the estate of the defaulter is a net creditor under the 
bilateral netting contract.

[66 FR 8310, Jan. 30, 2001, as amended at 66 FR 54107, Oct. 26, 2001; 66 
FR 66728, Dec. 27, 2001; 67 FR 12849, Mar. 20, 2002; 71 FR 78051, Dec. 
28, 2006]



PART 931_FEDERAL HOME LOAN BANK CAPITAL STOCK--Table of Contents



Sec.
931.1 Classes of capital stock.
931.2 Issuance of capital stock.
931.3 Minimum investment in capital stock.
931.4 Dividends.
931.5 Liquidation, merger, or consolidation.
931.6 Transfer of capital stock.
931.7 Redemption and repurchase of capital stock.
931.8 Other restrictions on the repurchase or redemption of Bank stock.
931.9 Transition provision.

    Authority: 12 U.S.C. 1422a(a)(3), 1422b(a), 1426, 1440, 1443, 1446.

    Source: 66 FR 8310, Jan. 30, 2001, unless otherwise noted.

[[Page 43]]



Sec. 931.1  Classes of capital stock.

    The authorized capital stock of a Bank shall consist of the 
following instruments:
    (a) Class A stock, which shall:
    (1) Have a par value as determined by the board of directors of the 
Bank and stated in the Bank's capital plan;
    (2) Be issued, redeemed, and repurchased only at its stated par 
value; and
    (3) Be redeemable in cash only on six-months written notice to the 
Bank.
    (b) Class B stock, which shall:
    (1) Have a par value as determined by the board of directors of the 
Bank and stated in the Bank's capital plan;
    (2) Be issued, redeemed, and repurchased only at its stated par 
value;
    (3) Be redeemable in cash only on five-years written notice to the 
Bank; and
    (4) Confer an ownership interest in the retained earnings, surplus, 
undivided profits, and equity reserves of the Bank; and
    (c) Any one or more subclasses of Class A or Class B stock, each of 
which may have different rights, terms, conditions, or preferences as 
may be authorized in the Bank's capital plan, provided, however, that 
each subclass of stock shall have all of the characteristics of its 
respective class, as specified in paragraph (a) or (b) of this section.



Sec. 931.2  Issuance of capital stock.

    (a) In general. A Bank may issue either one or both classes of its 
capital stock (including subclasses), as authorized by Sec. 931.1, and 
shall not issue any other class of capital stock. A Bank shall issue its 
stock only to its members and only in book-entry form, and the Bank 
shall act as its own transfer agent. All capital stock shall be issued 
in accordance with the Bank's capital plan.
    (b) Initial issuance. In connection with the initial issuance of its 
Class A and/or Class B stock (or any subclass of either), a Bank may 
issue such stock in exchange for its existing stock, through a 
conversion of its existing stock, or through any other fair and 
equitable transaction or method of distribution. As part of its initial 
stock issuance transaction, a Bank may distribute any portion of its 
then-existing unrestricted retained earnings as shares of Class B stock.



Sec. 931.3  Minimum investment in capital stock.

    (a) A Bank shall require each member to maintain a minimum 
investment in the capital stock of the Bank, both as a condition to 
becoming and remaining a member of the Bank and as a condition to 
transacting business with the Bank or obtaining advances and other 
services from the Bank. The amount of the required minimum investment 
shall be determined in accordance with the Bank's capital plan and shall 
be sufficient to ensure that the Bank remains in compliance with its 
minimum capital requirements. A Bank shall require each member to 
maintain its minimum investment for as long as the institution remains a 
member of the Bank and for as long as the member engages in any activity 
with the Bank against which the Bank is required to maintain capital.
    (b) A Bank may establish the minimum investment required of each 
member as a percentage of the total assets of the member, as a 
percentage of the advances outstanding to the member, as a percentage of 
any other business activity conducted with the member, on any other 
basis that is approved by the Finance Board, or any combination thereof.
    (c) A Bank may require each member to satisfy the minimum investment 
requirement through the purchase of either Class A or Class B stock, or 
through the purchase of one or more combinations of Class A and Class B 
stock that have been authorized by the board of directors of the Bank in 
its capital plan. A Bank, in its discretion, may establish a lower 
minimum investment for members that invest in Class B stock than is 
required for members that invest in Class A stock, provided that such 
reduced investment provides sufficient capital for the Bank to remain in 
compliance with its minimum capital requirements.
    (d) Each member of a Bank shall at all times maintain an investment 
in the capital stock of the Bank in an amount that is sufficient to 
satisfy the minimum investment required for that

[[Page 44]]

member in accordance with the Bank's capital plan.

[66 FR 8310, Jan. 30, 2001, as amended at 70 FR 9510, Feb. 28, 2005]



Sec. 931.4  Dividends.

    (a) In general. A Bank may pay dividends on Class A or Class B 
stock, including any subclasses of such stock, only out of previously 
retained earnings or current net earnings, and shall declare and pay 
dividends only as provided by its capital plan. The capital plan may 
establish different dividend rates or preferences for each class or 
subclass of stock, which may include a dividend that tracks the economic 
performance of certain Bank assets, such as Acquired Member Assets. A 
member, including a member that has provided the Bank with a notice of 
intent to withdraw from membership or one whose membership is otherwise 
terminated, shall be entitled to receive any dividends that a Bank 
declares on its capital stock while the member owns the stock.
    (b) Limitation on payment of dividends. In no event shall a Bank 
declare or pay any dividend on its capital stock if after doing so the 
Bank would fail to meet any of its minimum capital requirements, nor 
shall a Bank that is not in compliance with any of its minimum capital 
requirements declare or pay any dividend on its capital stock.

[66 FR 8310, Jan. 30, 2001, as amended at 66 FR 54108, Oct. 26, 2001]



Sec. 931.5  Liquidation, merger, or consolidation.

    The respective rights of the Class A and Class B stockholders, in 
the event that the Bank is liquidated, or is merged or otherwise 
consolidated with another Bank, shall be determined in accordance with 
the capital plan of the Bank.



Sec. 931.6  Transfer of capital stock.

    A Bank in its capital plan may allow a member to transfer any excess 
capital stock of the Bank to another member of that Bank or to an 
institution that has been approved for membership in that Bank and that 
has satisfied all conditions for becoming a member, other than the 
purchase of the minimum amount of Bank stock that it is required to hold 
as a condition of membership. Any such stock transfers shall be at par 
value and shall be effective upon being recorded on the appropriate 
books and records of the Bank. The Bank may, in its capital plan, 
require a member to receive the approval of the Bank before a transfer 
of the Bank's stock, as allowed under this section, is completed.

[66 FR 8310, Jan. 30, 2001, as amended at 66 FR 54108, Oct. 26, 2001]



Sec. 931.7  Redemption and repurchase of capital stock.

    (a) Redemption. A member may have its capital stock in a Bank 
redeemed by providing written notice to the Bank in accordance with this 
section. For Class A stock, a member shall provide six-months written 
notice, and for Class B stock a member shall provide five-years written 
notice. The notice shall indicate the number of shares of Bank stock 
that are to be redeemed, and a member shall not have more than one 
notice of redemption outstanding at one time for the same shares of Bank 
stock. A member may cancel a notice of redemption by so informing the 
Bank in writing, and the Bank may impose a fee (to be specified in its 
capital plan) on any member that cancels a pending notice of redemption. 
At the expiration of the applicable notice period, the Bank shall pay 
the stated par value of that stock to the member in cash. A request by a 
member (whose membership has not been terminated) to redeem specific 
shares of stock shall automatically be cancelled if the Bank is 
prevented from redeeming the member's stock by paragraph (c) of this 
section within five business days from the end of the expiration of the 
applicable redemption notice period because the member would fail to 
maintain its minimum investment in the stock of the Bank after such 
redemption. The automatic cancellation of a member's redemption request 
shall have the same effect as if the member had cancelled its notice to 
redeem stock prior to the end of the redemption notice period, and a 
Bank may impose a fee (to be specified in its capital plan) for 
automatic cancellation of a redemption request. A Bank

[[Page 45]]

shall not be obligated to redeem its capital stock other than in 
accordance with this paragraph.
    (b) Repurchase. A Bank, in its discretion and without regard to the 
applicable redemption periods, may repurchase from a member any 
outstanding Class A or Class B capital stock that is in excess of the 
amount of that class of Bank stock that the member is required to hold 
as a minimum investment, in accordance with the capital plan of that 
Bank. A Bank undertaking such a stock repurchase at its own initiative 
shall provide the member with reasonable notice prior to repurchasing 
any excess stock, with the period of such notice to be specified in the 
Bank's capital plan, and shall pay the stated par value of that stock to 
the member in cash. For purposes of this section, any Bank stock owned 
by a member shall be considered to be excess stock if the member is not 
required to hold such stock either as a condition of remaining a member 
of the Bank or as a condition of obtaining advances or transacting other 
business with the Bank. A member's submission of a notice of intent to 
withdraw from membership, or its termination of membership in any other 
manner, shall not, in and of itself, cause any Bank stock to be deemed 
excess stock for purposes of this section.
    (c) Limitation. In no event may a Bank redeem or repurchase any 
stock if, following the redemption or repurchase, the Bank would fail to 
meet any minimum capital requirement, or if the member would fail to 
maintain its minimum investment in the stock of the Bank, as required by 
Sec. 931.3.

[66 FR 8310, Jan. 30, 2001, as amended at 66 FR 54108, Oct. 26, 2001; 70 
FR 9510, Feb. 28, 2005]



Sec. 931.8  Other restrictions on the repurchase or redemption of Bank
stock.

    (a) Capital impairment. A Bank may not redeem or repurchase any 
capital stock without the prior written approval of the Finance Board if 
the Finance Board or the board of directors of the Bank has determined 
that the Bank has incurred or is likely to incur losses that result in 
or are likely to result in charges against the capital of the Bank. This 
prohibition shall apply even if a Bank is in compliance with its minimum 
capital requirements, and shall remain in effect for however long the 
Bank continues to incur such charges or until the Finance Board 
determines that such charges are not expected to continue.
    (b) Bank discretion to suspend redemption. A Bank, upon the approval 
of its board of directors, or of a subcommittee thereof, may suspend 
redemption of stock if the Bank reasonably believes that continued 
redemption of stock would cause the Bank to fail to meet its minimum 
capital requirements as set forth in Sec. Sec. 932.2 or 932.3 of this 
chapter, would prevent the Bank from maintaining adequate capital 
against a potential risk that may not be adequately reflected in its 
minimum capital requirements, or would otherwise prevent the Bank from 
operating in a safe and sound manner. A Bank shall notify the Finance 
Board in writing within two business days of the date of the decision to 
suspend the redemption of stock, informing the Finance Board of the 
reasons for the suspension and of the Bank's strategies and time frames 
for addressing the conditions that led to the suspension. The Finance 
Board may require the Bank to re-institute the redemption of member 
stock. A Bank shall not repurchase any stock without the written 
permission of the Finance Board during any period in which the Bank has 
suspended redemption of stock under this paragraph.

[66 FR 8310, Jan. 30, 2001, as amended at 66 FR 54108, Oct. 26, 2001]



Sec. 931.9  Transition provision.

    (a) In general. Each Bank shall comply with the minimum leverage and 
risk-based capital requirements specified in Sec. 932.2 and Sec. 932.3 
of this chapter, respectively, and each member shall comply with the 
minimum investment established in the capital plan, as of the effective 
date of that Bank's capital plan. The effective date of a Bank's capital 
plan shall be the date on which the Bank first issues any Class A or 
Class B stock. Prior to the effective date, the issuance and retention 
of Bank stock shall be as provided in Sec. 925.20 and Sec. 925.22 of 
this chapter.

[[Page 46]]

    (b) Transition period--(1) Bank transition. A Bank that will not be 
in compliance with the minimum leverage and risk-based capital 
requirements specified in Sec. 932.2 and Sec. 932.3 of this chapter as 
of the effective date of its capital plan shall maintain compliance with 
the leverage limit requirements in Sec. 966.3(a) of this chapter and 
shall include in its capital plan a description of the steps that the 
Bank will take to achieve compliance with the minimum capital 
requirements specified in Sec. 932.2 and Sec. 932.3 of this chapter. 
The period of time for compliance with the minimum capital requirements 
shall be stated in the plan and shall not exceed three years from the 
effective date of the capital plan. When the Bank has achieved 
compliance with the leverage requirement of Sec. 932.2 of this chapter, 
the leverage limit requirements of Sec. 966.3(a) of this chapter shall 
cease to apply to that Bank.
    (2) Member transition. (i) Existing members. A Bank's capital plan 
shall require any institution that was a member on November 12, 1999, 
and whose investment in Bank stock as of the effective date of the 
capital plan will be less than the minimum investment required by the 
plan, to comply with the minimum investment by a date specified in the 
Bank's capital plan. The length of the transition period shall be 
specified in the capital plan and shall not exceed three years. The 
capital plan shall describe the actions that the existing members are 
required to take to achieve compliance with the minimum investment, and 
may require such members to purchase additional Bank stock periodically 
over the course of the transition period.
    (ii) New members. A Bank's capital plan shall require any 
institution that became a member after November 12, 1999, but prior to 
the effective date of the capital plan, to comply with the minimum 
investment specified in the Bank's capital plan as of the effective date 
of the plan. A Bank's capital plan shall require any institution that 
becomes a member after the effective date of the capital plan, to comply 
with the minimum investment upon becoming a member.
    (3) New business. A Bank's capital plan shall require any member 
that obtains an advance or other services from the Bank, or that 
initiates any other business activity with the Bank against which the 
Bank is required to hold capital, after the effective date of the 
capital plan to comply with the minimum investment specified in the 
Bank's capital plan for such advance, services, or activity at the time 
the transaction occurs.



PART 932_FEDERAL HOME LOAN BANK CAPITAL REQUIREMENTS--Table of Contents



Sec.
932.1 Risk management.
932.2 Total capital requirement.
932.3 Risk-based capital requirement.
932.4 Credit risk capital requirement.
932.5 Market risk capital requirement.
932.6 Operations risk capital requirement.
932.7 Reporting requirements.
932.8 Minimum liquidity requirements.
932.9 Limits on unsecured extensions of credit to one counterparty or 
          affiliated counterparties; reporting requirements for total 
          extensions of credit to one counterparty or affiliated 
          counterparties.

    Authority: 12 U.S.C. 1426, 1440, 1443, 1446, 4513, 4526.

    Source: 66 FR 8310, Jan. 30, 2001, unless otherwise noted.



Sec. 932.1  Risk management.

    Before its new capital plan may take effect, each Bank shall obtain 
the approval of the Finance Board for the internal market risk model or 
the internal cash flow model used to calculate the market risk component 
of its risk-based capital requirement, and for the risk assessment 
procedures and controls (whether established as part of its risk 
management policy or otherwise) to be used to manage its credit, market, 
and operations risks.



Sec. 932.2  Total capital requirement.

    Each Bank shall maintain at all times:
    (a) Total capital in an amount at least equal to 4.0 percent of the 
Bank's total assets; and
    (b) A leverage ratio of total capital to total assets of at least 
5.0 percent of the Bank's total assets. For purposes of determining the 
leverage ratio, total capital shall be computed by multiplying the 
Bank's permanent capital

[[Page 47]]

by 1.5 and adding to this product all other components of total capital.

[76 FR 11674, Mar. 3, 2011]



Sec. 932.3  Risk-based capital requirement.

    Each Bank shall maintain at all times permanent capital in an amount 
at least equal to the sum of its credit risk capital requirement, its 
market risk capital requirement, and its operations risk capital 
requirement, calculated in accordance with Sec. Sec. 932.4, 932.5 and 
932.6, respectively.

76 FR 11674, Mar. 3, 2011]



Sec. 932.4  Credit risk capital requirement.

    (a) General requirement. Each Bank's credit risk capital requirement 
shall be equal to the sum of the Bank's credit risk capital charges for 
all assets, off-balance sheet items and derivative contracts.
    (b) Credit risk capital charge for assets. Except as provided in 
paragraph (i) of this section, each Bank's credit risk capital charge 
for an asset shall be equal to the book value of the asset multiplied by 
the credit risk percentage requirement assigned to that asset pursuant 
to paragraph (e)(2) of this section.
    (c) Credit risk capital charge for off-balance sheet items. Each 
Bank's credit risk capital charge for an off-balance sheet item shall be 
equal to the credit equivalent amount of such item, as determined 
pursuant to paragraph (f) of this section multiplied by the credit risk 
percentage requirement assigned to that item pursuant to paragraph 
(e)(2) of this section, except that the credit risk percentage 
requirement applied to the credit equivalent amount for a stand-by 
letter of credit shall be that for an advance with the same remaining 
maturity as that stand-by letter of credit.
    (d) Credit risk capital charge for derivative contracts--(1) 
Derivative contracts with non-member counterparties. Except as provided 
in paragraph (j) of this section, each Bank's credit risk capital charge 
for a specific derivative contract entered into between a Bank and a 
non-member institution shall equal the sum of :
    (i) The current credit exposure for the derivative contract, 
calculated in accordance with paragraph (g) or (h) of this section, as 
applicable, multiplied by the credit risk percentage requirement 
assigned to that derivative contract pursuant to paragraph (e)(2) of 
this section, provided that:
    (A) The remaining maturity of the derivative contract shall be 
deemed to be less than one year for the purpose of applying Table 1.1 or 
1.3 of this part; and
    (B) Any collateral held against an exposure from the derivative 
contract shall be applied to reduce the portion of the credit risk 
capital charge corresponding to the current credit exposure in 
accordance with the requirements of paragraph (e)(2)(ii)(B) of this 
section; plus
    (ii) The potential future credit exposure for the derivative 
contract calculated in accordance with paragraph (g) or (h) of this 
section, as applicable, multiplied by the credit risk percentage 
requirement assigned to that derivative contract pursuant to paragraph 
(e)(2) of this section, where the actual remaining maturity of the 
derivative contract is used to apply Table 1.1 or Table 1.3 of this 
part.
    (2) Derivative contracts with a member. Except as provided in 
paragraph (j) of this section, the credit risk capital charge for any 
derivative contract entered into between a Bank and one of its member 
institutions shall be calculated in accordance with paragraph (d)(1) of 
this section. However, the credit risk percentage requirements used in 
the calculations shall be found in Table 1.1 of this part, which sets 
forth the credit risk percentage requirements for advances.
    (e) Determination of credit risk percentage requirements--(1) 
Finance Board determination of credit risk percentage requirements. The 
Finance Board shall determine, and update periodically, the credit risk 
percentage requirements set forth in Tables 1.1 through 1.4 of this part 
applicable to a Bank's assets, off-balance sheet items, and derivative 
contracts.
    (2) Bank determination of credit risk percentage requirements. (i) 
Each Bank shall determine the credit risk percentage requirement 
applicable to each

[[Page 48]]

asset, each off-balance sheet item and each derivative contract by 
identifying the category set forth in Table 1.1, Table 1.2, Table 1.3 or 
Table 1.4 of this part to which the asset, item or derivative belongs, 
given, if applicable, its demonstrated credit rating and remaining 
maturity (as determined in accordance with paragraphs (e)(2)(ii) and 
(e)(2)(iii) of this section). The applicable credit risk percentage 
requirement for an asset, off-balance sheet item or derivative contract 
shall be used to calculate the credit risk capital charge for such 
asset, item, or derivative contract in accordance with paragraphs (b), 
(c) or (d) of this section respectively. The relevant categories and 
credit risk percentage requirements are provided in the following Tables 
1.1 through 1.4 of this part:

                   Table 1.1--Requirement for Advances
------------------------------------------------------------------------
                                                              Percentage
                      Type of advances                        applicable
                                                             to advances
------------------------------------------------------------------------
Advances with:
  Remaining maturity <= 4 years............................         0.07
  Remaining maturity  4 years to 7 years........         0.20
  Remaining maturity  7 years to 10 years.......         0.30
  Remaining maturity  10 years..................         0.35
------------------------------------------------------------------------


      Table 1.2--Requirement for Rated Residential Mortgage Assets
------------------------------------------------------------------------
                                                              Percentage
                                                              applicable
                                                                  to
             Type of residential mortgage asset              residential
                                                               mortgage
                                                                assets
------------------------------------------------------------------------
Highest Investment Grade...................................         0.37
Second Highest Investment Grade............................         0.60
Third Highest Investment Grade.............................         0.86
Fourth Highest Investment Grade............................         1.20
If Downgraded to Below Investment Grade After Acquisition
 By Bank:
  Highest Below Investment Grade...........................         2.40
  Second Highest Below Investment Grade....................         4.80
  All Other Below Investment Grade.........................        34.00
Subordinated Classes of Mortgage Assets:
  Highest Investment Grade.................................         0.37
  Second Highest Investment Grade..........................         0.60
  Third Highest Investment Grade...........................         1.60
  Fourth Highest Investment Grade..........................         4.45
If Downgraded to Below Investment Grade After Acquisition
 By Bank:
  Highest Below Investment Grade...........................        13.00
  Second Highest Below Investment Grade....................        34.00
  All Other Below Investment Grade.........................       100.00
------------------------------------------------------------------------


    Table 1.3--Requirement for rated Assets or Rated Items Other Than Advances or Residential Mortgage Assets
                                          [Based on remaining maturity]
----------------------------------------------------------------------------------------------------------------
                                                                    Applicable percentage
                                           ---------------------------------------------------------------------
                                                                                     7
                                             <= 1 year   1  3    yrs to 10   10
                                                          yr to 3 yrs   yrs to 7yrs       yrs           yrs
----------------------------------------------------------------------------------------------------------------
U.S. Government Securities................         0.00          0.00          0.00          0.00          0.00
Highest Investment Grade..................         0.15          0.40          0.90          1.40          2.20
Second Highest Investment Grade...........         0.20          0.45          1.00          1.45          2.30
Third Highest Investment Grade............         0.70          1.10          1.60          2.05          2.95
Fourth Highest Investment Grade...........         2.50          3.70          4.45          5.50          7.05
If Downgraded Below Investment Grade After
 Acquisition by Bank:
    Highest Below Investment Grade........        10.00         13.00         13.00         13.00         13.00
    Second Highest Below Investment Grade.        26.00         34.00         34.00         34.00         34.00
    All Other.............................       100.00        100.00        100.00        100.00        100.00
----------------------------------------------------------------------------------------------------------------


                Table 1.4--Requirement for Unrated Assets
------------------------------------------------------------------------
                                                              Applicable
                   Type of unrated asset                      percentage
------------------------------------------------------------------------
Cash.......................................................         0.00
Premises, Plant, and Equipment.............................         8.00
Investments Under Sec. 940.3(e) & (f)....................         8.00
------------------------------------------------------------------------

    (ii) When determining the applicable credit risk percentage 
requirement from Tables 1.2 or 1.3 of this part, each Bank shall apply 
the following criteria:
    (A) For assets or items that are rated directly by an NRSRO, the 
credit rating shall be the NRSRO's credit rating for the asset or item 
as determined in accordance with paragraph (e)(2)(iii) of this section.
    (B) When using Table 1.3 of this part, for an asset, off-balance 
sheet item, or derivative contract that is not rated directly by an 
NRSRO, but for which an NRSRO rating has been assigned to any 
corresponding obligor

[[Page 49]]

counterparty, third party guarantor, or collateral backing the asset, 
item, or derivative, the credit rating that shall apply to the asset, 
item, or derivative, or portion of the asset, item, or derivative so 
guaranteed or collateralized, shall be the credit rating corresponding 
to such obligor counterparty, third party guarantor, or underlying 
collateral, as determined in accordance with paragraph (e)(2)(iii) of 
this section. If there are multiple obligor counterparties, third party 
guarantors, or collateral instruments backing an asset, item, or 
derivative not rated directly by an NRSRO, or any specific portion 
thereof, then the credit rating that shall apply to that asset, item, or 
derivative or specific portion thereof, shall be the highest credit 
rating among such obligor counterparties, third party guarantors, or 
collateral instruments, as determined in accordance with paragraph 
(e)(2)(iii) of this section. Assets, items or derivatives shall be 
deemed to be backed by collateral for purposes of this paragraph if the 
collateral is:
    (1) Actually held by the Bank or an independent, third-party 
custodian, or, if permitted under the Bank's collateral agreement with 
such party, by the Bank's member or an affiliate of that member where 
the term ``affiliate'' has the same meaning as in Sec. 950.1 of this 
chapter;
    (2) Legally available to absorb losses;
    (3) Of a readily determinable value at which it can be liquidated by 
the Bank;
    (4) Held in accordance with the provisions of the Bank's member 
products policy established pursuant to Sec. 917.4 of this chapter; and
    (5) Subject to an appropriate discount to protect against price 
decline during the holding period, as well as the costs likely to be 
incurred in the liquidation of the collateral.
    (C) When using Table 1.3 of this part, for an asset with a short-
term credit rating from a given NRSRO, the credit risk percentage 
requirement shall be based on the remaining maturity of the asset and 
the long-term credit rating provided for the issuer of the asset by the 
same NRSRO. Should the issuer of the short-term asset not have a long-
term credit rating, the long-term equivalent rating shall be determined 
as follows:
    (1) The highest short-term credit rating shall be equivalent to the 
third highest long-term rating;
    (2) The second highest short-term rating shall be equivalent to the 
fourth highest long-term rating;
    (3) The third highest short-term rating shall be equivalent to the 
fourth highest long-term rating; and
    (4) If the short-term rating is downgraded to below investment grade 
after acquisition by the Bank, the short-term rating shall be equivalent 
to the second highest below investment grade long-term rating.
    (D) For residential mortgage assets and other assets or items, or 
relevant portion of an asset or item, that do not meet the requirements 
of paragraphs (e)(2)(ii)(A), (e)(2)(ii)(B) or (e)(2)(ii)(C) of this 
section, and are not identified in Tables 1.1 or Table 1.4 of this part, 
each Bank shall determine its own credit rating for such assets or 
items, or relevant portion thereof, using credit rating standards 
available from an NRSRO or other similar standards. This credit rating, 
as determined by the Bank, shall be used to identify the applicable 
credit risk percentage requirement under Table 1.2 of this part for 
residential mortgage assets, or under Table 1.3 of this part for all 
other assets or items.
    (E) The credit risk percentage requirement for mortgage assets that 
are acquired member assets described in Sec. 955.2 of this chapter 
shall be assigned from Table 1.2 of this part based on the rating of 
those assets after taking into account any credit enhancement required 
by Sec. 955.3 of this chapter. Should a Bank further enhance a pool of 
loans through the purchase of insurance or by some other means, the 
credit risk percentage requirement shall be based on the rating of such 
pool after the supplemental credit enhancement, except that the Finance 
Board retains the right to adjust the credit capital charge to account 
for any deficiencies with the supplemental enhancement on a case-by-case 
basis.
    (iii) In determining the credit ratings under paragraph 
(e)(2)(ii)(A),

[[Page 50]]

(e)(2)(ii)(B) and (e)(2)(ii)(C) of this section, each Bank shall apply 
the following criteria:
    (A) The most recent credit rating from a given NRSRO shall be 
considered. If only one NRSRO has rated an asset or item, that NRSRO's 
rating shall be used. If an asset or item has received credit ratings 
from more than one NRSRO, the lowest credit rating from among those 
NRSROs shall be used.
    (B) Where a credit rating has a modifier (e.g., A-1+ for short-term 
ratings and A+ or A- for long-term ratings) the credit rating is deemed 
to be the credit rating without the modifier (e.g., A-1+ = A-1 and A+ or 
A-= A);
    (f) Calculation of credit equivalent amount for off-balance sheet 
items--(1) General requirement. The credit equivalent amount for an off-
balance sheet item shall be determined by a Finance Board approved model 
or shall be equal to the face amount of the instrument multiplied by the 
credit conversion factor assigned to such risk category of instruments, 
subject to the exceptions in paragraph (f)(2) of this section, provided 
in the following Table 2 of this part:

     Table 2--Credit Conversion Factors for Off-Balance Sheet Items
------------------------------------------------------------------------
                                                              Credit
                                                            conversion
                       Instrument                           factor  (In
                                                             percent)
------------------------------------------------------------------------
Asset sales with recourse where the credit risk remains              100
 with the Bank..........................................
Commitments to make advances subject to certain drawdown
Commitments to acquire loans subject to certain drawdown
Standby letters of credit...............................              50
Other commitments with original maturity of over one
 year...................................................
Other commitments with original maturity of one year or               20
 less...................................................
------------------------------------------------------------------------

    (2) Exceptions. The credit conversion factor shall be zero for Other 
Commitments With Original Maturity of Over One Year and Other 
Commitments With Original Maturity of One Year or Less, for which credit 
conversion factors of 50 percent or 20 percent would otherwise apply, 
that are unconditionally cancelable, or that effectively provide for 
automatic cancellation, due to the deterioration in a borrower's 
creditworthiness, at any time by the Bank without prior notice.
    (g) Calculation of current and potential future credit exposures for 
single derivative contracts--(1) Current credit exposure. The current 
credit exposure for a derivative contract that is not subject to a 
qualifying bilateral netting contract described in paragraph (h)(3) of 
this section shall be:
    (i) If the mark-to-market value of the contract is positive, the 
mark-to-market value of the contract; or
    (ii) If the mark-to-market value of the contract is zero or 
negative, zero.
    (2) Potential future credit exposure. (i) The potential future 
credit exposure for a single derivative contract, including a derivative 
contract with a negative mark-to-market value, shall be calculated using 
an internal model approved by the Finance Board or, in the alternative, 
by multiplying the effective notional amount of the derivative contract 
by one of the assigned credit conversion factors, modified as may be 
required by paragraph (g)(2)(ii) of this section, for the appropriate 
category as provided in the following Table 3 of this part:

          Table 3--Credit Conversion Factors for Potential Future Credit Exposure Derivative Contracts
                                                  [In percent]
----------------------------------------------------------------------------------------------------------------
                                                                Foreign                   Precious
              Residual maturity                  Interest    exchange and     Equity       metals       Other
                                                   rate          gold                   except gold  commodities
----------------------------------------------------------------------------------------------------------------
One year or less.............................           0             1              6            7           10
Over 1 year to five years....................            .5           5              8            7           12
Over five years..............................           1.5           7.5           10            8           15
----------------------------------------------------------------------------------------------------------------


[[Page 51]]

    (ii) In applying the credit conversion factors in Table 3 of this 
part the following modifications shall be made:
    (A) For derivative contracts with multiple exchanges of principal, 
the conversion factors are multiplied by the number of remaining 
payments in the derivative contract; and
    (B) For derivative contracts that automatically reset to zero value 
following a payment, the residual maturity equals the time until the 
next payment; however, interest rate contracts with remaining maturities 
of greater than one year shall be subject to a minimum conversion factor 
of 0.5 percent.
    (iii) If a Bank uses an internal model to determine the potential 
future credit exposure for a particular type of derivative contract, the 
Bank shall use the same model for all other similar types of contracts. 
However, the Bank may use an internal model for one type of derivative 
contract and Table 3 of this part for another type of derivative 
contract.
    (iv) Forwards, swaps, purchased options and similar derivative 
contracts not included in the Interest Rate, Foreign Exchange and Gold, 
Equity, or Precious Metals Except Gold categories shall be treated as 
other commodities contracts when determining potential future credit 
exposures using Table 3 of this part.
    (v) If a Bank uses Table 3 of this part to determine the potential 
future credit exposures for credit derivative contracts, the credit 
conversion factors provided in Table 3 for equity contracts shall also 
apply to the credit derivative contracts entered into with investment 
grade counterparties. If the counterparty is downgraded to below 
investment grade, the credit conversion factor provided in Table 3 of 
this part for other commodity contracts shall apply.
    (h) Calculation of current and potential future credit exposures for 
multiple derivative contracts subject to a qualifying bilateral netting 
contract--(1) Current credit exposure. The current credit exposure for 
multiple derivative contracts executed with a single counterparty and 
subject to a qualifying bilateral netting contract described in 
paragraph (h)(3) of this section, shall be calculated on a net basis and 
shall equal:
    (i) The net sum of all positive and negative mark-to-market values 
of the individual derivative contracts subject to a qualifying bilateral 
netting contract, if the net sum of the mark-to-market values is 
positive; or
    (ii) Zero, if the net sum of the mark-to-market values is zero or 
negative.
    (2) Potential future credit exposure. The potential future credit 
exposure for each individual derivative contract from among a group of 
derivative contracts that are executed with a single counterparty and 
subject to a qualifying bilateral netting contract described in 
paragraph (h)(3) of this section shall be calculated as follows:

Anet = 0.4 x Agross + (0.6 x NGR x 
    Agross),


where:
    (i) Anet is the potential future credit exposure for an 
individual derivative contract subject to the qualifying bilateral 
netting contract;
    (ii) Agross is the gross potential future credit 
exposure, i.e., the potential future credit exposure for the individual 
derivative contract, calculated in accordance with paragraph (g)(2) of 
this section but without regard to the fact that the contract is subject 
to the qualifying bilateral netting contract;
    (iii) NGR is the net to gross ratio, i.e., the ratio of the net 
current credit exposure of all the derivative contracts subject to the 
qualifying bilateral netting contract, calculated in accordance with 
paragraph (h)(1) of this section, to the gross current credit exposure; 
and
    (iv) The gross current credit exposure is the sum of the positive 
current credit exposures of all the individual derivative contracts 
subject to the qualifying bilateral netting contract, calculated in 
accordance with paragraph (g)(1) of this section but without regard to 
the fact that the contract is subject to the qualifying bilateral 
netting contract.
    (3) Qualifying bilateral netting contract. A bilateral netting 
contract shall be considered a qualifying bilateral netting contract if 
the following conditions are met:
    (i) The netting contract is in writing;
    (ii) The netting contract is not subject to a walkaway clause;

[[Page 52]]

    (iii) The netting contract provides that the Bank would have a 
single legal claim or obligation either to receive or to pay only the 
net amount of the sum of the positive and negative mark-to-market values 
on the individual derivative contracts covered by the netting contract 
in the event that a counterparty, or a counterparty to whom the netting 
contract has been assigned, fails to perform due to default, insolvency, 
bankruptcy, or other similar circumstance;
    (iv) The Bank obtains a written and reasoned legal opinion that 
represents, with a high degree of certainty, that in the event of a 
legal challenge, including one resulting from default, insolvency, 
bankruptcy, or similar circumstances, the relevant court and 
administrative authorities would find the Bank's exposure to be the net 
amount under:
    (A) The law of the jurisdiction by which the counterparty is 
chartered or the equivalent location in the case of non-corporate 
entities, and if a branch of the counterparty is involved, then also 
under the law of the jurisdiction in which the branch is located;
    (B) The law of the jurisdiction that governs the individual 
derivative contracts covered by the netting contract; and
    (C) The law of the jurisdiction that governs the netting contract;
    (v) The Bank establishes and maintains procedures to monitor 
possible changes in relevant law and to ensure that the netting contract 
continues to satisfy the requirements of this section; and
    (vi) The Bank maintains in its files documentation adequate to 
support the netting of a derivative contract.
    (i) Credit risk capital charge for assets hedged with credit 
derivatives--(1) Credit derivatives with a remaining maturity of one 
year or more. The credit risk capital charge for an asset that is hedged 
with a credit derivative that has a remaining maturity of one year or 
more may be reduced only in accordance with paragraph (i)(3) or (i)(4) 
of this section and only if the credit derivative provides substantial 
protection against credit losses.
    (2) Credit derivatives with a remaining maturity of less than one 
year. The credit risk capital charge for an asset that is hedged with a 
credit derivative that has a remaining maturity of less than one year 
may be reduced only in accordance with paragraph (i)(3) of this section 
and only if the remaining maturity on the credit derivative is identical 
to or exceeds the remaining maturity of the hedged asset and the credit 
derivative provides substantial protection against credit losses.
    (3) Capital charge reduced to zero. The credit risk capital charge 
for an asset shall be zero if a credit derivative is used to hedge the 
credit risk on that asset in accordance with paragraph (i)(1) or (i)(2) 
of this section, provided that:
    (i) The remaining maturity for the credit derivative used for the 
hedge is identical to or exceeds the remaining maturity for the hedged 
asset, and either:
    (A) The asset referenced in the credit derivative is identical to 
the hedged asset; or
    (B) The asset referenced in the credit derivative is different from 
the hedged asset, but only if the asset referenced in the credit 
derivative and the hedged asset have been issued by the same obligor, 
the asset referenced in the credit derivative ranks pari passu to or 
more junior than the hedged asset and has the same maturity as the 
hedged asset, and cross-default clauses apply; and
    (ii) The credit risk capital charge for the credit derivative 
contract calculated pursuant to paragraph (d) of this section is still 
applied.
    (4) Capital charge reduction in certain other cases. The credit risk 
capital charge for an asset hedged with a credit derivative in 
accordance with paragraph (i)(1) of this section shall equal the sum of 
the credit risk capital charges for the hedged and unhedged portion of 
the asset provided that:
    (i) The remaining maturity for the credit derivative is less than 
the remaining maturity for the hedged asset and either:
    (A) The asset referenced in the credit derivative is identical to 
the hedged asset; or
    (B) The asset referenced in the credit derivative is different from 
the hedged asset, but only if the asset referenced in the credit 
derivative and the hedged

[[Page 53]]

asset have been issued by the same obligor, the asset referenced in the 
credit derivative ranks pari passu to or more junior than the hedged 
asset and has the same maturity as the hedged asset, and cross-default 
clauses apply; and
    (ii) The credit risk capital charge for the unhedged portion of the 
asset equals:
    (A) The credit risk capital charge for the hedged asset, calculated 
as the book value of the hedged asset multiplied by the hedged asset's 
credit risk percentage requirement assigned pursuant to paragraph (e)(2) 
of this section where the appropriate credit rating is that for the 
hedged asset and the appropriate maturity is the remaining maturity of 
the hedged asset; minus
    (B) The credit risk capital charge for the hedged asset, calculated 
as the book value of the hedged asset multiplied by the hedged asset's 
credit risk percentage requirement assigned pursuant to paragraph (e)(2) 
of this section where the appropriate credit rating is that for the 
hedged asset but the appropriate maturity is deemed to be the remaining 
maturity of the credit derivative; and
    (iii) The credit risk capital charge for the hedged portion of the 
asset is equal to the credit risk capital charge for the credit 
derivative, calculated in accordance with paragraph (d) of this section.
    (j) Zero Credit risk capital charge for certain derivative 
contracts. The credit risk capital charge for the following derivative 
contracts shall be zero:
    (1) A foreign exchange rate contract with an original maturity of 14 
calendar days or less (gold contracts do not qualify for this 
exception); and
    (2) A derivative contract that is traded on an organized exchange 
requiring the daily payment of any variations in the market value of the 
contract.
    (k) Date of calculations. Unless otherwise directed by the Finance 
Board, each Bank shall perform all calculations required by this section 
using the assets, off-balance sheet items, and derivative contracts held 
by the Bank, and, if applicable, the values or credit ratings of such 
assets, items, or derivatives as of the close of business of the last 
business day of the month for which the credit risk capital charge is 
being calculated.

[66 FR 8310, Jan. 30, 2001, as amended at 66 FR 54108, Oct. 26, 2001]



Sec. 932.5  Market risk capital requirement.

    (a) General requirement. (1) Each Bank's market risk capital 
requirement shall equal the sum of:
    (i) The market value of the Bank's portfolio at risk from movements 
in interest rates, foreign exchange rates, commodity prices, and equity 
prices that could occur during periods of market stress, where the 
market value of the Bank's portfolio at risk is determined using an 
internal market risk model that fulfills the requirements of paragraph 
(b) of this section and that has been approved by the Finance Board; and
    (ii) The amount, if any, by which the Bank's current market value of 
total capital is less than 85 percent of the Bank's book value of total 
capital, where:
    (A) The current market value of the total capital is calculated by 
the Bank using the internal market risk model approved by the Finance 
Board under paragraph (d) of this section; and
    (B) The book value of total capital is the same as the amount of 
total capital reported by the Bank to the Finance Board under Sec. 
932.7 of this part.
    (2) A Bank may substitute an internal cash flow model to derive a 
market risk capital requirement in place of that calculated using an 
internal market risk model under paragraph (a)(1) of this section, 
provided that:
    (i) The Bank obtains Finance Board approval of the internal cash 
flow model and of the assumptions to be applied to the model; and
    (ii) The Bank demonstrates to the Finance Board that the internal 
cash flow model subjects the Bank's assets and liabilities, off-balance 
sheet items and derivative contracts, including related options, to a 
comparable degree of stress for such factors as will be required for an 
internal market risk model.
    (b) Measurement of market value at risk under a Bank's internal 
market risk model. (1) Except as provided under paragraph (a)(2) of this 
section, each

[[Page 54]]

Bank shall use an internal market risk model that estimates the market 
value of the Bank's assets and liabilities, off-balance sheet items, and 
derivative contracts, including any related options, and measures the 
market value of the Bank's portfolio at risk of its assets and 
liabilities, off-balance sheet items, and derivative contracts, 
including related options, from all sources of the Bank's market risks, 
except that the Bank's model need only incorporate those risks that are 
material.
    (2) The Bank's internal market risk model may use any generally 
accepted measurement technique, such as variance-covariance models, 
historical simulations, or Monte Carlo simulations, for estimating the 
market value of the Bank's portfolio at risk, provided that any 
measurement technique used must cover the Bank's material risks.
    (3) The measures of the market value of the Bank's portfolio at risk 
shall include the risks arising from the non-linear price 
characteristics of options and the sensitivity of the market value of 
options to changes in the volatility of the options' underlying rates or 
prices.
    (4) The Bank's internal market risk model shall use interest rate 
and market price scenarios for estimating the market value of the Bank's 
portfolio at risk, but at a minimum:
    (i) The Bank's internal market risk model shall provide an estimate 
of the market value of the Bank's portfolio at risk such that the 
probability of a loss greater than that estimated shall be no more than 
one percent;
    (ii) The Bank's internal market risk model shall incorporate 
scenarios that reflect changes in interest rates, interest rate 
volatility, and shape of the yield curve, and changes in market prices, 
equivalent to those that have been observed over 120-business day 
periods of market stress. For interest rates, the relevant historical 
observations should be drawn from the period that starts at the end of 
the previous month and goes back to the beginning of 1978;
    (iii) The total number of, and specific historical observations 
identified by the Bank as, stress scenarios shall be:
    (A) Satisfactory to the Finance Board;
    (B) Representative of the periods of the greatest potential market 
stress given the Bank's portfolio, and
    (C) Comprehensive given the modeling capabilities available to the 
Bank; and
    (iv) The measure of the market value of the Bank's portfolio at risk 
may incorporate empirical correlations among interest rates.
    (5) For any consolidated obligations denominated in a currency other 
than U.S. Dollars or linked to equity or commodity prices, each Bank 
shall, in addition to fulfilling the criteria of paragraph (b)(4) of 
this section, calculate an estimate of the market value of its portfolio 
at risk due to the material foreign exchange, equity price or commodity 
price risk, such that, at a minimum:
    (i) The probability of a loss greater than that estimated shall not 
exceed one percent;
    (ii) The scenarios reflect changes in foreign exchange, equity, or 
commodity market prices that have been observed over 120-business day 
periods of market stress, as determined using historical data that is 
from an appropriate period; and
    (iii) The total number of, and specific historical observations 
identified by the Bank as, stress scenarios shall be:
    (A) Satisfactory to the Finance Board;
    (B) Representative of the periods of greatest potential stress given 
the Bank's portfolio; and
    (C) Comprehensive given the modeling capabilities available to the 
Bank; and
    (iv) The measure of the market value of the Bank's portfolio at risk 
may incorporate empirical correlations within or among foreign exchange 
rates, equity prices, or commodity prices.
    (c) Independent validation of Bank internal market risk model or 
internal cash flow model. (1) Each Bank shall conduct an independent 
validation of its internal market risk model or internal cash flow model 
within the Bank that is carried out by personnel not reporting to the 
business line responsible for conducting business transactions for the

[[Page 55]]

Bank. Alternatively, the Bank may obtain independent validation by an 
outside party qualified to make such determinations. Validations shall 
be done on an annual basis, or more frequently as required by the 
Finance Board.
    (2) The results of such independent validations shall be reviewed by 
the Bank's board of directors and provided promptly to the Finance 
Board.
    (d) Finance Board approval of Bank internal market risk model or 
internal cash flow model. Each Bank shall obtain Finance Board approval 
of an internal market risk model or an internal cash flow model, 
including subsequent material adjustments to the model made by the Bank, 
prior to the use of any model. Each Bank shall make such adjustments to 
its model as may be directed by the Finance Board.
    (e) Date of calculations. Unless otherwise directed by the Finance 
Board, each Bank shall perform any calculations or estimates required 
under this section using the assets and liabilities, off-balance sheet 
items, and derivative contracts held by the Bank, and if applicable, the 
values of any such holdings, as of the close of business of the last 
business day of the month for which the market risk capital requirement 
is being calculated.



Sec. 932.6  Operations risk capital requirement.

    (a) General requirement. Except as authorized under paragraph (b) of 
this section, each Bank's operations risk capital requirement shall at 
all times equal 30 percent of the sum of the Bank's credit risk capital 
requirement and market risk capital requirement.
    (b) Alternative requirements. With the approval of the Finance 
Board, each Bank may have an operations risk capital requirement equal 
to less than 30 percent but no less than 10 percent of the sum of the 
Bank's credit risk capital requirement and market risk capital 
requirement if:
    (1) The Bank provides an alternative methodology for assessing and 
quantifying an operations risk capital requirement; or
    (2) The Bank obtains insurance to cover operations risk from an 
insurer rated at least the second highest investment grade credit rating 
by an NRSRO.



Sec. 932.7  Reporting requirements.

    Each Bank shall report to the Finance Board by the 15th business day 
of each month its risk-based capital requirement by component amounts, 
and its actual total capital amount and permanent capital amount, 
calculated as of the close of business of the last business day of the 
preceding month, or more frequently, as may be required by the Finance 
Board.



Sec. 932.8  Minimum liquidity requirements.

    In addition to meeting the deposit liquidity requirements contained 
in Sec. 965.3 of this chapter, each Bank shall hold contingency 
liquidity in an amount sufficient to enable the Bank to meet its 
liquidity needs, which shall, at a minimum, cover five business days of 
inability to access the consolidated obligation debt markets. An asset 
that has been pledged under a repurchase agreement cannot be used to 
satisfy minimum liquidity requirements.



Sec. 932.9  Limits on unsecured extensions of credit to one counterparty
or affiliated counterparties; reporting requirements for total 

extensions of credit to one counterparty or affiliated counterparties.

    (a) Unsecured extensions of credit to a single counterparty. A Bank 
shall not extend unsecured credit to any single counterparty (other than 
a GSE) in an amount that would exceed the limits of this paragraph. A 
Bank shall not extend unsecured credit to a GSE in an amount that would 
exceed the limits set forth in paragraph (c) of this section. If a 
third-party provides an irrevocable, unconditional guarantee of 
repayment of a credit (or any part thereof), the third-party guarantor 
shall be considered the counterparty for purposes of calculating and 
applying the unsecured credit limits of this section with respect the to 
guaranteed portion of the transaction.
    (1) Term limits. All unsecured extensions of credit by a Bank to a 
single counterparty that arise from the Bank's on- and off-balance sheet 
and derivative transactions (but excluding

[[Page 56]]

the amount of sales of federal funds with a maturity of one day or less 
and sales of federal funds subject to a continuing contract) shall not 
exceed the product of the maximum capital exposure limit applicable to 
such counterparty, as determined in accordance with paragraph (a)(4) of 
this section and Table 4 of this part, multiplied by the lesser of:
    (i) The Bank's total capital; or
    (ii) The counterparty's Tier 1 capital, or if Tier 1 capital is not 
available, total capital (as defined by the counterparty's principal 
regulator) or some similar comparable measure identified by the Bank.
    (2) Overall limits including sales of overnight federal funds. All 
unsecured extensions of credit by a Bank to a single counterparty that 
arise from the Bank's on- and off-balance sheet and derivative 
transactions, including the amounts of sales of federal funds with a 
maturity of one day or less and sales of federal funds subject to a 
continuing contract, shall not exceed twice the limit calculated 
pursuant to paragraph (a)(1) of this section.
    (3) Limits for certain obligations issued by state, local or tribal 
governmental agencies. The term limit set forth in paragraph (a)(1) of 
this section when applied to the marketable direct obligations of state, 
local or tribal government unit or agencies that are acquired member 
assets identified in Sec. 955.2(a)(3) of this chapter or are otherwise 
excluded from the prohibition against investments in whole mortgages or 
whole loan or interests in such mortgages or loans by Sec. 
956.3(a)(4)(iii) of this chapter shall be calculated based on the Bank's 
total capital and the credit rating assigned to the particular 
obligation as determined in accordance with paragraph (a)(5) of this 
section. If a Bank owns series or classes of obligations issued by a 
particular state, local or tribal government unit or agency or has 
extended other forms of unsecured credit to such entity falling into 
different rating categories, the total amount of unsecured credit 
extended by the Bank to that government unit or agency shall not exceed 
the term limit associated with the highest-rated obligation issued by 
the entity and actually purchased by the Bank.
    (4) Bank determination of applicable maximum capital exposure 
limits. (i) Except as set forth in paragraph (a)(4)(ii) or (a)(4)(iii) 
of this section, the applicable maximum capital exposure limits are 
assigned to each counterparty based upon the long-term credit rating of 
the counterparty, as determined in accordance with paragraph (a)(5) of 
this section, and are provided in the following Table 4 of this part:

  Table 4--Maximum Limits on Unsecured Extensions of Credit to a Single
      Counterparty by Counterparty Long-Term Credit Rating Category
------------------------------------------------------------------------
                                                              Maximum
                                                              capital
    Long-term credit rating of counterparty category      exposure limit
                                                            (in percent)
------------------------------------------------------------------------
Highest Investment Grade................................              15
Second Highest Investment Grade.........................              14
Third Highest Investment Grade..........................               9
Fourth Highest Investment Grade.........................               3
Below Investment Grade or Other.........................               1
------------------------------------------------------------------------

    (ii) If a counterparty does not have a long-term credit rating but 
has received a short-term credit rating from an NRSRO, the maximum 
capital exposure limit applicable to that counterparty shall be based 
upon the short-term credit rating, as determined in accordance with 
paragraph (a)(5) of this section, as follows:
    (A) The highest short-term investment grade credit rating shall 
correspond to the maximum capital exposure limit provided in Table 4 of 
this part for the third highest long-term investment grade rating;
    (B) The second highest short-term investment grade rating shall 
correspond to the maximum capital exposure limit provided in Table 4 of 
this part for the fourth highest long-term investment grade rating; and
    (C) The third highest short-term investment grade rating shall 
correspond to the maximum capital exposure limit provided in Table 4 of 
this part for the fourth highest long-term investment grade rating.
    (iii) If a specific debt obligation issued by a counterparty 
receives a credit rating from an NRSRO that is lower than the 
counterparty's long-term credit rating, the total amount of

[[Page 57]]

the lower-rated obligation held by the Bank may not exceed a sub-limit 
calculated in accordance with paragraph (a)(1) of this section, except 
that the Bank shall use the credit rating associated with the specific 
obligation to determine the applicable maximum capital exposure limit. 
For purposes of this paragraph, the credit rating of the debt obligation 
shall be determined in accordance with paragraph (a)(5) of this section.
    (5) Bank determination of applicable credit ratings. The following 
criteria shall be applied to determine a counterparty's credit rating:
    (i) The counterparty's most recent credit rating from a given NRSRO 
shall be considered;
    (ii) If only one NRSRO has rated the counterparty, that NRSRO's 
rating shall be used. If a counterparty has received credit ratings from 
more than one NRSRO, the lowest credit rating from among those NRSROs 
shall be used;
    (iii) Where a credit rating has a modifier, the credit rating is 
deemed to be the credit rating without the modifier;
    (iv) If a counterparty is placed on a credit watch for a potential 
downgrade by an NRSRO, the credit rating from that NRSRO at the next 
lower grade shall be used; and
    (v) If a counterparty is not rated by an NRSRO, the Bank shall 
determine the applicable credit rating by using credit rating standards 
available from an NRSRO or other similar standards.
    (b) Unsecured extensions of credit to affiliated counterparties--(1) 
In general. The total amount of unsecured extensions of credit by a Bank 
to a group of affiliated counterparties that arise from the Bank's on- 
and off-balance sheet and derivative transactions, including sales of 
federal funds with a maturity of one day or less and sales of federal 
funds subject to a continuing contract, shall not exceed thirty percent 
of the Bank's total capital.
    (2) Relation to individual limits. The aggregate limits calculated 
under this paragraph shall apply in addition to the limits on extensions 
of unsecured credit to a single counterparty imposed by paragraph (a) of 
this section.
    (c) Special limits for GSEs--(1) In general. Unsecured extensions of 
credit by a Bank to a GSE that arise from the Bank's on- and off-balance 
sheet and derivative transactions, including from the purchase of any 
subordinated debt subject to the sub-limit set forth in paragraph (c)(2) 
of this section, from any sales of federal funds with a maturity of one 
day or less and from sales of federal funds subject to a continuing 
contract, shall not exceed the lesser of:
    (i) The Bank's total capital; or
    (ii) The GSE's total capital (as defined by the GSE's principal 
regulator) or some similar comparable measure identified by the Bank.
    (2) Sub-limit for subordinated debt. The maximum amount of 
subordinated debt issued by a GSE and held by a Bank shall not exceed 
the term limit calculated under paragraph (a)(1) of this section, except 
that a Bank shall use the credit rating of the GSE's subordinated debt 
to determine the applicable maximum capital exposure limit. The credit 
rating of the subordinated debt shall be determined in accordance with 
paragraph (a)(5) of this section.
    (3) Limits applying to a GSE after a downgrade. If any NRSRO assigns 
a credit rating to any senior debt obligation issued (or to be issued) 
by a GSE that is below the highest investment grade or downgrades, or 
places on a credit watch for a potential downgrade of the credit rating 
on any senior unsecured obligation issued by a GSE to below the highest 
investment grade, the special limits on unsecured extensions of credit 
under paragraph (c)(1) of this section shall cease to apply, and 
instead, the Bank shall calculate the maximum amount of its unsecured 
extensions of credit to that GSE in accordance with paragraphs (a)(1) 
and (a)(2) of this section.
    (4) Extensions of unsecured credit to other Banks. The limits of 
this section do not apply to unsecured credit extended by one Bank to 
another Bank.
    (d) Extensions of unsecured credit after downgrade or placement on 
credit watch. If an NRSRO downgrades the credit rating applicable to any 
counterparty or places any counterparty on a credit watch for a 
potential downgrade, a Bank need not unwind or liquidate any existing 
transaction or position with

[[Page 58]]

that counterparty that complied with the limits of this section at the 
time it was entered. In such a case, however, a Bank may extend any 
additional unsecured credit to such a counterparty only in compliance 
with the limitations that are calculated using the lower maximum 
exposure limits. For the purposes of this section, the renewal of an 
existing unsecured extension of credit, including any decision not to 
terminate any sales of federal funds subject to a continuing contract, 
shall be considered an additional extension of unsecured credit that can 
be undertaken only in accordance with the lower limit.
    (e) Reporting requirements--(1) Total unsecured extensions of 
credit. Each Bank shall report monthly to the Finance Board the amount 
of the Bank's total unsecured extensions of credit arising from on- and 
off-balance sheet and derivative transactions to any single counterparty 
or group of affiliated counterparties that exceeds 5 percent of:
    (i) The Bank's total capital; or
    (ii) The counterparty's, or affiliated counterparties' combined, 
Tier 1 capital, or if Tier 1 capital is not available, total capital (as 
defined by each counterparty's principal regulator) or some similar 
comparable measure identified by the Bank.
    (2) Total secured and unsecured extensions of credit. Each Bank 
shall report monthly to the Finance Board the amount of the Bank's total 
secured and unsecured extensions of credit arising from on- and off-
balance sheet and derivative transactions to any single counterparty or 
group of affiliated counterparties that exceeds 5 percent of the Bank's 
total assets.
    (3) Extensions of credit in excess of limits. A Bank shall report 
promptly to the Finance Board any extensions of unsecured credit that 
exceeds any limit set forth in paragraphs (a), (b) or (c) of this 
section. In making this report, a Bank shall provide the name of the 
counterparty or group of affiliated counterparties to which the excess 
unsecured credit has been extended, the dollar amount of the applicable 
limit which has been exceeded, the dollar amount by which the Bank's 
extension of unsecured credit exceeds such limit, the dates for which 
the Bank was not in compliance with the limit, and, if applicable, a 
brief explanation of any extenuating circumstances which caused the 
limit to be exceeded.
    (f) Measurement of unsecured extensions of credit--(1) In general. 
For purposes of this section, unsecured extensions of credit will be 
measured as follows:
    (i) For on-balance sheet transactions, an amount equal to the sum of 
the book value of the item plus net payments due the Bank;
    (ii) For off-balance sheet transactions, an amount equal to the 
credit equivalent amount of such item, calculated in accordance with 
Sec. 932.4(f) of this part; and
    (iii) For derivative transactions, an amount equal to the sum of the 
current and potential future credit exposures for the derivative 
contract, where those values are calculated in accordance with 
Sec. Sec. 932.4(g) or 932.4(h) of this part, as applicable, less the 
amount of any collateral that is held in accordance with the 
requirements of Sec. 932.4(e)(2)(ii)(B) of this part against the credit 
exposure from the derivative contract.
    (2) Status of debt obligations purchased by the Bank. Any debt 
obligation or debt security (other than mortgage-backed securities or 
acquired member assets that are identified in Sec. Sec. 955.2(a)(1) and 
(2) of this chapter) purchased by a Bank shall be considered an 
unsecured extension of credit for the purposes of this section, except:
    (i) Any amount owed the Bank against which the Bank holds collateral 
in accordance with Sec. 932.4(e)(2)(ii)(B) of this part; or
    (ii) Any amount which the Finance Board has determined on a case-by-
case basis shall not be considered an unsecured extension of credit.
    (g) Obligations of the United States. Obligations of, or guaranteed 
by, the United States are not subject to the requirements of this 
section.

[66728, Dec. 27, 2002]



PART 933_BANK CAPITAL STRUCTURE PLANS--Table of Contents



Sec.
933.1 Submission of plan.

[[Page 59]]

933.2 Contents of plan.
933.3 Independent review of capital plan.
933.4 Transition provisions.
933.5 Disclosure to members concerning capital plan and capital stock 
          conversion.

    Authority: 12 U.S.C. 1422a(a)(3), 1422b(a), 1426, 1440, 1443, 1446.

    Source: 66 FR 8310, Jan. 30, 2001, unless otherwise noted.



Sec. 933.1  Submission of plan.

    (a) In general. By no later than October 29, 2001, the board of 
directors of each Bank shall submit to the Finance Board a plan to 
establish and implement a new capital structure for that Bank, which 
plan shall comply with part 931 of this chapter and under which, when 
implemented, the Bank shall have sufficient total and permanent capital 
to comply with the regulatory capital requirements established by part 
932 of this chapter. The Finance Board, upon a demonstration of good 
cause submitted by the board of directors of a Bank, may approve a 
reasonable extension of the 270-day period for submission of the capital 
plan. A Bank shall not implement its capital plan, or any amendment to 
the plan, without Finance Board approval.
    (b) Failure to submit a capital plan. If a Bank fails to submit a 
capital plan to the Finance Board by October 29, 2001, including any 
approved extension, the Finance Board may establish a capital plan for 
that Bank, take any enforcement action against the Bank, its directors, 
or its executive officers authorized by section 2B(a) of the Act (12 
U.S.C. 1422b(a)), or merge the Bank pursuant to section 26 of the Act 
(12 U.S.C. 1446) into any other Bank that has submitted a capital plan.
    (c) Consideration of the plan. After receipt of a Bank's capital 
plan, the Finance Board may return the plan to the Bank if it does not 
comply with section 6 of the Act (12 U.S.C. 1426) or any regulatory 
requirement or is otherwise incomplete or materially deficient. If the 
Finance Board accepts a capital plan for review, it may require the Bank 
to submit additional information regarding its plan or to amend the 
plan, prior to determining whether to approve the plan. The Finance 
Board may approve a capital plan as submitted or as amended, or may 
condition its approval on the Bank's compliance with certain stated 
conditions, and may require that the capital plans of all Banks take 
effect on the same date.



Sec. 933.2  Contents of plan.

    The capital plan for each Bank shall include, at a minimum, 
provisions addressing the following matters:
    (a) Minimum investment. (1) The capital plan shall require each 
member to purchase and maintain a minimum investment in the capital 
stock of the Bank, in accordance with Sec. 931.3, of this chapter and 
shall prescribe the manner in which the minimum investment is to be 
calculated. The plan shall require each member to maintain its minimum 
investment in the Bank's stock for as long as it remains a member and, 
with regard to Bank stock purchased to support an advance or other 
business activity, for as long as the advance or business activity 
remains outstanding.
    (2) The capital plan shall specify the amount and class (or classes) 
of Bank stock that an institution is required to own in order to become 
and remain a member of the Bank, and shall specify the amount and class 
(or classes) of Bank stock that a member is required to own in order to 
obtain advances from, or to engage in other business transactions with, 
the Bank. If a Bank requires its members to satisfy its minimum 
investment through the purchase of one or more combinations of Class A 
and Class B stock, the authorized combinations of stock shall be 
specified in the capital plan, which shall afford the members the option 
of satisfying the minimum investment through the purchase of any such 
combination of stock.
    (3) The capital plan may establish a minimum investment that is 
calculated as a percentage of the total assets of the member, as a 
percentage of the advances outstanding to the member, as a percentage of 
the other business activities conducted with the member, on any other 
basis approved by the Finance Board, or on any combination of the above.
    (4) The minimum investment established by the capital plan shall be 
set at a level that, when applied to all

[[Page 60]]

members, provides sufficient capital for the Bank to comply with its 
minimum capital requirements, as specified in part 932 of this chapter. 
The capital plan shall require the board of directors of the Bank to 
monitor and, as necessary, to adjust, the minimum investment to ensure 
that the stock required to be purchased and maintained by the members is 
sufficient to allow the Bank to comply with its minimum capital 
requirements. The plan shall require each member to comply promptly with 
any adjusted minimum investment established by the board of directors of 
the Bank, but may allow a member a reasonable time to do so and may 
allow a member to reduce its outstanding business with the Bank as an 
alternative to purchasing additional stock.
    (b) Classes of capital stock. The capital plan shall specify the 
class or classes of stock (including subclasses, if any) that the Bank 
will issue, and shall establish the par value, rights, terms, and 
preferences associated with each class (or subclass) of stock. A Bank 
may establish preferences relating to, but not limited to, the dividend, 
voting, or liquidation rights for each class or subclass of Bank stock. 
Any voting preferences established by the Bank pursuant to Sec. 915.5 
of this chapter shall expressly state the voting rights of each class of 
stock with regard to the election of Bank directors. The capital plan 
shall provide that the owners of the Class B stock own the retained 
earnings, surplus, undivided profits, and equity reserves of the Bank, 
but shall have no right to receive any portion of those items, except 
through declaration of a dividend or capital distribution approved by 
the board of directors or through the liquidation of the Bank.
    (c) Dividends. The capital plan shall establish the manner in which 
the Bank will pay dividends, if any, on each class or subclass of stock, 
and shall provide that the Bank may not declare or pay any dividends if 
it is not in compliance with any capital requirement or if after paying 
the dividend it would not be in compliance with any capital requirement.
    (d) Initial issuance. The capital plan shall specify the date on 
which the Bank will implement the new capital structure, and shall 
establish the manner in which the Bank will issue Class A and/or Class B 
stock to its existing members, as well as to eligible institutions that 
subsequently become members. The capital plan shall address how the Bank 
will retire the stock that is outstanding as of the effective date, 
including stock held by a member that does not affirmatively elect to 
convert or exchange its existing stock to either Class A or Class B 
stock, or some combination thereof.
    (e) Members wishing not to convert existing stock. The capital plan 
shall establish an opt-out date on or before which a member that does 
not wish to convert its existing stock into Class A and/or Class B stock 
must file a written notice to withdraw from membership with the Finance 
Board. This opt-out date shall not be more than six months before the 
effective date of the capital plan. (For purposes of applying this 
provision, the membership of an institution that files its notice to 
withdraw with the Finance Board on or before the opt-out date 
established in a capital plan shall terminate six months from the date 
that the notice of withdrawal was filed with the Finance Board or on the 
effective date of the Bank's capital plan, whichever date is earlier.) 
The capital plan shall further provide that any member that is in the 
process of withdrawing on the effective date of the capital plan but did 
not file its written notice to withdraw from membership with the Finance 
Board on or before this opt-out date, shall have its existing stock 
converted into Class A and/or Class B stock as required by the capital 
plan, and that the effective date of withdrawal for such member shall be 
established in accordance with Sec. Sec. 925.26(b) and (c) of this 
chapter, provided, however, that the applicable stock redemption periods 
calculated under Sec. 925.26(c) of this chapter shall commence on date 
the member first submitted its written notice to withdraw to the Finance 
Board.
    (f) Stock transactions. The capital plan shall establish the 
criteria for the issuance, redemption, repurchase, transfer, and 
retirement of stock issued by the Bank. The capital plan also:

[[Page 61]]

    (1) Shall provide that the Bank may not issue stock other than in 
accordance with Sec. 931.2 of this chapter;
    (2) Shall provide that the stock of the Bank may be issued only to 
and held only by the members of that Bank;
    (3) Shall specify whether the stock of the Bank may be transferred 
among members, and, if such transfer is allowed, shall specify the 
procedures that a member should follow to effect such transfer, and that 
the transfer shall be undertaken only in accordance with Sec. 931.6 of 
this chapter;
    (4) Shall specify that the stock of the Bank may be traded only 
between the Bank and its members;
    (5) May provide for a minimum investment for members that purchase 
Class B stock that is lower than the minimum investment for members that 
purchase Class A stock, provided that the level of investment is 
sufficient for the Bank to comply with its regulatory capital 
requirements;
    (6) Shall specify the fee, if any, to be imposed on a member that 
cancels a request to redeem Bank stock; and
    (7) Shall specify the period of notice that the Bank will provide to 
a member before the Bank, on its own initiative, determines to 
repurchase any excess Bank stock from a member.
    (g) Termination of membership. The capital plan shall address the 
manner in which the Bank will provide for the disposition of its capital 
stock that is held by institutions that terminate their membership, and 
the manner in which the Bank will liquidate claims against its members, 
including claims resulting from prepayment of advances prior to their 
stated maturity.
    (h) Implementation. The capital plan shall demonstrate that the Bank 
has made a good faith determination that the Bank will be able to 
implement the plan as submitted and that the Bank will be in compliance 
with its regulatory total capital requirement and its regulatory risk-
based capital requirement after the plan is implemented.

[66 FR 8310, Jan. 30, 2001, as amended at 66 FR 54108, Oct. 26, 2001; 70 
FR 9510, Feb. 28, 2005]



Sec. 933.3  Independent review of capital plan.

    Prior to submitting its capital plan, each Bank shall conduct a 
review of the plan by an independent certified public accountant to 
ensure, to the extent possible, that the implementation of the plan 
would not result in any write-down of the redeemable stock owned by its 
members, and shall conduct a separate review by at least one NRSRO to 
determine, to the extent possible, whether the implementation of the 
plan would have a material effect on the credit rating of the Bank. The 
Bank shall submit a copy of each report to the Finance Board as part of 
its proposed capital plan.



Sec. 933.4  Transition provisions.

    (a) The capital plan of a Bank may include a transition provision 
that would allow a period of time, not to exceed three years, during 
which the Bank shall increase its total and permanent capital to levels 
that are sufficient to comply with its minimum leverage capital 
requirement and its minimum risk-based capital requirement. The capital 
plan of a Bank may also include a transition provision that would allow 
a period of time, not to exceed three years, during which institutions 
that were members of the Bank on November 12, 1999, shall increase the 
amount of Bank stock to a level that is sufficient to comply with the 
minimum investment established by the capital plan. The length of the 
transition periods need not be identical.
    (b) Any transition provision shall comply with the requirements of 
Sec. 931.9.



Sec. 933.5  Disclosure to members concerning capital plan and capital 
stock conversion.

    (a) No capital plan shall become effective until disclosure required 
by paragraphs (b) and (c) of this section has been provided to members. 
All disclosure required under this section shall be transmitted, sent or 
given to members not less than 45 days and not more than 60 days prior 
to the opt-out date established in the Bank's capital plan in accordance 
with Sec. 933.2(e).
    (b) The following information shall be provided to members about the 
Class A and/or Class B stock that a

[[Page 62]]

Bank intends to issue on the effective date of its capital plan:
    (1) With regard to each class or subclass of authorized stock, a 
description of:
    (i) Dividend rights;
    (ii) The terms of conversion;
    (iii) Redemption and repurchase rights;
    (iv) Voting rights and preferences,
    (v) Liquidation rights; and
    (vi) Any liability to further calls or to assessments by the Banks;
    (2) A description of any material differences between the securities 
to be converted into Class A and/or Class B stock and the Class A and/or 
Class B stock with regard to the rights addressed in paragraph (b)(1) of 
this section.
    (3) A statement of the reasons for the conversion to Class A and/or 
Class B stock and of the general effect thereof upon the rights of 
existing members; and
    (4) A description of any other material features concerning the 
Bank's initial issuance of Class A and/or Class B stock.
    (c) In addition to the disclosure about Class A and/or Class B 
stock, the following information shall be provided to members:
    (1) The Bank shall disclose financial information as follows:
    (i) Audited balance sheets as of the end of the two most recent 
fiscal years, audited statements of income and cash flows for each of 
the three fiscal years preceding the date of the most recent audited 
balance sheet being presented, and unaudited interim balance sheets and 
statements of income and cash flows as of and for appropriate interim 
dates that in form and content meet the requirements of Sec. 989.4 of 
this chapter;
    (ii) A pro forma capitalization table that reflects the Bank's 
projected new capital structure relative to its actual capitalization as 
of the date of the latest balance sheet required to be provided to 
members by paragraph (c)(1)(i) of this section. The Bank shall also 
provide a description of any material assumptions underlying the pro 
forma capitalization table and the basis for these assumptions, and 
shall provide estimates of its risk-based capital requirement, 
calculated in accordance with Sec. 932.3 of this chapter, and of its 
total capital-to-asset ratio (both of which shall be based on the same 
financial data used for the capitalization table), along with a 
discussion of material assumptions underlying these estimates and the 
basis for these assumptions; and
    (iii) Any of the financial information required to be disclosed by 
paragraph (c)(1) of this section may be incorporated by reference, 
provided the information being incorporated is contained in an annual or 
quarterly Bank report prepared in accordance with Sec. 989.4 of this 
chapter or an annual or quarterly Bank System report, and the disclosure 
identifies the information being incorporated by reference;
    (2) A narrative discussion of anticipated developments that could 
materially affect the liquidity, capital, earnings or continuing 
operations of the Bank, including those affecting dividends, product 
volumes, investment volumes, new business lines and risk profile.
    (3) A description of any amendments anticipated to be made to the 
Bank's by-laws, policies or other governance documents as a result of 
the implementation of the capital plan;
    (4) To the extent that such information has not been provided under 
paragraph (b) of this section, the Bank shall disclose information 
related to the capital plan as follows:
    (i) A description of the minimum stock investment requirements set 
forth in the capital plan;
    (ii) A statement outlining the requirements for amending the capital 
plan;
    (iii) A description of any restrictions or limitations under a 
Bank's capital plan on a member's rights to buy, or redeem its class A 
or class B stock, to have such stock repurchased, or otherwise to make 
use of such stock to fulfill the member's minimum stock investment 
requirement;
    (iv) A statement setting forth the opt-out date, on or before which 
a member's written notice to withdraw must be filed with the Finance 
Board (as established in accordance with Sec. 933.2(e) of this part) 
for the member not to have its existing Bank stock

[[Page 63]]

converted to Class A or Class B stock on the effective date of the 
Bank's capital plan and describing the effect on a member's effective 
date of withdrawal of failing to file its notice to withdraw on or 
before the opt-out date; and
    (v) A description of a member's rights under the capital plan to 
have its stock redeemed or repurchased upon voluntary or involuntary 
termination of its membership;
    (5) The Bank should state the name, address and telephone number 
where members may direct written or oral requests for a copy of the 
capital plan and any other instrument or document that defines the 
rights of the member/stockholders. This information shall be provided to 
the members without charge; and
    (6) The Bank shall provide a statement as to the anticipated 
accounting treatment for the transaction and the federal income tax 
implications of the transaction that members should consider in 
consultation with their own accounting and tax advisors.
    (d) Nothing in this section shall create or be deemed to create any 
rights in any third party.

[66 FR 54109, Oct. 26, 2001]



         SUBCHAPTER F_FEDERAL HOME LOAN BANK MISSION [RESERVED]



[[Page 64]]



 SUBCHAPTER G_FEDERAL HOME LOAN BANK ASSETS AND OFF-BALANCE SHEET ITEMS





PART 952_COMMUNITY INVESTMENT CASH ADVANCE PROGRAMS--Table of Contents



Sec.
952.1 Definitions.
952.2 Scope.
952.3 Purpose.
952.4 Targeted Community Lending Plan.
952.5 Community Investment Cash Advance Programs.
952.6 Reporting.
952.7 Documentation.

    Authority: 12 U.S.C. 1422b(a)(1), 1430.

    Source: 63 FR 65546, Nov. 27, 1998, unless otherwise noted. 
Redesignated at 65 FR 8256, Feb. 18, 2000.



Sec. 952.1  Definitions.

    As used in this part:
    Champion Community means a community which developed a strategic 
plan and applied for designation by either the Secretary of HUD or the 
Secretary of the USDA as an Empowerment Zone or Enterprise Community, 
but was designated a Champion Community.
    CICA program or Community Investment Cash Advance program means:
    (1) A Bank's AHP;
    (2) A Bank's CIP;
    (3) A Bank's RDF program or UDF program using any combination of the 
targeted beneficiaries and targeted income levels specified in Sec. 
952.1 of this part; and
    (4) Any other advance or grant program offered by a Bank using 
targeted beneficiaries and targeted income levels other than those 
specified in Sec. 952.1 of this part, established by the Bank with the 
prior approval of the Finance Board.
    Economic development projects means:
    (1) Commercial, industrial, manufacturing, social service, and 
public facility projects and activities; and
    (2) Public or private infrastructure projects, such as roads, 
utilities, and sewers.
    Family means one or more persons living in the same dwelling unit.
    Housing projects means projects or activities that involve the 
purchase, construction, rehabilitation or refinancing (subject to Sec. 
952.5(c) of this part) of, or predevelopment financing for:
    (1) Individual owner-occupied housing units, each of which is 
purchased or owned by a family with an income at or below the targeted 
income level;
    (2) Projects involving multiple units of owner-occupied housing in 
which at least 51% of the units are owned or are intended to be 
purchased by families with incomes at or below the targeted income 
level;
    (3) Rental housing where at least 51% of the units in the project 
are occupied by, or the rents are affordable to, families with incomes 
at or below the targeted income level; or
    (4) Manufactured housing parks where:
    (i) At least 51% of the units in the project are occupied by, or the 
rents are affordable to, families with incomes at or below the targeted 
income level; or
    (ii) The project is located in a neighborhood with a median income 
at or below the targeted income level.
    Median income for the area--(1) Owner-occupied housing projects and 
economic development projects. For purposes of owner-occupied housing 
projects and economic development projects, median income for the area 
means one or more of the following, as determined by the Bank:
    (i) The median income for the area, as published annually by HUD;
    (ii) The median income for the area obtained from the Federal 
Financial Institutions Examination Council;
    (iii) The applicable median family income, as determined under 26 
U.S.C. 143(f) (Mortgage Revenue Bonds) and published by a State agency 
or instrumentality;
    (iv) The median income for the area, as published by the USDA; or
    (v) The median income for the area obtained from another public 
entity or a private source and approved by the Board of Directors, at 
the request of a Bank, for use under the Bank's CICA programs.

[[Page 65]]

    (2) Rental housing projects. For purposes of rental housing 
projects, median income for the area means one or more of the following, 
as determined by the Bank:
    (i) The median income for the area, as published annually by HUD; or
    (ii) The median income for the area obtained from the Federal 
Financial Institutions Examination Council;
    (iii) The median income for the area obtained from another public 
entity or a private source and approved by the Board of Directors, at 
the request of a Bank, for use under the Bank's CICA programs.
    MSA means a Metropolitan Statistical Area as designated by the 
Office of Management and Budget.
    Neighborhood means:
    (1) A census tract or block numbering area;
    (2) A unit of local government with a population of 25,000 or less;
    (3) A rural county; or
    (4) A geographic location designated in comprehensive plans, 
ordinances, or other local documents as a neighborhood, village, or 
similar geographic designation that is within the boundary of but does 
not encompass the entire area of a unit of general local government.
    Provide financing means:
    (1) Originating loans;
    (2) Purchasing a participation interest, or providing financing to 
participate, in a loan consortium for CICA-eligible housing or economic 
development projects;
    (3) Making loans to entities that, in turn, make loans for CICA-
eligible housing or economic development projects;
    (4) Purchasing mortgage revenue bonds or mortgage-backed securities, 
where all of the loans financed by such bonds and all of the loans 
backing such securities, respectively, meet the eligibility requirements 
of the CICA program under which the member or housing associate borrower 
receives funding;
    (5) Creating or maintaining a secondary market for loans, where all 
such loans are mortgage loans meeting the eligibility requirements of 
the CICA program under which the member or housing associate borrower 
receives funding;
    (6) Originating CICA-eligible loans within 3 months prior to 
receiving the CICA funding; and
    (7) Purchasing low-income housing tax credits.
    RDF or Rural Development Funding program means an advance or grant 
program offered by a Bank for targeted community lending in rural areas.
    Rural area means:
    (1) A unit of general local government with a population of 25,000 
or less;
    (2) An unincorporated area outside an MSA; or
    (3) An unincorporated area within an MSA that qualifies for housing 
or economic development assistance from the USDA.
    Small business means a ``small business concern,'' as that term is 
defined by section 3(a) of the Small Business Act (15 U.S.C. 632(a)) and 
implemented by the Small Business Administration under 13 CFR part 121, 
or any successor provisions.
    Targeted beneficiaries means beneficiaries determined by the 
geographical area in which a project is located (Geographically Defined 
Beneficiaries), by the individuals who benefit from a project as 
employees or service recipients (Individual Beneficiaries), or by the 
nature of the project itself (Activity Beneficiaries), as follows:
    (1) Geographically Defined Beneficiaries:
    (i) The project is located in a neighborhood with a median income at 
or below the targeted income level;
    (ii) The project is located in a rural Champion Community, or a 
rural Empowerment Zone or rural Enterprise Community, as designated by 
the Secretary of the USDA;
    (iii) The project is located in an urban Champion Community, or an 
urban Empowerment Zone or urban Enterprise Community, as designated by 
the Secretary of HUD;
    (iv) The project is located in an Indian area, as defined by the 
Native American Housing Assistance and Self-Determination Act of 1996 
(25 U.S.C. 4101 et seq.), Alaskan Native Village, or Native Hawaiian 
Home Land;

[[Page 66]]

    (v) The project is located in an area and involves a property 
eligible for a Brownfield Tax Credit;
    (vi) The project is located in an area affected by a military base 
closing and is a ``community in the vicinity of the installation'' as 
defined by the Department of Defense at 32 CFR part 176;
    (vii) The project is located in a designated community under the 
Community Adjustment and Investment Program as defined under 22 U.S.C. 
290m-2;
    (viii) The project is located in a Federally declared disaster area; 
or
    (ix) The project is located in a state declared disaster area, or 
other area that qualifies for assistance under another Federal or State 
targeted economic development program, approved by the Finance Board.
    (2) Individual Beneficiaries:
    (i) The annual salaries for at least 51% of the permanent full- and 
part-time jobs, computed on a full-time equivalent basis, created or 
retained by the project, other than construction jobs, are at or below 
the targeted income level; or
    (ii) At least 51% of the families who otherwise benefit from (other 
than through employment), or are provided services by, the project have 
incomes at or below the targeted income level.
    (3) Activity Beneficiaries: Projects that qualify as small 
businesses.
    (4) Other Targeted Beneficiaries. A Bank may designate, with the 
prior approval of the Finance Board, other targeted beneficiaries for 
its targeted community lending.
    (5) Only targeted beneficiaries identified in paragraphs (1)(i) 
through (1)(iv), and (2)(i) and (2)(ii) of this definition are eligible 
for CIP advances.
    Targeted community lending means providing financing for economic 
development projects for targeted beneficiaries.
    Targeted income level means:
    (1) For rural areas, incomes at or below 115 percent of the median 
income for the area, as adjusted for family size in accordance with the 
methodology of the applicable area median income standard or, at the 
option of the Bank, for a family of four;
    (2) For urban areas, incomes at or below 100 percent of the median 
income for the area, as adjusted for family size in accordance with the 
methodology of the applicable area median income standard or, at the 
option of the Bank, for a family of four;
    (3) For advances provided under CIP:
    (i) For economic development projects, incomes at or below 80 
percent of the median income for the area; or
    (ii) For housing projects, incomes at or below 115 percent of the 
median income for the area, both as adjusted for family size in 
accordance with the methodology of the applicable area median income 
standard or, at the option of the Bank, for a family of four; or
    (4) For advances or grants provided under any other CICA program 
offered by a Bank, a targeted income level established by the Bank with 
the prior approval of the Finance Board.
    UDF program or Urban Development Funding program means an advance or 
grant program offered by a Bank for targeted community lending in urban 
areas.
    Urban area means:
    (1) A unit of general local government with a population of more 
than 25,000; or
    (2) An unincorporated area within an MSA that does not qualify for 
housing or economic development assistance from the USDA.
    USDA means the United States Department of Agriculture.

[63 FR 65546, Nov. 27, 1998, as amended at 65 FR 8264, Feb. 18, 2000; 65 
FR 44431, July 18, 2000; 66 FR 50295, Oct. 3, 2001. Redesignated and 
amended at 67 FR 12852, Mar. 20, 2002]



Sec. 952.2  Scope.

    Section 10(j)(10) of the Act (12 U.S.C. 1430(j)(10) authorizes the 
Banks to offer Community Investment Cash Advance (CICA) programs. This 
part establishes requirements for all CICA programs offered by a Bank, 
except for a Bank's Affordable Housing Program (AHP), which is governed 
specifically by part 951 of this chapter.

[63 FR 65546, Nov. 27, 1998, as amended at 65 FR 8264, Feb. 18, 2000. 
Redesignated and amended at 67 FR 12852, Mar. 20, 2002]



Sec. 952.3  Purpose.

    The purpose of this part is to identify targeted community lending 
projects that the Banks may support through

[[Page 67]]

the establishment of CICA programs under section 10(j)(10) of the Act 
(12 U.S.C. 1430(j)(10)). Pursuant to this part, a Bank may offer Rural 
Development Funding (RDF) or Urban Development Funding (UDF) programs, 
or both, for targeted community lending using the targeted beneficiaries 
or targeted income levels specified in Sec. 952.1, without prior 
Finance Board approval. A Bank also may offer other CICA programs for 
targeted community lending using targeted beneficiaries and targeted 
income levels other than those specified in Sec. 952.1, established by 
the Bank with the prior approval of the Finance Board. In addition, a 
Bank shall offer CICA programs under section 10(i) of the Act (12 U.S.C. 
1430(i)) (Community Investment Program (CIP)) and section 10(j) of the 
Act (12 U.S.C. 1430(j)) (Affordable Housing Program (AHP)). A Bank may 
provide advances or grants under its CICA programs except for CIP 
programs, under which a Bank may only provide advances.

[67 FR 12852, Mar. 20, 2002]



Sec. 952.4  Targeted Community Lending Plan

    Each Bank shall develop and adopt an annual Targeted Community 
Lending Plan pursuant to Sec. 944.6 of this chapter.

[63 FR 65546, Nov. 27, 1998, as amended at 65 FR 8264, Feb. 18, 2000; 65 
FR 44431, July 18, 2000]



Sec. 952.5  Community Investment Cash Advance Programs.

    (a) In general. (1) Each Bank shall offer an AHP in accordance with 
part 951 of this chapter.
    (2) Each Bank shall offer a CIP to provide financing for housing 
projects and for eligible targeted community lending at the appropriate 
targeted income levels.
    (3) Each Bank may offer RDF programs or UDF programs, or both, for 
targeted community lending using the targeted beneficiaries or targeted 
income levels specified in Sec. 952.1 of this part, without prior 
Finance Board approval.
    (4) Each Bank may offer CICA programs for targeted community lending 
using targeted beneficiaries and targeted income levels other than those 
specified in Sec. 952.1 of this part, established by the Bank with the 
prior approval of the Finance Board.
    (b) Mixed-use projects. (1) For projects funded under CICA programs 
other than CIP, involving a combination of housing projects and economic 
development projects, only the economic development components of the 
project must meet the appropriate targeted income level for the 
respective CICA program.
    (2) For projects funded under CIP, both the housing and economic 
development components of the project must meet the appropriate targeted 
income levels.
    (c) Refinancing. CICA funding other than AHP may be used to 
refinance economic development projects and housing projects, provided 
that any equity proceeds of the refinancing of rental housing and 
manufactured housing parks are used to rehabilitate the projects or to 
preserve affordability for current residents.
    (d) Pricing and Availability of advances--(1) Advances to members. 
For CICA programs other than AHP and CIP, a Bank shall price advances to 
members as provided in Sec. 950.5 of this chapter, and may price such 
advances at rates below the price of advances of similar amounts, 
maturities and terms made pursuant to section 10(a) of the Act. (12 
U.S.C. 1430(a)).
    (2) Pricing of CIP advances. The price of advances made under CIP 
shall not exceed the Bank's cost of issuing consolidated obligations of 
comparable maturity, taking into account reasonable administrative 
costs.
    (3) Pricing of AHP advances. A Bank shall price advances made under 
AHP in accordance with parts 950 and 951 of this chapter.
    (4) Advances to housing associate borrowers. (i) A Bank may offer 
advances under CICA programs to housing associate borrowers at the 
Bank's option, except for AHP and CIP, which are available only to 
members.
    (ii) A Bank shall price advances to housing associate borrowers as 
provided in Sec. 950.17 of this chapter, and may price such advances at 
rates below the price of advances of similar amounts, maturities and 
terms made

[[Page 68]]

pursuant to section 10b of the Act. (12 U.S.C. 1430b).
    (5) Pricing pass-through. A Bank may require that borrowers 
receiving advances made under CICA programs pass through the benefit of 
any price reduction from regular advance pricing to their borrowers.
    (6) Discount Fund. (i) A Bank may establish a Discount Fund which 
the Bank may use to reduce the price of CIP or other advances made under 
CICA programs below the advance prices provided for by this part.
    (ii) Price reductions made through the Discount Fund shall be made 
in accordance with a fair distribution scheme.

[63 FR 65546, Nov. 27, 1998, as amended at 65 FR 8264, Feb. 18, 2000; 65 
FR 44431, July 18, 2000; 66 FR 50296, Oct. 3, 2001; 67 FR 12852, Mar. 
20, 2002]



Sec. 952.6  Reporting.

    (a) By July 1, 1999, each Bank shall provide to the Finance Board an 
initial assessment of the credit needs and market opportunities in a 
Bank's district for targeted community lending.
    (b) Effective in 2000, each Bank annually shall provide to the 
Finance Board, on or before January 31, a Targeted Community Lending 
Plan.
    (c) Each Bank shall provide such other reports concerning its CICA 
programs as the Finance Board may request from time to time.

[63 FR 65546, Nov. 27, 1998. Redesignated at 65 FR 8256, Feb. 18, 2000, 
as amended at 65 FR 44431, July 18, 2000]



Sec. 952.7  Documentation.

    (a) A Bank shall require the borrower to certify to the Bank that 
each project funded under a CICA program (other than AHP) meets the 
respective targeting requirements of the CICA program. Such 
certification shall include a description of how the project meets the 
requirements, and where appropriate, a statistical summary or list of 
incomes of the borrowers, rents for the project, or salaries of jobs 
created or retained.
    (b) For those CICA-funded projects that also receive funds from 
another targeted Federal economic development program that has income 
targeting requirements that are the same as, or more restrictive than, 
the targeting requirements of the applicable CICA program, the Bank 
shall permit the borrower to certify that compliance with the criteria 
of such Federal economic development program will meet the requirements 
of the respective CICA program.
    (c) Such certifications shall satisfy the Bank's obligations to 
document compliance with the CICA funding provisions of this part.

[63 FR 65546, Nov. 27, 1998. Redesignated at 65 FR 8256, Feb. 18, 2000, 
as amended at 66 FR 50296, Oct. 3, 2001]



PART 955_ACQUIRED MEMBER ASSETS--Table of Contents



Sec.
955.1 Definitions.
955.2 Authorization to hold acquired member assets.
955.3 Required credit-risk sharing structure.
955.4 Reporting requirements for acquired member assets.
955.5 Administrative and investment transactions between Banks.
955.6 Risk-based capital requirement for acquired member assets.

    Authority: 12 U.S.C. 1422a(a)(3), 1422b(a), 1430, 1430b, 1431.

    Source: 65 FR 43981, July 17, 2000, unless otherwise noted.



Sec. 955.1  Definitions.

    As used in this part:
    Affiliate means any business entity that controls, is controlled by, 
or is under common control with, a member.
    Expected losses means the base loss scenario in the methodology of 
an NRSRO applicable to that type of AMA asset.
    Residential real property has the meaning set forth in Sec. 950.1 
of this chapter.

[67 FR 12852, Mar. 20, 2002]



Sec. 955.2  Authorization to hold acquired member assets.

    Subject to the requirements of part 980 of this chapter, each Bank 
may hold assets acquired from or through Bank System members or housing 
associates by means of either a purchase or a funding transaction (AMA), 
subject to each of the following requirements:

[[Page 69]]

    (a) Loan type requirement. The assets are either:
    (1) Whole loans that are eligible to secure advances under 
Sec. Sec. 950.7(a)(1)(i), (a)(2)(ii), (a)(4), or (b)(1) of this 
chapter, excluding:
    (i) Single-family mortgages where the loan amount exceeds the limits 
established pursuant to 12 U.S.C. 1717(b)(2); and
    (ii) Loans made to an entity, or secured by property, not located in 
a state;
    (2) Whole loans secured by manufactured housing, regardless of 
whether such housing qualifies as residential real property; or
    (3) State and local housing finance agency bonds;
    (b) Member or housing associate nexus requirement. The assets are:
    (1) Either:
    (i) Originated or issued by, through, or on behalf of a Bank System 
member or housing associate, or an affiliate thereof; or
    (ii) Held for a valid business purpose by a Bank System member or 
housing associate, or an affiliate thereof, prior to acquisition by a 
Bank; and
    (2) Acquired either:
    (i) From a member or housing associate of the acquiring Bank;
    (ii) From a member or housing associate of another Bank, pursuant to 
an arrangement with that Bank, which, in the case of state and local 
finance agency bonds only, may be reached in accordance with the 
following process:
    (A) The housing finance agency shall first offer the Bank in whose 
district the agency is located (local Bank) a right of first refusal to 
purchase, or negotiate the terms of, its proposed bond offering;
    (B) If the local Bank indicates, within a three day period, that it 
will negotiate in good faith to purchase the bonds, the agency may not 
offer to sell or negotiate the terms of a purchase with another Bank; 
and
    (C) If the local Bank declines the offer, or has failed to respond 
within the three day period, the acquiring Bank will be considered to 
have an arrangement with the local Bank for purposes of this section and 
may offer to buy or negotiate the terms of a bond sale with the agency;
    (iii) From another Bank; and
    (c) Credit risk-sharing requirement. The transactions through which 
the Bank acquires the assets either:
    (1) Meet the credit risk-sharing requirements of Sec. 955.3 of this 
part; or
    (2) Were authorized by the Finance Board under section II.B.12 of 
the FMP and are within any total dollar cap established by the Finance 
Board at the time of such authorization.



Sec. 955.3  Required credit risk-sharing structure.

    (a) Determination of necessary credit enhancement. At the earlier of 
270 days from the date of the Bank's acquisition of the first loan in a 
pool, or the date at which the amount of a pool's assets reaches $100 
million, a Bank shall determine the total credit enhancement necessary 
to enhance the asset or pool of assets to a credit quality that is 
equivalent to that of an instrument having at least the fourth highest 
credit rating from an NRSRO, or such higher credit rating as the Bank 
may require. The Bank shall make this determination for each AMA product 
using a methodology that is confirmed in writing by an NRSRO to be 
comparable to a methodology that the NRSRO would use in determining 
credit enhancement levels when conducting a rating review of the asset 
or pool of assets in a securitization transaction.
    (b) Credit risk-sharing structure. A Bank acquiring AMA shall 
implement, and have in place at all times, a credit risk-sharing 
structure for each AMA product under which a member or housing associate 
of the Bank or, with the approval of both Banks, a member or housing 
associate of another Bank, provides a sufficient credit enhancement from 
the first dollar of credit loss for each asset or pool of assets such 
that the acquiring Bank's exposure to credit risk for the life of the 
asset or pool of assets is no greater than that of an asset rated in the 
fourth highest credit rating category, as determined pursuant to 
paragraph (a) of this section, or such higher rating as the acquiring 
Bank may require. This credit enhancement structure shall meet the 
following requirements:
    (1) A portion of the credit enhancement may be provided by:

[[Page 70]]

    (i) Contracting with an insurance affiliate of that member or 
housing associate to provide an enhancement or undertaking against 
losses to the Bank, but only where such insurance is positioned in the 
credit enhancement structure so as to cover only losses remaining after 
the member or housing associate has borne losses as required under 
paragraph (b)(2) of this section;
    (ii) Purchasing loan-level insurance, which may include United 
States government insurance or guarantee, but only where:
    (A) The member or housing associate is legally obligated at all 
times to maintain such insurance with an insurer rated not lower than 
the second highest credit rating category; and
    (B) Such insurance is positioned in the credit enhancement structure 
so as to cover only losses remaining after the member or housing 
associate has borne losses as required under paragraph (b)(2) of this 
section;
    (iii) Purchasing pool-level insurance, but only where such 
insurance:
    (A) Insures that portion of the required credit enhancement 
attributable to the geographic concentration and size of the pool; and
    (B) Is positioned last in the credit enhancement structure so as to 
cover only those losses remaining after all other elements of the credit 
enhancement structure have been exhausted; or
    (iv) Contracting with another member or housing associate in the 
Bank's district or in another Bank's district, pursuant to an 
arrangement with that Bank, to provide an enhancement or undertaking 
against losses to the Bank in return for some compensation;
    (2) The member or housing associate that is providing the credit 
enhancement required under paragraph (b)(1) of this section shall in all 
cases bear the direct economic consequences of actual credit losses on 
the asset or pool of assets:
    (i) From the first dollar of loss up to the amount of expected 
losses; or
    (ii) Immediately following expected losses, but in an amount equal 
to or exceeding the amount of expected losses;
    (3) The portion of the credit enhancement that is an obligation of a 
Bank System member or housing associate shall be fully secured; and
    (4) The Bank shall obtain written verification from an NRSRO that 
concludes to the satisfaction of the Finance Board, based on the 
underlying economic terms of the credit enhancement structure as 
represented by the Bank for each AMA product, that either:
    (i) The level of credit enhancement provided by the member or 
housing associate is generally sufficient to enhance the asset or pool 
of assets to a credit quality that is equivalent to that of an 
instrument having the fourth highest credit rating from an NRSRO, or 
such higher rating as the Bank may require; or
    (ii) The methodology used by the Bank for estimating the level of 
credit enhancement provided by the member or housing associate is in 
accordance with the practices established by the NRSRO.
    (c) Timing of NRSRO opinions. For AMA programs already in operation 
at the time of the effective date of this rule, a Bank shall have 90 
days from the effective date of this rule to obtain the NRSRO 
verifications required under paragraphs (a) and (b)(4) of this section.

[65 FR 43981, July 17, 2000, as amended at 67 FR 12852, Mar. 20, 2002]



Sec. 955.4  Reporting requirement for acquired member assets.

    Each Bank shall report information related to AMA in accordance with 
the instructions provided in the Data Reporting Manual issued by the 
Finance Board, as amended from time to time.

[71 FR 35500, June 21, 2006]



Sec. 955.5  Administrative and investment transactions between Banks.

    (a) Delegation of administrative duties. A Bank may delegate the 
administration of an AMA program to another Bank whose administrative 
office has been examined and approved by the Finance Board to process 
AMA transactions. The existence of such a delegation, or the possibility 
that such a delegation may be made, must be disclosed to any potential 
participating member or housing associate as part of any AMA-related 
agreements are

[[Page 71]]

signed with that member or housing associate.
    (b) Terminability of Agreements. Any agreement made between two or 
more Banks in connection with any AMA program shall be made terminable 
by either party after a reasonable notice period.
    (c) Delegation of Pricing Authority. A Bank that has delegated its 
AMA pricing function to another Bank shall retain a right to refuse to 
acquire AMA at prices it does not consider appropriate.



Sec. 955.6  Risk-based capital requirement for acquired member assets.

    (a) General. Each Bank shall hold retained earnings plus general 
allowance for losses as support for the credit risk of all AMA estimated 
by the Bank to represent a credit risk that is greater than that of 
comparable instruments that have received the second highest credit 
rating from an NRSRO in an amount equal to or greater than the 
outstanding balance of the assets or pools of assets times a factor 
associated with the putative credit rating of the assets or pools of 
assets as determined by the Finance Board on a case-by-case basis. For 
single-family mortgage assets, the factors are as set forth in Table 1 
of this part.

                                 Table 1
------------------------------------------------------------------------
                                                           Percentage
                                                        applicable to on-
   Putative rating of single-family mortgage assets       balance sheet
                                                        equivalent value
                                                             of AMA
------------------------------------------------------------------------
Third Highest Investment Grade........................              0.90
Fourth Highest Investment Grade.......................              1.50
If Downgraded to Below Investment Grade After
 Acquisition By Bank:
    Highest Below Investment Grade....................              2.25
    Second Highest Below Investment Grade.............              2.60
    All Other Below Investment Grade..................            100.00
------------------------------------------------------------------------

    (b) Recalculation of credit enhancement. For risk-based capital 
purposes, each Bank shall recalculate the estimated credit rating of a 
pool of AMA if there is evidence that a decline in the credit quality of 
that pool may have occurred.



       SUBCHAPTER H_FEDERAL HOME LOAN BANK LIABILITIES [RESERVED]



[[Page 72]]



    SUBCHAPTER I_MISCELLANEOUS FEDERAL HOME LOAN BANK OPERATIONS AND 
                               AUTHORITIES





PART 975_COLLECTION, SETTLEMENT, AND PROCESSING OF PAYMENT 
INSTRUMENTS--Table of Contents



Sec.
975.1 Definitions.
975.2 Authority and scope.
975.3 General provisions.
975.4 Incidental powers.
975.5 Operations.
975.6 Pricing of services.
975.7 Rights, powers, responsibilities, duties, and liabilities.

    Authority: 12 U.S.C. 1430, 1431.

    Source: 45 FR 64164, Sept. 29, 1980, unless otherwise noted. 
Redesignated at 54 FR 36759, Sept. 5, 1989, and further redesignated at 
65 FR 8256, Feb. 18, 2000.



Sec. 975.1  Definitions.

    (a) Unless otherwise defined in this part, the terms used in this 
part shall conform, in the following order, to: Regulations of the 
Finance Board, the Uniform Commercial Code, regulations of the Federal 
Reserve System, and general banking usage.
    (b) As used in this part:
    Account processing includes charging, crediting, and settling of 
member or eligible institution accounts, excluding individual customer 
accounts.
    Assets includes furniture and equipment, leasehold improvements, and 
capitalized start-up costs.
    Data communication means transmitting and receiving of data to or 
from Banks, Federal Reserve offices, clearinghouse associations, 
depository institutions or their service bureaus, and other direct 
sending entities, arrangement for delivery of information; and telephone 
inquiry service.
    Data processing includes capture, storage, and assembling of, and 
computation of, data from payment instruments received from Federal 
Reserve offices, Banks, clearinghouse associations, depository 
institutions, and other direct lending entities.
    Eligible institution means any institution that is eligible to make 
application to become a member of a Bank under section 4 of the Act (12 
U.S.C. 1424), including any building and loan association, savings and 
loan association, cooperative bank, homestead association, insurance 
company, savings bank, or any insured depository institution (as defined 
in section 2(12) of the Act (12 U.S.C. 1422(12))), regardless of whether 
the institution applies for or would be approved for membership.
    Issuance of forms means the designation and distribution of 
standardized forms for use in collection, processing, and settlement 
services.
    Presentment means a demand for acceptance or payment made upon the 
maker, acceptor, drawee or other payor by or on behalf of the holder, 
and may involve the use of electronic transmission of an instrument or 
item or transmission of data from the instrument or item by electronic 
or mechanical means.
    Statement packaging includes receiving statement information from 
members or eligible institutions or their service bureaus on respective 
customer cycle dates; printing statements; matching customer account 
statements; packaging the statements with appropriate items and 
informational materials, as authorized by individual members and 
eligible institutions, for distribution to their customers; sending the 
packages to the members or eligible institutions or mailing the packages 
directly to their customers.
    Storage services includes filing, storage, and truncation of items.
    Transportation of items includes transporting items from Federal 
Reserve offices, other Banks' clearinghouse associations, depository 
institutions, and other direct sending entities to a Bank; forwarding 
items to financial institutions after sorting and forwarding cash items 
or return items to Federal Reserve offices and other sending entities.

[67 FR 12854, Mar. 20, 2002]



Sec. 975.2  Authority and scope.

    (a) Pursuant to section 11(e)(2) of the Act (12 U.S.C. 1431(e)(2)) , 
the Finance Board has promulgated this part governing the collection, 
processing, and settlement, and services incidental

[[Page 73]]

thereto, of drafts, checks, and other negotiable and nonnegotiable items 
and instruments by Banks. Settlement, collection, and processing include 
the following activities as defined in this part: Account processing, 
data processing, data communication, issuance of forms, transportation 
of items, and storage services.
    (b) Any activity authorized by section 11(e)(2) of the Act (12 
U.S.C. 1431(e)(2)) shall be governed by the provisions of this part.

[45 FR 64164, Sept. 5, 1989, as amended at 65 FR 8266, Feb. 18, 2000. 
Redesignated and amended at 67 FR 12854, Mar. 20, 2002]



Sec. 975.3  General provisions.

    The Banks are authorized to:
    (a) Engage in, be agents or intermediaries for, or otherwise 
participate or assist in, the processing, collection, and settlement of 
checks, drafts, or any other negotiable or nonnegotiable items and 
instruments of payment drawn on eligible institutions or Bank members; 
and
    (b) Be drawees of checks, drafts, and other negotiable and 
nonnegotiable items and instruments issued by eligible institutions or 
Bank members.

[67 FR 12854, Mar. 20, 2002]



Sec. 975.4  Incidental powers.

    In connection with the collection, processing, and settlement of 
items and instruments drawn on or issued by eligible institutions or 
Bank members, a Bank may also perform the following services:
    (a) Statement packaging; and
    (b) Any other activity that the Finance Board shall, from time to 
time, after notice and comment, find necessary for the exercise of the 
authority of this part.

[45 FR 64164, Sept. 29, 1980, as amended at 55 FR 2231, Jan. 23, 1990; 
65 FR 8266, Feb. 18, 2000; 67 FR 12854, Mar. 20, 2002]



Sec. 975.5  Operations.

    A Bank may utilize the services of a Federal Reserve Bank and may 
become a member or use the services of a clearinghouse, public or 
private financial institution, or agency in the exercise of any powers 
or functions under this part.

[45 FR 64164, Sept. 5, 1989, as amended at 65 FR 8266, Feb. 18, 2000]



Sec. 975.6  Pricing of services.

    (a) General. Banks shall charge for services authorized in this part 
in a manner consistent with the principles of section 11(A)(c) of the 
Federal Reserve Act (12 U.S.C. 248a(c)), as interpreted by this part.
    (b) Payment instrument account services. (1) In determining the fees 
for services provided under this part, a Bank must take into account all 
direct and indirect costs of providing the services.
    (2) Prices must reflect the imputed rate of return that would have 
been earned and the taxes that would have been paid if the Bank were a 
private corporation, by using a cost of capital adjustment factor 
applied to those assets used in providing services authorized under this 
part.
    (c) Review and publication. The Finance Board shall from time to 
time and at least annually review the cost of capital adjustment factor 
and review prices for services authorized in this part for compliance 
with the principles set forth in paragraphs (a) and (b) of this section. 
All prices for Bank services authorized in this part will be published 
annually in the Federal Register, except those for fees charged to an 
applicant for draws made by a beneficiary under a standby letter of 
credit.

(12 U.S.C. 1431(e); Reorg. Plan No. 3 of 1947, 12 FR 4981, 3 CFR, 1943-
48 Comp., p. 1071)

[45 FR 64164, Sept. 29, 1980, as amended at 46 FR 38900, July 30, 1981. 
Redesignated at 54 FR 36759, Sept. 5, 1989, and amended at 58 FR 59936, 
Nov. 12, 1993; 60 FR 57682, Nov. 17, 1995; 63 FR 65700, Nov. 30, 1998; 
65 FR 8266, Feb. 18, 2000]



Sec. 975.7  Rights, powers, responsibilities, duties, and liabilities.

    To the extent it is not inconsistent with other provisions of this 
part, the Uniform Commercial Code governs the rights, powers, 
responsibilities, duties, and liabilities of Banks in the exercise of 
their authority under this part. For purposes of this paragraph, the 
term ``bank,'' as used in the Uniform Commercial Code and clearinghouse 
rules,

[[Page 74]]

includes Banks and their members and eligible institutions.

[45 FR 64164, Sept. 5, 1989, as amended at 65 FR 8266, Feb. 18, 2000]



PART 977_MISCELLANEOUS BANK AUTHORITIES--Table of Contents



Sec.
977.1 Definitions. [Reserved]
977.2 Transfer of funds between Banks.
977.3 Trustee powers.

    Authority: 12 U.S.C. 1422a(a)(3), 1422b(a)(1), 1431(a), 1431(e), 
1432(a).

    Source: 65 FR 8266, Feb. 18, 2000, unless otherwise noted.



Sec. 977.1  Definitions. [Reserved]



Sec. 977.2  Transfer of funds between Banks.

    Inter-Bank borrowing shall be through unsecured deposits bearing 
interest at rates negotiated between Banks.



Sec. 977.3  Trustee powers.

    A Bank may act, and make reasonable charges for doing so, as trustee 
of any trust affecting the business of any member or any institution or 
group applying for membership or for insurance of accounts, or any group 
applying for a charter for a Federal Savings Association, if:
    (a) Such trust is created or arises for the benefit of the 
institution or its depositors, investors, or borrowers, or for the 
promotion of sound and economical home financing; and
    (b) In the case of applicants, the Bank ceases to act as trustee if 
the application is withdrawn or rejected.



PART 978_BANK REQUESTS FOR INFORMATION--Table of Contents



Sec.
978.1 Definitions.
978.2 Scope.
978.3 Request for confidential information.
978.4 Form of request.
978.5 Storage of confidential information.
978.6 Access to confidential information.
978.7 Third party requests for confidential information.
978.8 Computer data.

    Authority: 12 U.S.C. 1422b(a), 1442.

    Source: 65 FR 8266, Feb. 18, 2000, unless otherwise noted.



Sec. 978.1  Definitions.

    As used in this part:
    Confidential information means any record, data, or report, 
including but not limited to examination reports, or any part thereof, 
that is non-public, privileged or otherwise not intended for public 
disclosure which is in the possession or control of a financial 
regulatory agency and which contains information regarding members of a 
Bank or financial institutions with which a Bank has had or contemplates 
having transactions under the Act.
    Financial regulatory agency means any of the following:
    (1) The Department of the Treasury, including either the OCC or the 
OTS;
    (2) The FRB;
    (3) The NCUA; or
    (4) The FDIC.
    Third party means any person or entity except a director, officer, 
employee or agent of either:
    (1) A Bank in possession of any particular confidential information; 
or
    (2) The financial regulatory agency that supplied the particular 
confidential information to such Bank.

[65 FR 8266, Feb. 18, 2000, as amended at 67 FR 12854, Mar. 20, 2002]



Sec. 978.2  Scope.

    This part governs the procedure by which a Bank will request and 
receive confidential information pursuant to section 22 of the Act (12 
U.S.C. 1442).

[65 FR 8266, Feb. 18, 2000, as amended at 67 FR 12854, Mar. 20, 2002]



Sec. 978.3  Request for confidential information.

    A Bank shall make all requests for confidential information to a 
financial regulatory agency, or to a regional office of such agency if 
mutually agreeable, in accordance with the procedures contained in this 
part as well as any procedures of general applicability for requesting 
information promulgated by such financial regulatory agency. This part 
and its procedures may be supplemented by a confidentiality agreement 
between a Bank and a financial regulatory agency.

[[Page 75]]



Sec. 978.4  Form of request.

    A request by a Bank to a financial regulatory agency for 
confidential information shall be made in writing or by such other means 
as may be agreed upon between the Bank and the financial regulatory 
agency. The request shall reference section 22 of the Act (12 U.S.C. 
1442), as amended, and this regulation, and shall describe the 
confidential information requested and identify its intended use 
pursuant to the Act. The request shall be signed or otherwise made by 
any duly authorized Bank officer or employee.

[65 FR 8266, Feb. 18, 2000, as amended at 67 FR 12854, Mar. 20, 2002]



Sec. 978.5  Storage of confidential information.

    Each Bank shall:
    (a) Store all identified confidential information in secure storage 
areas or filing cabinets or other secured facilities generally used by 
such Bank and limit access thereto in the same manner as it maintains 
the confidentiality of its own members' privileged or non-public 
information;
    (b) Have in place a written set of procedures and policies designed 
to ensure the confidentiality of confidential information in its 
possession; and
    (c) Establish an internal review of its procedures for storing 
confidential information and maintaining its confidentiality, as a part 
of its internal audit process.



Sec. 978.6  Access to confidential information.

    Each Bank shall ensure that access to the confidential information 
stored at its facility is limited to those with a need to know such 
information and that employees with access maintain the confidentiality 
of the confidential information in accordance with the Bank's own 
procedures for maintaining the confidentiality of its members' 
privileged or non-public information.



Sec. 978.7  Third party requests for confidential information.

    (a) General. In the event a Bank receives a request for confidential 
information in its possession from any third party, the Bank shall 
forward such request to the financial regulatory agency from which the 
confidential information was obtained.
    (b) Subpoena. In the event a Bank receives a subpoena for 
confidential information issued by a Federal, state or local government 
department, agency, court or bureau, the Bank shall give timely written 
notice of such subpoena to the financial regulatory agency from which 
the confidential information was obtained, unless such notice is 
prohibited by applicable law. Except as limited in this part, the Bank 
may disclose confidential information pursuant to the subpoena, after 
giving timely written notice, when:
    (1) The financial regulatory agency gives written approval to the 
disclosure; or
    (2) A binding order to produce the confidential information has 
become final with all rights of appeal either exhausted or lapsed.
    (c) Nondisclosure to third parties. Except as provided in paragraph 
(b) of this section, a Bank shall not disclose confidential information 
to any third party. A Bank shall refer all third party requests for such 
confidential information to the financial regulatory agency that 
released the confidential information to the Bank.
    (d) Disclosure to Finance Board. (1) Neither this part nor any 
confidentiality agreement executed between a Bank and a financial 
regulatory agency shall prevent a Bank from disclosing confidential 
information in its possession to the Finance Board whenever disclosure 
is necessary to accomplish the Finance Board's supervision of Bank 
membership applications or Bank director eligibility issues, or 
disclosing any confidential information in its possession if such 
disclosure is made pursuant to an audit conducted pursuant to Sec. 
978.5 or section 20 of the Act (12 U.S.C. 1440).
    (2) The Finance Board shall keep all confidential information 
received under paragraph (d) of this section in strict confidence.

[65 FR 8266, Feb. 18, 2000, as amended at 67 FR 12854, Mar. 20, 2002]

[[Page 76]]



Sec. 978.8  Computer data.

    Nothing in this part shall preclude a Bank from arranging with any 
financial regulatory agency to transmit or allow access to confidential 
information with the consent of such agency by means of an electronic 
computer system. Any such arrangement shall ensure the security of the 
computerized data stored in a Bank's computer and restrict access to 
such data in order to preserve confidentiality in a manner agreed upon 
by the Bank and the financial regulatory agency.



      SUBCHAPTER J_NEW FEDERAL HOME LOAN BANK ACTIVITIES [RESERVED]





                SUBCHAPTER K_OFFICE OF FINANCE [RESERVED]



[[Page 77]]



                  SUBCHAPTER L_NON-BANK SYSTEM ENTITIES





PART 995_FINANCING CORPORATION OPERATIONS--Table of Contents



Sec.
995.1 Definitions.
995.2 General authority.
995.3 Authority to establish investment policies and procedures.
995.4 Book-entry procedure for Financing Corporation obligations.
995.5 Bank and Office of Finance employees.
995.6 Budget and expenses.
995.7 Administrative expenses.
995.8 Non-administrative expenses; assessments.
995.9 Reports to the Finance Board.
995.10 Review of books and records.

    Authority: 12 U.S.C. 1441(b)(8), (c), (j).

    Source: 62 FR 50248, Sept. 25, 1997, unless otherwise noted. 
Redesignated at 65 FR 8256, Feb. 18, 2000.



Sec. 995.1  Definitions.

    As used in this part:
    Administrative expenses:
    (1) Include general office and operating expenses such as telephone 
and photocopy charges, printing, legal, and professional fees, postage, 
courier services, and office supplies; and
    (2) Do not include any form of employee compensation, custodian 
fees, issuance costs, or any interest on (and any redemption premium 
with respect to) any Financing Corporation obligations.
    BIF-assessable deposit means a deposit that is subject to assessment 
for purposes of the Bank Insurance Fund under the Federal Deposit 
Insurance Act (12 U.S.C. 1811 et seq.), including a deposit that is 
treated as a deposit insured by the Bank Insurance Fund under section 
5(d)(3) of the Federal Deposit Insurance Act (12 U.S.C. 1815(d)(3)).
    Custodian fees means any fee incurred by the Financing Corporation 
in connection with the transfer of any security to, or maintenance of 
any security in, the segregated account established under section 
21(g)(2) of the Act (12 U.S.C. 1441(g)(2)), and any other expense 
incurred by the Financing Corporation in connection with the 
establishment or maintenance of such account.
    Directorate means the board established under section 21(b) of the 
Act (12 U.S.C. 1441(b)) to manage the Financing Corporation.
    Exit fees means the amounts paid under sections 5(d)(2)(E) and (F) 
of the Federal Deposit Insurance Act (12 U.S.C. 1815(d)(2)(E) and (F)), 
and regulations promulgated thereunder (12 CFR part 312).
    Insured depository institution has the same meaning as in section 3 
of the Federal Deposit Insurance Act (12 U.S.C. 1813).
    Issuance costs means issuance fees and commissions incurred by the 
Financing Corporation in connection with the issuance or servicing of 
Financing Corporation obligations, including legal and accounting 
expenses, trustee, fiscal, and paying agent charges, securities 
processing charges, joint collection agent charges, advertising 
expenses, and costs incurred in connection with preparing and printing 
offering materials to the extent the Financing Corporation incurs such 
costs in connection with issuing any obligations.
    Non-administrative expenses means custodian fees, issuance costs, 
and interest on Financing Corporation obligations.
    Obligations means debentures, bonds, and similar debt securities 
issued by the Financing Corporation under sections 21(c)(3) and (e) of 
the Act (12 U.S.C. 1421(c)(3) and (e)).
    Receivership proceeds means the liquidating dividends and payments 
made on claims received by the Federal Savings and Loan Insurance 
Corporation Resolution Fund established under section 11A of the Federal 
Deposit Insurance Act (12 U.S.C. 1821a) from receiverships, that are not 
required by the Resolution Funding Corporation to provide funds for the 
Funding Corporation Principal Fund established under section 21B of the 
Act (12 U.S.C. 1441b).
    SAIF-assessable deposit means a deposit that is subject to 
assessment for

[[Page 78]]

purposes of the Savings Association Insurance Fund under the Federal 
Deposit Insurance Act, including a deposit that is treated as a deposit 
insured by the Savings Association Insurance Fund under section 5(d)(3) 
of the Federal Deposit Insurance Act (12 U.S.C. 1815(d)(3)).

[67 FR 12855, Mar. 20, 2002]



Sec. 995.2  General authority.

    Subject to the limitations and interpretations in this part and such 
orders and directions as the Finance Board may prescribe, the Financing 
Corporation shall have authority to exercise all powers and authorities 
granted to it by the Act and by its charter and bylaws regardless of 
whether the powers and authorities are specifically implemented in 
regulation.



Sec. 995.3  Authority to establish investment policies and procedures.

    The Directorate shall have authority to establish investment 
policies and procedures with respect to Financing Corporation funds 
provided that the investment policies and procedures are consistent with 
the requirements of section 21(g) of the Act (12 U.S.C. 1441(g)). The 
Directorate shall promptly notify the Finance Board in writing of any 
changes to the investment policies and procedures.

[62 FR 50248, Sept. 25, 1997. Redesignated at 65 FR 8256, Feb. 18, 2000, 
as amended at 67 FR 12855, Mar. 20, 2002]



Sec. 995.4  Book-entry procedure for Financing Corporation obligations.

    (a) Authority. Any Federal Reserve Bank shall have authority to 
apply book-entry procedure to Financing Corporation obligations.
    (b) Procedure. The book-entry procedure for Financing Corporation 
obligations shall be governed by the book-entry procedure established 
for Bank consolidated obligations, codified at part 987 of this chapter. 
Wherever the terms ``Bank(s),'' ``consolidated obligation(s)'' or 
``Book-entry consolidated obligation(s)'' appear in part 987, the terms 
shall be construed also to mean ``Financing Corporation,'' ``Financing 
Corporation obligation(s),'' or ``Book-entry Financing Corporation 
obligation(s),'' respectively, if appropriate to accomplish the purposes 
of this section.

[62 FR 50248, Sept. 25, 1997, as amended at 65 FR 8268, Feb. 18, 2000; 
67 FR 12855, Mar. 20, 2002]



Sec. 995.5  Bank and Office of Finance employees.

    Without further approval of the Finance Board, the Financing 
Corporation shall have authority to utilize the officers, employees, or 
agents of any Bank or the Office of Finance in such manner as may be 
necessary to carry out its functions.



Sec. 995.6  Budget and expenses.

    (a) Directorate approval. The Financing Corporation shall submit 
annually to the Directorate for approval, a budget of proposed 
expenditures for the next calendar year that includes administrative and 
non-administrative expenses.
    (b) Finance Board approval. The Directorate shall submit annually to 
the Finance Board for approval, the budget of the Financing 
Corporation's proposed expenditures it approved pursuant to paragraph 
(a) of this section.
    (c) Spending limitation. The Financing Corporation shall not exceed 
the amount provided for in the annual budget approved by the Finance 
Board pursuant to paragraph (b) of this section, or as it may be amended 
by the Directorate within limits set by the Finance Board.
    (d) Amended budgets. Whenever the Financing Corporation projects or 
anticipates that it will incur expenditures, other than interest on 
Financing Corporation obligations, that exceed the amount provided for 
in the annual budget approved by the Finance Board or the Directorate 
pursuant to paragraph (b) or (c) of this section, the Financing 
Corporation shall submit an amended annual budget to the Directorate for 
approval, and the Directorate shall submit such amended budget to the 
Finance Board for approval.



Sec. 995.7  Administrative expenses.

    (a) Payment by Banks. The Banks shall pay all administrative 
expenses

[[Page 79]]

of the Financing Corporation approved pursuant to Sec. 995.6.
    (b) Amount. The Financing Corporation shall determine the amount of 
administrative expenses each Bank shall pay in the manner provided by 
section 21(b)(7)(B) of the Act (12 U.S.C. 1441(b)(7)(B)). The Financing 
Corporation shall bill each Bank for such amount periodically.
    (c) Adjustments. The Financing Corporation shall adjust the amount 
of administrative expenses the Banks are required to pay in any calendar 
year pursuant to paragraphs (a) and (b) of this section, by deducting 
any funds that remain from the amount paid by the Banks for 
administrative expenses in the prior calendar year.

[62 FR 50248, Sept. 25, 1997, as amended at 65 FR 8268, Feb. 18, 2000; 
67 FR 12856, Mar. 20, 2002]



Sec. 995.8  Non-administrative expenses; assessments.

    (a) Interest expenses. The Financing Corporation shall determine 
anticipated interest expenses on its obligations at least semiannually.
    (b) Assessments on insured depository institutions--(1) Authority. 
To provide sufficient funds to pay the non-administrative expenses of 
the Financing Corporation approved under Sec. 995.6, the Financing 
Corporation shall, with the approval of the board of directors of the 
FDIC, assess against each insured depository institution an assessment 
in the same manner as assessments are made by the FDIC under section 7 
of the Federal Deposit Insurance Act.
    (2) Assessment rate--(i) Determination. The Financing Corporation at 
least semiannually shall establish an assessment rate formula, which may 
include rounding methodology, to determine the rate or rates of the 
assessment it will assess against insured depository institutions 
pursuant to section 21(f)(2) of the Act (12 U.S.C. 1441(f)(2)) and 
paragraph (b)(1) of this section.
    (ii) Limitation. Until the earlier of December 31, 1999, or the date 
as of which the last savings association ceases to exist, the rate of 
the assessment imposed on an insured depository institution with respect 
to any BIF-assessable deposit shall be a rate equal to \1/5\ of the rate 
of the assessment imposed on an insured depository institution with 
respect to any SAIF-assessable deposit.
    (iii) Notice. The Financing Corporation shall notify the FDIC and 
the collection agent, if any, of the formula established under paragraph 
(b)(2)(i) of this section.
    (3) Collecting assessments--(i) Collection agent. The Financing 
Corporation shall have authority to collect assessments made under 
section 21(f)(2) of the Act (12 U.S.C. 1441(f)(2)) and paragraph (b)(1) 
of this section through a collection agent of its choosing.
    (ii) Accounts. Each Bank shall permit any insured depository 
institution whose principal place of business is in its district to 
establish and maintain at least one demand deposit account to facilitate 
collection of the assessments made under section 21(f)(2) of the Act (12 
U.S.C. 1441(f)(2)) and paragraph (b)(1) of this section.
    (c) Receivership proceeds--(1) Authority. To the extent the amounts 
collected under paragraph (b) of this section are insufficient to pay 
the non-administrative expenses of the Financing Corporation approved 
under Sec. 995.6, the Financing Corporation shall have authority to 
require the FDIC to transfer receivership proceeds to the Financing 
Corporation in accordance with section 21(f)(3) of the Act (12 U.S.C. 
1441(f)(3)).
    (2) Procedure. The Directorate shall request in writing that the 
FDIC transfer the receivership proceeds to the Financing Corporation. 
Such request shall specify the estimated amount of funds required to pay 
the non-administrative expenses of the Financing Corporation approved 
under Sec. 995.6.
    (d) Exit fees--(1) Authority. To the extent the amounts provided 
under paragraphs (b) and (c) of this section are insufficient to pay the 
interest due on Financing Corporation obligations, the Financing 
Corporation shall have authority to request that the Secretary of the 
Treasury order the transfer of exit fees to the Financing Corporation in 
accordance with section 5(d)(2)(E) of the Federal Deposit Insurance Act 
(12 U.S.C. 1815(d)(2)(E)) or as otherwise may be provided for by 
statute.
    (2) Procedure. The Directorate shall request in writing that the 
Secretary of the Treasury order that exit fees be

[[Page 80]]

transferred to the Financing Corporation. Such request shall specify the 
estimated amount of funds required to pay the interest due on Financing 
Corporation obligations.

[62 FR 50248, Sept. 25, 1997, as amended at 65 FR 8268, 8269, Feb. 18, 
2000; 67 FR 12856, Mar. 20, 2002]



Sec. 995.9  Reports to the Finance Board.

    The Financing Corporation shall file such reports as the Finance 
Board shall direct.



Sec. 995.10  Review of books and records.

    The Finance Board shall examine the Financing Corporation at least 
annually to determine whether the Financing Corporation is performing 
its functions in accordance with the requirements of section 21 of the 
Act (12 U.S.C. 1441) and this part.

[62 FR 50248, sept. 25, 1997. Redesignated at 65 FR 8256, Feb. 18, 2000, 
as amended at 67 FR 12856, Mar. 20, 2002]



PART 996_AUTHORITY FOR BANK ASSISTANCE OF THE RESOLUTION FUNDING 
CORPORATION--Table of Contents



Sec.
996.1 [Reserved]
996.2 Bank employees.
996.3 Demand deposit accounts.

    Authority: 12 U.S.C. 1422a, 1422b.



Sec. 996.1  [Reserved]



Sec. 996.2  Bank employees.

    Upon the request of the Directorate of the Resolution Funding 
Corporation, established pursuant to section 21B(b) of the Act (12 
U.S.C. 1441b(b)), officers, employees, or agents of the Banks are 
authorized to act for and on behalf of the Resolution Funding 
Corporation in such manner as may be necessary to carry out the 
functions of the Resolution Funding Corporation as provided in section 
21B(c)(6)(B) of the Act (12 U.S.C. 1441b(c)(6)(B)).

[54 FR 39729, Sept. 28, 1989, as amended at 65 FR 8269, Feb. 18, 2000. 
Redesignated and amended at 67 FR 12856, Mar. 20, 2002]



Sec. 996.3  Demand deposit accounts.

    Each Bank shall allow any Savings Association Insurance Fund member 
whose principal place of business is in its district to establish and 
maintain at least one demand deposit account for the purpose of 
facilitating the Resolution Funding Corporation's assessments pursuant 
to section 21B(e)(7) of the Act (12 U.S.C. 1441b(e)(7)).

[54 FR 39729, Sept. 28, 1989, as amended at 65 FR 8269, Feb. 18, 2000. 
Redesignated and amended at 67 FR 12856, Mar. 20, 2002]



PART 997_RESOLUTION FUNDING CORPORATION OBLIGATIONS OF THE
BANKS--Table of Contents



Sec.
997.1 Definitions.
997.2 Reduction of the payment term.
997.3 Extension of the payment term.
997.4 Calculation of the quarterly present-value determination.
997.5 Termination of the obligation.

    Authority: 12 U.S.C. 1422b(a) and 1441b(f).

    Source: 65 FR 17438, Apr. 3, 2000, unless otherwise noted.

    Effective Date Note: At 76 FR 74649, Dec. 1, 2011, part 997 was 
removed, effective January 3, 2012.



Sec. 997.1  Definitions.

    As used in this part:
    Actual quarterly payment means the quarterly amount paid by the 
Banks to fulfill the Banks' obligation to pay toward interest owed on 
bonds issued by the REFCORP. The amount will equal the aggregate of 20 
percent of the quarterly net earnings of each Bank, or such other amount 
assessed in accordance with the Act and the regulations adopted 
thereunder.
    Benchmark quarterly payment means $75 million, or such amount that 
may result from adjustments required by calculations made in accordance 
with Sec. Sec. 997.2 and 997.3.
    Current benchmark quarterly payment means the benchmark quarterly 
payment that corresponds to the date of the actual quarterly payment.
    Deficit quarterly payment means the amount by which the actual 
quarterly payment falls short of the current benchmark quarterly 
payment.
    Estimated interest rate means the interest rate provided to the 
Finance Board by the Department of the Treasury on a zero-coupon 
Treasury bond, the maturity of which is the same as

[[Page 81]]

the date of the benchmark quarterly payment that is being defeased, or 
if no bond matures on that date, then is the date closest to the date of 
the payment being defeased.
    Excess quarterly payment means the amount by which the actual 
quarterly payment exceeds the current benchmark quarterly payment.
    Quarterly present-value determination means the quarterly 
calculation that will determine the extent to which an excess quarterly 
payment or deficit quarterly payment alters the term of the Banks' 
obligation to the REFCORP. This determination will fulfill the 
requirements of 21B(f)(2)(C)(ii) of the Act (12 U.S.C 
1441b(f)(2)(C)(ii), as amended by Pub. L. 106-102, sec. 607, 113 
Stat.1456-57.

[65 FR 17438, Apr. 3, 2000, as amended at 67 FR 12856, Mar. 20, 2002]



Sec. 997.2  Reduction of the payment term.

    (a) Generally. The Finance Board shall shorten the term of the 
obligation of the Banks to make payments toward the interest owed on 
bonds issued by the REFCORP for each quarter in which there is an excess 
quarterly payment.
    (b) Excess quarterly payment. Where there is an excess quarterly 
payment, the quarterly present-value determination shall be as follows:
    (1) The future value of the excess quarterly payment shall be 
calculated using the estimated interest rate corresponding to the last 
non-defeased benchmark quarterly payment.
    (2) The future value calculated in paragraph (b)(1) of this section 
shall be subtracted from the amount of the last non-defeased quarterly 
benchmark payment.
    (3) If the difference resulting from the calculation in paragraph 
(b)(2) of this section is greater than zero, then the last non-defeased 
quarterly benchmark payment is reduced by the future value of the excess 
quarterly payment.
    (4) If the difference resulting from the calculation in paragraph 
(b)(2) of this section is less than zero, then the last non-defeased 
quarterly benchmark payment shall be defeased and the payment term shall 
be shortened.
    (5) The amount of the excess quarterly payment that has not already 
been applied to defeasing the payment under paragraph (b)(4) of this 
section shall be applied toward defeasing the last non-defeased 
quarterly benchmark payment using the applicable estimated interest 
rate.



Sec. 997.3  Extension of the payment term.

    (a) Generally. The Finance Board will extend the term of the 
obligation of the Banks to make payments toward interest owed on bonds 
issued by the REFCORP for each calendar quarter in which there is a 
deficit quarterly payment.
    (b) Deficit quarterly payment. Where there is a deficit quarterly 
payment, the quarterly present-value determination shall be as follows:
    (1) The future value of the deficit quarterly payment shall be 
calculated using the estimated interest rate corresponding to the last 
non-defeased benchmark quarterly payment, or to the first quarter 
thereafter if the last non-defeased benchmark quarterly payment already 
equals $75 million.
    (2) The future value calculated in paragraph (b)(1) of this section 
shall be added to the amount of the last non-defeased quarterly 
benchmark payment if that sum is $75 million or less.
    (3) If the sum calculated in paragraph (b)(2) of this section 
exceeds $75 million, the last non-defeased quarterly benchmark payment 
will become $75 million, and the quarterly benchmark payment term will 
be extended.
    (4) The extended payment will equal the future value of the amount 
of the deficit quarterly payment that has not already been applied to 
raising the quarterly benchmark payment to $75 million under paragraph 
(b)(3) of this section, using the estimated interest rate corresponding 
to the date of the extended benchmark quarterly payment.
    (c) Term beyond maturity. The benchmark quarterly payment term may 
be extended beyond April 15, 2030, if such extension is necessary to 
ensure that the value of the aggregate amounts paid by the Banks exactly 
equals the present value of an annuity of $300 million per year that 
commences on the date on which the first obligation of the REFCORP was 
issued and ends on April 15, 2030.

[[Page 82]]



Sec. 997.4  Calculation of the quarterly present-value determination.

    (a) Applicable interest rates. The Finance Board shall obtain from 
the Department of the Treasury the applicable estimated interest rates 
and provide those rates to the REFCORP so that the REFCORP can perform 
the calculations required under Sec. Sec. 997.2 and 997.3.
    (b) Calculation by the Finance Board. If Sec. 997.3 requires that 
the term for the Banks' actual quarterly payments extend beyond April 
15, 2030 or if, for any reason, the REFCORP is unable to perform the 
calculations or to provide the Finance Board with the results of the 
calculations, the Finance Board shall make all calculations required 
under this part.
    (c) Records. The Finance Board will maintain the official record of 
the results of all quarterly present-value determinations made under 
this part.



Sec. 997.5  Termination of the obligation.

    (a) Generally. The Banks' obligation to the REFCORP, or to the 
Department of the Treasury if the term of that obligation extends beyond 
April 15, 2030, will terminate when the aggregate actual quarterly 
payments made by the Banks exactly equal the present value of an annuity 
of $300 million per year that commences on the date on which the first 
obligation of the REFCORP was issued and ends on April 15, 2030.
    (b) Date of the final payment. The aggregate actual quarterly 
payments made by the Banks exactly equal the present value of the 
annuity described in paragraph (a) of this section when the value of any 
remaining benchmark quarterly payment(s), after the benchmark quarterly 
payments have been adjusted as required by Sec. Sec. 997.2 and 997.3, 
exactly equals the actual quarterly payment.

[65 FR 17438, Apr. 3, 2000, as amended at 65 FR 40492, June 30, 2000]

[[Page 83]]



             SUBCHAPTER M_FEDERAL HOME LOAN BANK DISCLOSURES





PART 998_REGISTRATION OF FEDERAL HOME LOAN BANK EQUITY 
SECURITIES--Table of Contents



Sec.
998.1 Purpose.
998.2 Registration and periodic disclosures.
998.3 Reservation of authority.

    Authority: 12 U.S.C. 1422a(a)(3), 1422b(a)(1).

    Source: 69 FR 38811, June 29, 2004, unless otherwise noted.



Sec. 998.1  Purpose.

    The purposes of this part are to enhance the quality of the 
financial disclosures provided by each Bank, to promote a greater degree 
of consistency and uniformity of such disclosures from Bank to Bank, to 
provide a greater degree of transparency regarding the financial 
condition of each Bank, and to conform the disclosure practices of the 
Banks to those of other financial institutions who raise funds in the 
global debt markets.



Sec. 998.2  Registration and periodic disclosures.

    (a) Registration. (1) Each Bank shall file a registration statement 
by no later than June 30, 2005 to register a class of its equity 
securities pursuant to the provisions of section 12(g)(1) of the 1934 
Act. Each Bank shall ensure that its registration statement becomes 
effective as provided in section 12 no later than August 29, 2005.
    (2) Notwithstanding paragraph (a)(1) of this section, the Finance 
Board may by order extend the registration date for one or more Banks if 
it determines, based on factors presented in a written request to the 
Finance Board, that good cause exists to do so.
    (b) Periodic disclosures. Consistent with the registration required 
pursuant to paragraph (a) of this section, each Bank, after registering 
a class of equity securities with the SEC, shall comply with the 
periodic disclosure requirements of the 1934 Act by preparing and filing 
with the SEC such annual, quarterly, and current reports, as well as any 
other materials required pursuant to SEC rules, regulations, or 
interpretations, including those related to audited financial 
statements, as may be required by the SEC under the 1934 Act.
    (c) Submission to Finance Board. Unless otherwise directed by the 
Finance Board, each Bank shall provide to the Finance Board on a 
concurrent basis copies of all disclosure documents filed with the SEC.



Sec. 998.3  Reservation of authority.

    The requirements of this part do not diminish, or otherwise restrict 
the ability of the Finance Board to exercise, any and all authority 
conferred by the Bank Act to ensure that the Banks operate in a 
financially safe and sound manner, that they carry out their housing 
finance mission, and that they remain adequately capitalized and able to 
raise funds in the capital markets. Nor do the requirements of part 998 
diminish or otherwise restrict the Finance Board's authority to 
supervise the Banks, to conduct examinations, to require reports and 
other disclosures, and to enforce compliance with applicable laws, 
rules, orders or agreements.

[[Page 85]]



           CHAPTER X--BUREAU OF CONSUMER FINANCIAL PROTECTION




  --------------------------------------------------------------------
Part                                                                Page
1002            Equal Credit Opportunity Act (Regulation B).          87
1003            Home mortgage disclosure (Regulation C).....         142
1004            Alternative mortgage transaction parity 
                    (Regulation D)..........................         165
1005            Electronic fund transfers (Regulation E)....         169
1006            Fair Debt Collection Practices Act 
                    (Regulation F)..........................         232
1007            S.A.F.E. Mortgage Licensing Act--Federal 
                    registration of residential mortgage 
                    loan originators (Regulation G).........         235
1008            S.A.F.E. Mortgage Licensing Act--State 
                    compliance and bureau registration 
                    system (Regulation H)...................         243
1009            Disclosure requirements for depository 
                    institutions lacking Federal deposit 
                    insurance (Regulation I)................         257
1010            Land registration (Regulation J)............         259
1011            Purchasers' revocation rights, sales 
                    practices and standards (Regulation K)..         317
1012            Special rules of practice (Regulation J)....         321
1013            Consumer leasing (Regulation M).............         325
1014            Mortgage acts and practices--Advertising 
                    (Regulation N)..........................         351
1015            Mortgage assistance relief services 
                    (Regulation O)..........................         354
1016            Privacy of consumer financial information 
                    (Regulation P)..........................         360
1022            Fair credit reporting (Regulation V)........         394
1024            Real Estate Settlement Procedures Act 
                    (Regulation X)..........................         484
1026            Truth in lending (Regulation Z).............         541
1030            Truth in savings (Regulation DD)............        1020
1070            Disclosure of records and information.......        1059
1080            Rules relating to investigations............        1089
1081            Rules of practice for adjudication 
                    proceedings.............................        1095
1082            State official notification rules...........        1126

[[Page 87]]



PART 1002_EQUAL CREDIT OPPORTUNITY ACT (REGULATION B)--Table of Contents



Sec.
1002.1 Authority, scope and purpose.
1002.2 Definitions.
1002.3 Limited exceptions for certain classes of transactions.
1002.4 General rules.
1002.5 Rules concerning requests for information.
1002.6 Rules concerning evaluation of applications.
1002.7 Rules concerning extensions of credit.
1002.8 Special purpose credit programs.
1002.9 Notifications.
1002.10 Furnishing of credit information.
1002.11 Relation to state law.
1002.12 Record retention.
1002.13 Information for monitoring purposes.
1002.14 Rules on providing appraisal reports.
1002.15 Incentives for self-testing and self-correction.
1002.16 Enforcement, penalties and liabilities.

Appendix A to Part 1002--Federal Agencies to be Listed in Adverse Action 
          Notices
Appendix B to Part 1002--Model Application Forms
Appendix C to Part 1002--Sample Notification Forms
Appendix D to Part 1002--Issuance of Official Interpretations
Supplement I to Part 1002--Official Interpretations

    Authority: 12 U.S.C. 5512, 5581; 15 U.S.C. 1691b.

    Source: 76 FR 79445, Dec. 21, 2011, unless otherwise noted.



Sec. 1002.1  Authority, scope and purpose.

    (a) Authority and scope. This part, known as Regulation B, is issued 
by the Bureau of Consumer Financial Protection (Bureau) pursuant to 
Title VII (Equal Credit Opportunity Act) of the Consumer Credit 
Protection Act, as amended (15 U.S.C. 1601 et seq.). Except as otherwise 
provided herein, this part applies to all persons who are creditors, as 
defined in Sec. 1002.2(l), other than a person excluded from coverage 
of this part by section 1029 of the Consumer Financial Protection Act of 
2010, Title X of the Dodd-Frank Wall Street Reform and Consumer 
Protection Act, Public Law 111-203, 124 Stat. 1376. Information 
collection requirements contained in this part have been approved by the 
Office of Management and Budget under the provisions of 44 U.S.C. 3501 
et seq. and have been assigned OMB No. 3170-0013.
    (b) Purpose. The purpose of this part is to promote the availability 
of credit to all creditworthy applicants without regard to race, color, 
religion, national origin, sex, marital status, or age (provided the 
applicant has the capacity to contract); to the fact that all or part of 
the applicant's income derives from a public assistance program; or to 
the fact that the applicant has in good faith exercised any right under 
the Consumer Credit Protection Act. The regulation prohibits creditor 
practices that discriminate on the basis of any of these factors. The 
regulation also requires creditors to notify applicants of action taken 
on their applications; to report credit history in the names of both 
spouses on an account; to retain records of credit applications; to 
collect information about the applicant's race and other personal 
characteristics in applications for certain dwelling-related loans; and 
to provide applicants with copies of appraisal reports used in 
connection with credit transactions.



Sec. 1002.2  Definitions.

    For the purposes of this part, unless the context indicates 
otherwise, the following definitions apply.
    (a) Account means an extension of credit. When employed in relation 
to an account, the word use refers only to open-end credit.
    (b) Act means the Equal Credit Opportunity Act (Title VII of the 
Consumer Credit Protection Act).
    (c) Adverse action. (1) The term means:
    (i) A refusal to grant credit in substantially the amount or on 
substantially the terms requested in an application unless the creditor 
makes a counteroffer (to grant credit in a different amount or on other 
terms) and the applicant uses or expressly accepts the credit offered;
    (ii) A termination of an account or an unfavorable change in the 
terms of an account that does not affect all or substantially all of a 
class of the creditor's accounts; or
    (iii) A refusal to increase the amount of credit available to an 
applicant who

[[Page 88]]

has made an application for an increase.
    (2) The term does not include:
    (i) A change in the terms of an account expressly agreed to by an 
applicant;
    (ii) Any action or forbearance relating to an account taken in 
connection with inactivity, default, or delinquency as to that account;
    (iii) A refusal or failure to authorize an account transaction at 
point of sale or loan, except when the refusal is a termination or an 
unfavorable change in the terms of an account that does not affect all 
or substantially all of a class of the creditor's accounts, or when the 
refusal is a denial of an application for an increase in the amount of 
credit available under the account;
    (iv) A refusal to extend credit because applicable law prohibits the 
creditor from extending the credit requested; or
    (v) A refusal to extend credit because the creditor does not offer 
the type of credit or credit plan requested.
    (3) An action that falls within the definition of both paragraphs 
(c)(1) and (c)(2) of this section is governed by paragraph (c)(2) of 
this section.
    (d) Age refers only to the age of natural persons and means the 
number of fully elapsed years from the date of an applicant's birth.
    (e) Applicant means any person who requests or who has received an 
extension of credit from a creditor, and includes any person who is or 
may become contractually liable regarding an extension of credit. For 
purposes of Sec. 1002.7(d), the term includes guarantors, sureties, 
endorsers, and similar parties.
    (f) Application means an oral or written request for an extension of 
credit that is made in accordance with procedures used by a creditor for 
the type of credit requested. The term application does not include the 
use of an account or line of credit to obtain an amount of credit that 
is within a previously established credit limit. A completed application 
means an application in connection with which a creditor has received 
all the information that the creditor regularly obtains and considers in 
evaluating applications for the amount and type of credit requested 
(including, but not limited to, credit reports, any additional 
information requested from the applicant, and any approvals or reports 
by governmental agencies or other persons that are necessary to 
guarantee, insure, or provide security for the credit or collateral). 
The creditor shall exercise reasonable diligence in obtaining such 
information.
    (g) Business credit refers to extensions of credit primarily for 
business or commercial (including agricultural) purposes, but excluding 
extensions of credit of the types described in Sec. Sec. 1002.3(a)-(d).
    (h) Consumer credit means credit extended to a natural person 
primarily for personal, family, or household purposes.
    (i) Contractually liable means expressly obligated to repay all 
debts arising on an account by reason of an agreement to that effect.
    (j) Credit means the right granted by a creditor to an applicant to 
defer payment of a debt, incur debt and defer its payment, or purchase 
property or services and defer payment therefor.
    (k) Credit card means any card, plate, coupon book, or other single 
credit device that may be used from time to time to obtain money, 
property, or services on credit.
    (l) Creditor means a person who, in the ordinary course of business, 
regularly participates in a credit decision, including setting the terms 
of the credit. The term creditor includes a creditor's assignee, 
transferee, or subrogee who so participates. For purposes of Sec. Sec. 
1002.4(a) and (b), the term creditor also includes a person who, in the 
ordinary course of business, regularly refers applicants or prospective 
applicants to creditors, or selects or offers to select creditors to 
whom requests for credit may be made. A person is not a creditor 
regarding any violation of the Act or this part committed by another 
creditor unless the person knew or had reasonable notice of the act, 
policy, or practice that constituted the violation before becoming 
involved in the credit transaction. The term does not include a person 
whose only participation in a credit transaction involves honoring a 
credit card.

[[Page 89]]

    (m) Credit transaction means every aspect of an applicant's dealings 
with a creditor regarding an application for credit or an existing 
extension of credit (including, but not limited to, information 
requirements; investigation procedures; standards of creditworthiness; 
terms of credit; furnishing of credit information; revocation, 
alteration, or termination of credit; and collection procedures).
    (n) Discriminate against an applicant means to treat an applicant 
less favorably than other applicants.
    (o) Elderly means age 62 or older.
    (p) Empirically derived and other credit scoring systems. (1) A 
credit scoring system is a system that evaluates an applicant's 
creditworthiness mechanically, based on key attributes of the applicant 
and aspects of the transaction, and that determines, alone or in 
conjunction with an evaluation of additional information about the 
applicant, whether an applicant is deemed creditworthy. To qualify as an 
empirically derived, demonstrably and statistically sound, credit 
scoring system, the system must be:
    (i) Based on data that are derived from an empirical comparison of 
sample groups or the population of creditworthy and non-creditworthy 
applicants who applied for credit within a reasonable preceding period 
of time;
    (ii) Developed for the purpose of evaluating the creditworthiness of 
applicants with respect to the legitimate business interests of the 
creditor utilizing the system (including, but not limited to, minimizing 
bad debt losses and operating expenses in accordance with the creditor's 
business judgment);
    (iii) Developed and validated using accepted statistical principles 
and methodology; and
    (iv) Periodically revalidated by the use of appropriate statistical 
principles and methodology and adjusted as necessary to maintain 
predictive ability.
    (2) A creditor may use an empirically derived, demonstrably and 
statistically sound, credit scoring system obtained from another person 
or may obtain credit experience from which to develop such a system. Any 
such system must satisfy the criteria set forth in paragraph (p)(1)(i) 
through (iv) of this section; if the creditor is unable during the 
development process to validate the system based on its own credit 
experience in accordance with paragraph (p)(1) of this section, the 
system must be validated when sufficient credit experience becomes 
available. A system that fails this validity test is no longer an 
empirically derived, demonstrably and statistically sound, credit 
scoring system for that creditor.
    (q) Extend credit and extension of credit mean the granting of 
credit in any form (including, but not limited to, credit granted in 
addition to any existing credit or credit limit; credit granted pursuant 
to an open-end credit plan; the refinancing or other renewal of credit, 
including the issuance of a new credit card in place of an expiring 
credit card or in substitution for an existing credit card; the 
consolidation of two or more obligations; or the continuance of existing 
credit without any special effort to collect at or after maturity).
    (r) Good faith means honesty in fact in the conduct or transaction.
    (s) Inadvertent error means a mechanical, electronic, or clerical 
error that a creditor demonstrates was not intentional and occurred 
notwithstanding the maintenance of procedures reasonably adapted to 
avoid such errors.
    (t) Judgmental system of evaluating applicants means any system for 
evaluating the creditworthiness of an applicant other than an 
empirically derived, demonstrably and statistically sound, credit 
scoring system.
    (u) Marital status means the state of being unmarried, married, or 
separated, as defined by applicable state law. The term ``unmarried'' 
includes persons who are single, divorced, or widowed.
    (v) Negative factor or value, in relation to the age of elderly 
applicants, means utilizing a factor, value, or weight that is less 
favorable regarding elderly applicants than the creditor's experience 
warrants or is less favorable than the factor, value, or weight assigned 
to the class of applicants that are not classified as elderly and are 
most favored by a creditor on the basis of age.
    (w) Open-end credit means credit extended under a plan in which a 
creditor may permit an applicant to make purchases or obtain loans from 
time to

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time directly from the creditor or indirectly by use of a credit card, 
check, or other device.
    (x) Person means a natural person, corporation, government or 
governmental subdivision or agency, trust, estate, partnership, 
cooperative, or association.
    (y) Pertinent element of creditworthiness, in relation to a 
judgmental system of evaluating applicants, means any information about 
applicants that a creditor obtains and considers and that has a 
demonstrable relationship to a determination of creditworthiness.
    (z) Prohibited basis means race, color, religion, national origin, 
sex, marital status, or age (provided that the applicant has the 
capacity to enter into a binding contract); the fact that all or part of 
the applicant's income derives from any public assistance program; or 
the fact that the applicant has in good faith exercised any right under 
the Consumer Credit Protection Act or any state law upon which an 
exemption has been granted by the Bureau.
    (aa) State means any state, the District of Columbia, the 
Commonwealth of Puerto Rico, or any territory or possession of the 
United States.



Sec. 1002.3  Limited exceptions for certain classes of transactions.

    (a) Public utilities credit--(1) Definition. Public utilities credit 
refers to extensions of credit that involve public utility services 
provided through pipe, wire, or other connected facilities, or radio or 
similar transmission (including extensions of such facilities), if the 
charges for service, delayed payment, and any discount for prompt 
payment are filed with or regulated by a government unit.
    (2) Exceptions. The following provisions of this part do not apply 
to public utilities credit:
    (i) Section 1002.5(d)(1) concerning information about marital 
status; and
    (ii) Section 1002.12(b) relating to record retention.
    (b) Securities credit--(1) Definition. Securities credit refers to 
extensions of credit subject to regulation under section 7 of the 
Securities Exchange Act of 1934 or extensions of credit by a broker or 
dealer subject to regulation as a broker or dealer under the Securities 
Exchange Act of 1934.
    (2) Exceptions. The following provisions of this part do not apply 
to securities credit:
    (i) Section 1002.5(b) concerning information about the sex of an 
applicant;
    (ii) Section 1002.5(c) concerning information about a spouse or 
former spouse;
    (iii) Section 1002.5(d)(1) concerning information about marital 
status;
    (iv) Section 1002.7(b) relating to designation of name to the extent 
necessary to comply with rules regarding an account in which a broker or 
dealer has an interest, or rules regarding the aggregation of accounts 
of spouses to determine controlling interests, beneficial interests, 
beneficial ownership, or purchase limitations and restrictions;
    (v) Section 1002.7(c) relating to action concerning open-end 
accounts, to the extent the action taken is on the basis of a change of 
name or marital status;
    (vi) Section 1002.7(d) relating to the signature of a spouse or 
other person;
    (vii) Section 1002.10 relating to furnishing of credit information; 
and
    (viii) Section 1002.12(b) relating to record retention.
    (c) Incidental credit--(1) Definition. Incidental credit refers to 
extensions of consumer credit other than the types described in 
paragraphs (a) and (b) of this section:
    (i) That are not made pursuant to the terms of a credit card 
account;
    (ii) That are not subject to a finance charge (as defined in 
Regulation Z, 12 CFR 1026.4); and
    (iii) That are not payable by agreement in more than four 
installments.
    (2) Exceptions. The following provisions of this part do not apply 
to incidental credit:
    (i) Section 1002.5(b) concerning information about the sex of an 
applicant, but only to the extent necessary for medical records or 
similar purposes;
    (ii) Section 1002.5(c) concerning information about a spouse or 
former spouse;
    (iii) Section 1002.5(d)(1) concerning information about marital 
status;
    (iv) Section 1002.5(d)(2) concerning information about income 
derived from

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alimony, child support, or separate maintenance payments;
    (v) Section 1002.7(d) relating to the signature of a spouse or other 
person;
    (vi) Section 1002.9 relating to notifications;
    (vii) Section 1002.10 relating to furnishing of credit information; 
and
    (viii) Section 1002.12(b) relating to record retention.
    (d) Government credit--(1) Definition. Government credit refers to 
extensions of credit made to governments or governmental subdivisions, 
agencies, or instrumentalities.
    (2) Applicability of regulation. Except for Sec. 1002.4(a), the 
general rule against discrimination on a prohibited basis, the 
requirements of this part do not apply to government credit.



Sec. 1002.4  General rules.

    (a) Discrimination. A creditor shall not discriminate against an 
applicant on a prohibited basis regarding any aspect of a credit 
transaction.
    (b) Discouragement. A creditor shall not make any oral or written 
statement, in advertising or otherwise, to applicants or prospective 
applicants that would discourage on a prohibited basis a reasonable 
person from making or pursuing an application.
    (c) Written applications. A creditor shall take written applications 
for the dwelling-related types of credit covered by Sec. 1002.13(a).
    (d) Form of disclosures--(1) General rule. A creditor that provides 
in writing any disclosures or information required by this part must 
provide the disclosures in a clear and conspicuous manner and, except 
for the disclosures required by Sec. Sec. 1002.5 and 1002.13, in a form 
the applicant may retain.
    (2) Disclosures in electronic form. The disclosures required by this 
part that are required to be given in writing may be provided to the 
applicant in electronic form, subject to compliance with the consumer 
consent and other applicable provisions of the Electronic Signatures in 
Global and National Commerce Act (E-Sign Act) (15 U.S.C. 7001 et seq.). 
Where the disclosures under Sec. Sec. 1002.5(b)(1), 1002.5(b)(2), 
1002.5(d)(1), 1002.5(d)(2), 1002.13, and 1002.14(a)(2)(i) accompany an 
application accessed by the applicant in electronic form, these 
disclosures may be provided to the applicant in electronic form on or 
with the application form, without regard to the consumer consent or 
other provisions of the E-Sign Act.
    (e) Foreign-language disclosures. Disclosures may be made in 
languages other than English, provided they are available in English 
upon request.



Sec. 1002.5  Rules concerning requests for information.

    (a) General rules--(1) Requests for information. Except as provided 
in paragraphs (b) through (d) of this section, a creditor may request 
any information in connection with a credit transaction. This paragraph 
does not limit or abrogate any Federal or state law regarding privacy, 
privileged information, credit reporting limitations, or similar 
restrictions on obtainable information.
    (2) Required collection of information. Notwithstanding paragraphs 
(b) through (d) of this section, a creditor shall request information 
for monitoring purposes as required by Sec. 1002.13 for credit secured 
by the applicant's dwelling. In addition, a creditor may obtain 
information required by a regulation, order, or agreement issued by, or 
entered into with, a court or an enforcement agency (including the 
Attorney General of the United States or a similar state official) to 
monitor or enforce compliance with the Act, this part, or other Federal 
or state statutes or regulations.
    (3) Special-purpose credit. A creditor may obtain information that 
is otherwise restricted to determine eligibility for a special purpose 
credit program, as provided in Sec. Sec. 1002.8(b), (c), and (d).
    (b) Limitation on information about race, color, religion, national 
origin, or sex. A creditor shall not inquire about the race, color, 
religion, national origin, or sex of an applicant or any other person in 
connection with a credit transaction, except as provided in paragraphs 
(b)(1) and (b)(2) of this section.
    (1) Self-test. A creditor may inquire about the race, color, 
religion, national origin, or sex of an applicant or any

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other person in connection with a credit transaction for the purpose of 
conducting a self-test that meets the requirements of Sec. 1002.15. A 
creditor that makes such an inquiry shall disclose orally or in writing, 
at the time the information is requested, that:
    (i) The applicant will not be required to provide the information;
    (ii) The creditor is requesting the information to monitor its 
compliance with the Federal Equal Credit Opportunity Act;
    (iii) Federal law prohibits the creditor from discriminating on the 
basis of this information, or on the basis of an applicant's decision 
not to furnish the information; and
    (iv) If applicable, certain information will be collected based on 
visual observation or surname if not provided by the applicant or other 
person.
    (2) Sex. An applicant may be requested to designate a title on an 
application form (such as Ms., Miss, Mr., or Mrs.) if the form discloses 
that the designation of a title is optional. An application form shall 
otherwise use only terms that are neutral as to sex.
    (c) Information about a spouse or former spouse--(1) General rule. 
Except as permitted in this paragraph, a creditor may not request any 
information concerning the spouse or former spouse of an applicant.
    (2) Permissible inquiries. A creditor may request any information 
concerning an applicant's spouse (or former spouse under paragraph 
(c)(2)(v) of this section) that may be requested about the applicant if:
    (i) The spouse will be permitted to use the account;
    (ii) The spouse will be contractually liable on the account;
    (iii) The applicant is relying on the spouse's income as a basis for 
repayment of the credit requested;
    (iv) The applicant resides in a community property state or is 
relying on property located in such a state as a basis for repayment of 
the credit requested; or
    (v) The applicant is relying on alimony, child support, or separate 
maintenance payments from a spouse or former spouse as a basis for 
repayment of the credit requested.
    (3) Other accounts of the applicant. A creditor may request that an 
applicant list any account on which the applicant is contractually 
liable and to provide the name and address of the person in whose name 
the account is held. A creditor may also ask an applicant to list the 
names in which the applicant has previously received credit.
    (d) Other limitations on information requests--(1) Marital status. 
If an applicant applies for individual unsecured credit, a creditor 
shall not inquire about the applicant's marital status unless the 
applicant resides in a community property state or is relying on 
property located in such a state as a basis for repayment of the credit 
requested. If an application is for other than individual unsecured 
credit, a creditor may inquire about the applicant's marital status, but 
shall use only the terms married, unmarried, and separated. A creditor 
may explain that the category unmarried includes single, divorced, and 
widowed persons.
    (2) Disclosure about income from alimony, child support, or separate 
maintenance. A creditor shall not inquire whether income stated in an 
application is derived from alimony, child support, or separate 
maintenance payments unless the creditor discloses to the applicant that 
such income need not be revealed if the applicant does not want the 
creditor to consider it in determining the applicant's creditworthiness.
    (3) Childbearing, childrearing. A creditor shall not inquire about 
birth control practices, intentions concerning the bearing or rearing of 
children, or capability to bear children. A creditor may inquire about 
the number and ages of an applicant's dependents or about dependent-
related financial obligations or expenditures, provided such information 
is requested without regard to sex, marital status, or any other 
prohibited basis.
    (e) Permanent residency and immigration status. A creditor may 
inquire about the permanent residency and immigration status of an 
applicant or any other person in connection with a credit transaction.

[[Page 93]]



Sec. 1002.6  Rules concerning evaluation of applications.

    (a) General rule concerning use of information. Except as otherwise 
provided in the Act and this part, a creditor may consider any 
information obtained, so long as the information is not used to 
discriminate against an applicant on a prohibited basis. The legislative 
history of the Act indicates that the Congress intended an ``effects 
test'' concept, as outlined in the employment field by the Supreme Court 
in the cases of Griggs v. Duke Power Co., 401 U.S. 424 (1971), and 
Albemarle Paper Co. v. Moody, 422 U.S. 405 (1975), to be applicable to a 
creditor's determination of creditworthiness.
    (b) Specific rules concerning use of information. (1) Except as 
provided in the Act and this part, a creditor shall not take a 
prohibited basis into account in any system of evaluating the 
creditworthiness of applicants.
    (2) Age, receipt of public assistance. (i) Except as permitted in 
this paragraph, a creditor shall not take into account an applicant's 
age (provided that the applicant has the capacity to enter into a 
binding contract) or whether an applicant's income derives from any 
public assistance program.
    (ii) In an empirically derived, demonstrably and statistically 
sound, credit scoring system, a creditor may use an applicant's age as a 
predictive variable, provided that the age of an elderly applicant is 
not assigned a negative factor or value.
    (iii) In a judgmental system of evaluating creditworthiness, a 
creditor may consider an applicant's age or whether an applicant's 
income derives from any public assistance program only for the purpose 
of determining a pertinent element of creditworthiness.
    (iv) In any system of evaluating creditworthiness, a creditor may 
consider the age of an elderly applicant when such age is used to favor 
the elderly applicant in extending credit.
    (3) Childbearing, childrearing. In evaluating creditworthiness, a 
creditor shall not make assumptions or use aggregate statistics relating 
to the likelihood that any category of persons will bear or rear 
children or will, for that reason, receive diminished or interrupted 
income in the future.
    (4) Telephone listing. A creditor shall not take into account 
whether there is a telephone listing in the name of an applicant for 
consumer credit but may take into account whether there is a telephone 
in the applicant's residence.
    (5) Income. A creditor shall not discount or exclude from 
consideration the income of an applicant or the spouse of an applicant 
because of a prohibited basis or because the income is derived from 
part-time employment or is an annuity, pension, or other retirement 
benefit; a creditor may consider the amount and probable continuance of 
any income in evaluating an applicant's creditworthiness. When an 
applicant relies on alimony, child support, or separate maintenance 
payments in applying for credit, the creditor shall consider such 
payments as income to the extent that they are likely to be consistently 
made.
    (6) Credit history. To the extent that a creditor considers credit 
history in evaluating the creditworthiness of similarly qualified 
applicants for a similar type and amount of credit, in evaluating an 
applicant's creditworthiness a creditor shall consider:
    (i) The credit history, when available, of accounts designated as 
accounts that the applicant and the applicant's spouse are permitted to 
use or for which both are contractually liable;
    (ii) On the applicant's request, any information the applicant may 
present that tends to indicate the credit history being considered by 
the creditor does not accurately reflect the applicant's 
creditworthiness; and
    (iii) On the applicant's request, the credit history, when 
available, of any account reported in the name of the applicant's spouse 
or former spouse that the applicant can demonstrate accurately reflects 
the applicant's creditworthiness.
    (7) Immigration status. A creditor may consider the applicant's 
immigration status or status as a permanent resident of the United 
States, and any additional information that may be necessary to 
ascertain the creditor's rights and remedies regarding repayment.

[[Page 94]]

    (8) Marital status. Except as otherwise permitted or required by 
law, a creditor shall evaluate married and unmarried applicants by the 
same standards; and in evaluating joint applicants, a creditor shall not 
treat applicants differently based on the existence, absence, or 
likelihood of a marital relationship between the parties.
    (9) Race, color, religion, national origin, sex. Except as otherwise 
permitted or required by law, a creditor shall not consider race, color, 
religion, national origin, or sex (or an applicant's or other person's 
decision not to provide the information) in any aspect of a credit 
transaction.
    (c) State property laws. A creditor's consideration or application 
of state property laws directly or indirectly affecting creditworthiness 
does not constitute unlawful discrimination for the purposes of the Act 
or this part.



Sec. 1002.7  Rules concerning extensions of credit.

    (a) Individual accounts. A creditor shall not refuse to grant an 
individual account to a creditworthy applicant on the basis of sex, 
marital status, or any other prohibited basis.
    (b) Designation of name. A creditor shall not refuse to allow an 
applicant to open or maintain an account in a birth-given first name and 
a surname that is the applicant's birth-given surname, the spouse's 
surname, or a combined surname.
    (c) Action concerning existing open-end accounts--(1) Limitations. 
In the absence of evidence of the applicant's inability or unwillingness 
to repay, a creditor shall not take any of the following actions 
regarding an applicant who is contractually liable on an existing open-
end account on the basis of the applicant's reaching a certain age or 
retiring or on the basis of a change in the applicant's name or marital 
status:
    (i) Require a reapplication, except as provided in paragraph (c)(2) 
of this section;
    (ii) Change the terms of the account; or
    (iii) Terminate the account.
    (2) Requiring reapplication. A creditor may require a reapplication 
for an open-end account on the basis of a change in the marital status 
of an applicant who is contractually liable if the credit granted was 
based in whole or in part on income of the applicant's spouse and if 
information available to the creditor indicates that the applicant's 
income may not support the amount of credit currently available.
    (d) Signature of spouse or other person--(1) Rule for qualified 
applicant. Except as provided in this paragraph, a creditor shall not 
require the signature of an applicant's spouse or other person, other 
than a joint applicant, on any credit instrument if the applicant 
qualifies under the creditor's standards of creditworthiness for the 
amount and terms of the credit requested. A creditor shall not deem the 
submission of a joint financial statement or other evidence of jointly 
held assets as an application for joint credit.
    (2) Unsecured credit. If an applicant requests unsecured credit and 
relies in part upon property that the applicant owns jointly with 
another person to satisfy the creditor's standards of creditworthiness, 
the creditor may require the signature of the other person only on the 
instrument(s) necessary, or reasonably believed by the creditor to be 
necessary, under the law of the state in which the property is located, 
to enable the creditor to reach the property being relied upon in the 
event of the death or default of the applicant.
    (3) Unsecured credit--community property states. If a married 
applicant requests unsecured credit and resides in a community property 
state, or if the applicant is relying on property located in such a 
state, a creditor may require the signature of the spouse on any 
instrument necessary, or reasonably believed by the creditor to be 
necessary, under applicable state law to make the community property 
available to satisfy the debt in the event of default if:
    (i) Applicable state law denies the applicant power to manage or 
control sufficient community property to qualify for the credit 
requested under the creditor's standards of creditworthiness; and
    (ii) The applicant does not have sufficient separate property to 
qualify for the credit requested without regard to community property.
    (4) Secured credit. If an applicant requests secured credit, a 
creditor may

[[Page 95]]

require the signature of the applicant's spouse or other person on any 
instrument necessary, or reasonably believed by the creditor to be 
necessary, under applicable state law to make the property being offered 
as security available to satisfy the debt in the event of default, for 
example, an instrument to create a valid lien, pass clear title, waive 
inchoate rights, or assign earnings.
    (5) Additional parties. If, under a creditor's standards of 
creditworthiness, the personal liability of an additional party is 
necessary to support the credit requested, a creditor may request a 
cosigner, guarantor, endorser, or similar party. The applicant's spouse 
may serve as an additional party, but the creditor shall not require 
that the spouse be the additional party.
    (6) Rights of additional parties. A creditor shall not impose 
requirements upon an additional party that the creditor is prohibited 
from imposing upon an applicant under this section.
    (e) Insurance. A creditor shall not refuse to extend credit and 
shall not terminate an account because credit life, health, accident, 
disability, or other credit-related insurance is not available on the 
basis of the applicant's age.



Sec. 1002.8  Special purpose credit programs.

    (a) Standards for programs. Subject to the provisions of paragraph 
(b) of this section, the Act and this part permit a creditor to extend 
special purpose credit to applicants who meet eligibility requirements 
under the following types of credit programs:
    (1) Any credit assistance program expressly authorized by Federal or 
state law for the benefit of an economically disadvantaged class of 
persons;
    (2) Any credit assistance program offered by a not-for-profit 
organization, as defined under section 501(c) of the Internal Revenue 
Code of 1954, as amended, for the benefit of its members or for the 
benefit of an economically disadvantaged class of persons; or
    (3) Any special purpose credit program offered by a for-profit 
organization, or in which such an organization participates to meet 
special social needs, if:
    (i) The program is established and administered pursuant to a 
written plan that identifies the class of persons that the program is 
designed to benefit and sets forth the procedures and standards for 
extending credit pursuant to the program; and
    (ii) The program is established and administered to extend credit to 
a class of persons who, under the organization's customary standards of 
creditworthiness, probably would not receive such credit or would 
receive it on less favorable terms than are ordinarily available to 
other applicants applying to the organization for a similar type and 
amount of credit.
    (b) Rules in other sections--(1) General applicability. All the 
provisions of this part apply to each of the special purpose credit 
programs described in paragraph (a) of this section except as modified 
by this section.
    (2) Common characteristics. A program described in paragraph (a)(2) 
or (a)(3) of this section qualifies as a special purpose credit program 
only if it was established and is administered so as not to discriminate 
against an applicant on any prohibited basis; however, all program 
participants may be required to share one or more common characteristics 
(for example, race, national origin, or sex) so long as the program was 
not established and is not administered with the purpose of evading the 
requirements of the Act or this part.
    (c) Special rule concerning requests and use of information. If 
participants in a special purpose credit program described in paragraph 
(a) of this section are required to possess one or more common 
characteristics (for example, race, national origin, or sex) and if the 
program otherwise satisfies the requirements of paragraph (a) of this 
section, a creditor may request and consider information regarding the 
common characteristic(s) in determining the applicant's eligibility for 
the program.
    (d) Special rule in the case of financial need. If financial need is 
one of the criteria under a special purpose credit program described in 
paragraph (a) of this section, the creditor may request

[[Page 96]]

and consider, in determining an applicant's eligibility for the program, 
information regarding the applicant's marital status; alimony, child 
support, and separate maintenance income; and the spouse's financial 
resources. In addition, a creditor may obtain the signature of an 
applicant's spouse or other person on an application or credit 
instrument relating to a special purpose credit program if the signature 
is required by Federal or state law.



Sec. 1002.9  Notifications.

    (a) Notification of action taken, ECOA notice, and statement of 
specific reasons--(1) When notification is required. A creditor shall 
notify an applicant of action taken within:
    (i) 30 days after receiving a completed application concerning the 
creditor's approval of, counteroffer to, or adverse action on the 
application;
    (ii) 30 days after taking adverse action on an incomplete 
application, unless notice is provided in accordance with paragraph (c) 
of this section;
    (iii) 30 days after taking adverse action on an existing account; or
    (iv) 90 days after notifying the applicant of a counteroffer if the 
applicant does not expressly accept or use the credit offered.
    (2) Content of notification when adverse action is taken. A 
notification given to an applicant when adverse action is taken shall be 
in writing and shall contain a statement of the action taken; the name 
and address of the creditor; a statement of the provisions of section 
701(a) of the Act; the name and address of the Federal agency that 
administers compliance with respect to the creditor; and either:
    (i) A statement of specific reasons for the action taken; or
    (ii) A disclosure of the applicant's right to a statement of 
specific reasons within 30 days, if the statement is requested within 60 
days of the creditor's notification. The disclosure shall include the 
name, address, and telephone number of the person or office from which 
the statement of reasons can be obtained. If the creditor chooses to 
provide the reasons orally, the creditor shall also disclose the 
applicant's right to have them confirmed in writing within 30 days of 
receiving the applicant's written request for confirmation.
    (3) Notification to business credit applicants. For business credit, 
a creditor shall comply with the notification requirements of this 
section in the following manner:
    (i) With regard to a business that had gross revenues of $1 million 
or less in its preceding fiscal year (other than an extension of trade 
credit, credit incident to a factoring agreement, or other similar types 
of business credit), a creditor shall comply with paragraphs (a)(1) and 
(2) of this section, except that:
    (A) The statement of the action taken may be given orally or in 
writing, when adverse action is taken;
    (B) Disclosure of an applicant's right to a statement of reasons may 
be given at the time of application, instead of when adverse action is 
taken, provided the disclosure contains the information required by 
paragraph (a)(2)(ii) of this section and the ECOA notice specified in 
paragraph (b)(1) of this section;
    (C) For an application made entirely by telephone, a creditor 
satisfies the requirements of paragraph (a)(3)(i) of this section by an 
oral statement of the action taken and of the applicant's right to a 
statement of reasons for adverse action.
    (ii) With regard to a business that had gross revenues in excess of 
$1 million in its preceding fiscal year or an extension of trade credit, 
credit incident to a factoring agreement, or other similar types of 
business credit, a creditor shall:
    (A) Notify the applicant, within a reasonable time, orally or in 
writing, of the action taken; and
    (B) Provide a written statement of the reasons for adverse action 
and the ECOA notice specified in paragraph (b)(1) of this section if the 
applicant makes a written request for the reasons within 60 days of the 
creditor's notification.
    (b) Form of ECOA notice and statement of specific reasons--(1) ECOA 
notice. To satisfy the disclosure requirements of paragraph (a)(2) of 
this section regarding section 701(a) of the Act, the creditor shall 
provide a notice that is substantially similar to the following: The 
Federal Equal Credit Opportunity Act

[[Page 97]]

prohibits creditors from discriminating against credit applicants on the 
basis of race, color, religion, national origin, sex, marital status, 
age (provided the applicant has the capacity to enter into a binding 
contract); because all or part of the applicant's income derives from 
any public assistance program; or because the applicant has in good 
faith exercised any right under the Consumer Credit Protection Act. The 
Federal agency that administers compliance with this law concerning this 
creditor is [name and address as specified by the appropriate agency or 
agencies listed in appendix A of this part]. Until January 1, 2013, a 
creditor may comply with this paragraph (b)(1) and paragraph (a)(2) of 
this section by including in the notice the name and address as 
specified by the appropriate agency in appendix A to 12 CFR part 202, as 
in effect on October 1, 2011.
    (2) Statement of specific reasons. The statement of reasons for 
adverse action required by paragraph (a)(2)(i) of this section must be 
specific and indicate the principal reason(s) for the adverse action. 
Statements that the adverse action was based on the creditor's internal 
standards or policies or that the applicant, joint applicant, or similar 
party failed to achieve a qualifying score on the creditor's credit 
scoring system are insufficient.
    (c) Incomplete applications--(1) Notice alternatives. Within 30 days 
after receiving an application that is incomplete regarding matters that 
an applicant can complete, the creditor shall notify the applicant 
either:
    (i) Of action taken, in accordance with paragraph (a) of this 
section; or
    (ii) Of the incompleteness, in accordance with paragraph (c)(2) of 
this section.
    (2) Notice of incompleteness. If additional information is needed 
from an applicant, the creditor shall send a written notice to the 
applicant specifying the information needed, designating a reasonable 
period of time for the applicant to provide the information, and 
informing the applicant that failure to provide the information 
requested will result in no further consideration being given to the 
application. The creditor shall have no further obligation under this 
section if the applicant fails to respond within the designated time 
period. If the applicant supplies the requested information within the 
designated time period, the creditor shall take action on the 
application and notify the applicant in accordance with paragraph (a) of 
this section.
    (3) Oral request for information. At its option, a creditor may 
inform the applicant orally of the need for additional information. If 
the application remains incomplete the creditor shall send a notice in 
accordance with paragraph (c)(1) of this section.
    (d) Oral notifications by small-volume creditors. In the case of a 
creditor that did not receive more than 150 applications during the 
preceding calendar year, the requirements of this section (including 
statements of specific reasons) are satisfied by oral notifications.
    (e) Withdrawal of approved application. When an applicant submits an 
application and the parties contemplate that the applicant will inquire 
about its status, if the creditor approves the application and the 
applicant has not inquired within 30 days after applying, the creditor 
may treat the application as withdrawn and need not comply with 
paragraph (a)(1) of this section.
    (f) Multiple applicants. When an application involves more than one 
applicant, notification need only be given to one of them but must be 
given to the primary applicant where one is readily apparent.
    (g) Applications submitted through a third party. When an 
application is made on behalf of an applicant to more than one creditor 
and the applicant expressly accepts or uses credit offered by one of the 
creditors, notification of action taken by any of the other creditors is 
not required. If no credit is offered or if the applicant does not 
expressly accept or use the credit offered, each creditor taking adverse 
action must comply with this section, directly or through a third party. 
A notice given by a third party shall disclose the identity of each 
creditor on whose behalf the notice is given.

[[Page 98]]



Sec. 1002.10  Furnishing of credit information.

    (a) Designation of accounts. A creditor that furnishes credit 
information shall designate:
    (1) Any new account to reflect the participation of both spouses if 
the applicant's spouse is permitted to use or is contractually liable on 
the account (other than as a guarantor, surety, endorser, or similar 
party); and
    (2) Any existing account to reflect such participation, within 90 
days after receiving a written request to do so from one of the spouses.
    (b) Routine reports to consumer reporting agency. If a creditor 
furnishes credit information to a consumer reporting agency concerning 
an account designated to reflect the participation of both spouses, the 
creditor shall furnish the information in a manner that will enable the 
agency to provide access to the information in the name of each spouse.
    (c) Reporting in response to inquiry. If a creditor furnishes credit 
information in response to an inquiry, concerning an account designated 
to reflect the participation of both spouses, the creditor shall furnish 
the information in the name of the spouse about whom the information is 
requested.



Sec. 1002.11  Relation to state law.

    (a) Inconsistent state laws. Except as otherwise provided in this 
section, this part alters, affects, or preempts only those state laws 
that are inconsistent with the Act and this part and then only to the 
extent of the inconsistency. A state law is not inconsistent if it is 
more protective of an applicant.
    (b) Preempted provisions of state law. (1) A state law is deemed to 
be inconsistent with the requirements of the Act and this part and less 
protective of an applicant within the meaning of section 705(f) of the 
Act to the extent that the law:
    (i) Requires or permits a practice or act prohibited by the Act or 
this part;
    (ii) Prohibits the individual extension of consumer credit to both 
parties to a marriage if each spouse individually and voluntarily 
applies for such credit;
    (iii) Prohibits inquiries or collection of data required to comply 
with the Act or this part;
    (iv) Prohibits asking about or considering age in an empirically 
derived, demonstrably and statistically sound, credit scoring system to 
determine a pertinent element of creditworthiness, or to favor an 
elderly applicant; or
    (v) Prohibits inquiries necessary to establish or administer a 
special purpose credit program as defined by Sec. 1002.8.
    (2) A creditor, state, or other interested party may request that 
the Bureau determine whether a state law is inconsistent with the 
requirements of the Act and this part.
    (c) Laws on finance charges, loan ceilings. If married applicants 
voluntarily apply for and obtain individual accounts with the same 
creditor, the accounts shall not be aggregated or otherwise combined for 
purposes of determining permissible finance charges or loan ceilings 
under any Federal or state law. Permissible loan ceiling laws shall be 
construed to permit each spouse to become individually liable up to the 
amount of the loan ceilings, less the amount for which the applicant is 
jointly liable.
    (d) State and Federal laws not affected. This section does not alter 
or annul any provision of state property laws, laws relating to the 
disposition of decedents' estates, or Federal or state banking 
regulations directed only toward insuring the solvency of financial 
institutions.
    (e) Exemption for state-regulated transactions--(1) Applications. A 
state may apply to the Bureau for an exemption from the requirements of 
the Act and this part for any class of credit transactions within the 
state. The Bureau will grant such an exemption if the Bureau determines 
that:
    (i) The class of credit transactions is subject to state law 
requirements substantially similar to those of the Act and this part or 
that applicants are afforded greater protection under state law; and
    (ii) There is adequate provision for state enforcement.
    (2) Liability and enforcement. (i) No exemption will extend to the 
civil liability provisions of section 706 of the Act

[[Page 99]]

or the administrative enforcement provisions of section 704 of the Act.
    (ii) After an exemption has been granted, the requirements of the 
applicable state law (except for additional requirements not imposed by 
Federal law) will constitute the requirements of the Act and this part.



Sec. 1002.12  Record retention.

    (a) Retention of prohibited information. A creditor may retain in 
its files information that is prohibited by the Act or this part for use 
in evaluating applications, without violating the Act or this part, if 
the information was obtained:
    (1) From any source prior to March 23, 1977;
    (2) From consumer reporting agencies, an applicant, or others 
without the specific request of the creditor; or
    (3) As required to monitor compliance with the Act and this part or 
other Federal or state statutes or regulations.
    (b) Preservation of records--(1) Applications. For 25 months (12 
months for business credit, except as provided in paragraph (b)(5) of 
this section) after the date that a creditor notifies an applicant of 
action taken on an application or of incompleteness, the creditor shall 
retain in original form or a copy thereof:
    (i) Any application that it receives, any information required to be 
obtained concerning characteristics of the applicant to monitor 
compliance with the Act and this part or other similar law, and any 
other written or recorded information used in evaluating the application 
and not returned to the applicant at the applicant's request;
    (ii) A copy of the following documents if furnished to the applicant 
in written form (or, if furnished orally, any notation or memorandum 
made by the creditor):
    (A) The notification of action taken; and
    (B) The statement of specific reasons for adverse action; and
    (iii) Any written statement submitted by the applicant alleging a 
violation of the Act or this part.
    (2) Existing accounts. For 25 months (12 months for business credit, 
except as provided in paragraph (b)(5) of this section) after the date 
that a creditor notifies an applicant of adverse action regarding an 
existing account, the creditor shall retain as to that account, in 
original form or a copy thereof:
    (i) Any written or recorded information concerning the adverse 
action; and
    (ii) Any written statement submitted by the applicant alleging a 
violation of the Act or this part.
    (3) Other applications. For 25 months (12 months for business 
credit, except as provided in paragraph (b)(5) of this section) after 
the date that a creditor receives an application for which the creditor 
is not required to comply with the notification requirements of Sec. 
1002.9, the creditor shall retain all written or recorded information in 
its possession concerning the applicant, including any notation of 
action taken.
    (4) Enforcement proceedings and investigations. A creditor shall 
retain the information beyond 25 months (12 months for business credit, 
except as provided in paragraph (b)(5) of this section) if the creditor 
has actual notice that it is under investigation or is subject to an 
enforcement proceeding for an alleged violation of the Act or this part, 
by the Attorney General of the United States or by an enforcement agency 
charged with monitoring that creditor's compliance with the Act and this 
part, or if it has been served with notice of an action filed pursuant 
to section 706 of the Act and Sec. 1002.16 of this part. The creditor 
shall retain the information until final disposition of the matter, 
unless an earlier time is allowed by order of the agency or court.
    (5) Special rule for certain business credit applications. With 
regard to a business that had gross revenues in excess of $1 million in 
its preceding fiscal year, or an extension of trade credit, credit 
incident to a factoring agreement, or other similar types of business 
credit, the creditor shall retain records for at least 60 days after 
notifying the applicant of the action taken. If within that time period 
the applicant requests in writing the reasons for adverse action or that 
records be retained, the creditor shall retain records for 12 months.
    (6) Self-tests. For 25 months after a self-test (as defined in Sec. 
1002.15) has

[[Page 100]]

been completed, the creditor shall retain all written or recorded 
information about the self-test. A creditor shall retain information 
beyond 25 months if it has actual notice that it is under investigation 
or is subject to an enforcement proceeding for an alleged violation, or 
if it has been served with notice of a civil action. In such cases, the 
creditor shall retain the information until final disposition of the 
matter, unless an earlier time is allowed by the appropriate agency or 
court order.
    (7) Prescreened solicitations. For 25 months after the date on which 
an offer of credit is made to potential customers (12 months for 
business credit, except as provided in paragraph (b)(5) of this 
section), the creditor shall retain in original form or a copy thereof:
    (i) The text of any prescreened solicitation;
    (ii) The list of criteria the creditor used to select potential 
recipients of the solicitation; and
    (iii) Any correspondence related to complaints (formal or informal) 
about the solicitation.



Sec. 1002.13  Information for monitoring purposes.

    (a) Information to be requested. (1) A creditor that receives an 
application for credit primarily for the purchase or refinancing of a 
dwelling occupied or to be occupied by the applicant as a principal 
residence, where the extension of credit will be secured by the 
dwelling, shall request as part of the application the following 
information regarding the applicant(s):
    (i) Ethnicity, using the categories Hispanic or Latino, and not 
Hispanic or Latino; and race, using the categories American Indian or 
Alaska Native, Asian, Black or African American, Native Hawaiian or 
Other Pacific Islander, and White;
    (ii) Sex;
    (iii) Marital status, using the categories married, unmarried, and 
separated; and
    (iv) Age.
    (2) Dwelling means a residential structure that contains one to four 
units, whether or not that structure is attached to real property. The 
term includes, but is not limited to, an individual condominium or 
cooperative unit and a mobile or other manufactured home.
    (b) Obtaining information. Questions regarding ethnicity, race, sex, 
marital status, and age may be listed, at the creditor's option, on the 
application form or on a separate form that refers to the application. 
The applicant(s) shall be asked but not required to supply the requested 
information. If the applicant(s) chooses not to provide the information 
or any part of it, that fact shall be noted on the form. The creditor 
shall then also note on the form, to the extent possible, the ethnicity, 
race, and sex of the applicant(s) on the basis of visual observation or 
surname.
    (c) Disclosure to applicant(s). The creditor shall inform the 
applicant(s) that the information regarding ethnicity, race, sex, 
marital status, and age is being requested by the Federal Government for 
the purpose of monitoring compliance with Federal statutes that prohibit 
creditors from discriminating against applicants on those bases. The 
creditor shall also inform the applicant(s) that if the applicant(s) 
chooses not to provide the information, the creditor is required to note 
the ethnicity, race and sex on the basis of visual observation or 
surname.
    (d) Substitute monitoring program. A monitoring program required by 
an agency charged with administrative enforcement under section 704 of 
the Act may be substituted for the requirements contained in paragraphs 
(a), (b), and (c) of this section.



Sec. 1002.14  Rules on providing appraisal reports.

    (a) Providing appraisals. A creditor shall provide a copy of an 
appraisal report used in connection with an application for credit that 
is to be secured by a lien on a dwelling. A creditor shall comply with 
either paragraph (a)(1) or (a)(2) of this section.
    (1) Routine delivery. A creditor may routinely provide a copy of an 
appraisal report to an applicant (whether credit is granted or denied or 
the application is withdrawn).
    (2) Upon request. A creditor that does not routinely provide 
appraisal reports shall provide a copy upon an applicant's written 
request.

[[Page 101]]

    (i) Notice. A creditor that provides appraisal reports only upon 
request shall notify an applicant in writing of the right to receive a 
copy of an appraisal report. The notice may be given at any time during 
the application process but no later than when the creditor provides 
notice of action taken under Sec. 1002.9 of this part. The notice shall 
specify that the applicant's request must be in writing, give the 
creditor's mailing address, and state the time for making the request as 
provided in paragraph (a)(2)(ii) of this section.
    (ii) Delivery. A creditor shall mail or deliver a copy of the 
appraisal report promptly (generally within 30 days) after the creditor 
receives an applicant's request, receives the report, or receives 
reimbursement from the applicant for the report, whichever is last to 
occur. A creditor need not provide a copy when the applicant's request 
is received more than 90 days after the creditor has provided notice of 
action taken on the application under Sec. 1002.9 of this part or 90 
days after the application is withdrawn.
    (b) Credit unions. A creditor that is subject to the regulations of 
the National Credit Union Administration on making copies of appraisal 
reports available is not subject to this section.
    (c) Definitions. For purposes of paragraph (a) of this section, the 
term dwelling means a residential structure that contains one to four 
units whether or not that structure is attached to real property. The 
term includes, but is not limited to, an individual condominium or 
cooperative unit, and a mobile or other manufactured home. The term 
appraisal report means the document(s) relied upon by a creditor in 
evaluating the value of the dwelling.



Sec. 1002.15  Incentives for self-testing and self-correction.

    (a) General rules--(1) Voluntary self-testing and correction. The 
report or results of a self-test that a creditor voluntarily conducts 
(or authorizes) are privileged as provided in this section. Data 
collection required by law or by any governmental authority is not a 
voluntary self-test.
    (2) Corrective action required. The privilege in this section 
applies only if the creditor has taken or is taking appropriate 
corrective action.
    (3) Other privileges. The privilege created by this section does not 
preclude the assertion of any other privilege that may also apply.
    (b) Self-test defined--(1) Definition. A self-test is any program, 
practice, or study that:
    (i) Is designed and used specifically to determine the extent or 
effectiveness of a creditor's compliance with the Act or this part; and
    (ii) Creates data or factual information that is not available and 
cannot be derived from loan or application files or other records 
related to credit transactions.
    (2) Types of information privileged. The privilege under this 
section applies to the report or results of the self-test, data or 
factual information created by the self-test, and any analysis, 
opinions, and conclusions pertaining to the self-test report or results. 
The privilege covers workpapers or draft documents as well as final 
documents.
    (3) Types of information not privileged. The privilege under this 
section does not apply to:
    (i) Information about whether a creditor conducted a self-test, the 
methodology used or the scope of the self-test, the time period covered 
by the self-test, or the dates it was conducted; or
    (ii) Loan and application files or other business records related to 
credit transactions, and information derived from such files and 
records, even if the information has been aggregated, summarized, or 
reorganized to facilitate analysis.
    (c) Appropriate corrective action--(1) General requirement. For the 
privilege in this section to apply, appropriate corrective action is 
required when the self-test shows that it is more likely than not that a 
violation occurred, even though no violation has been formally 
adjudicated.
    (2) Determining the scope of appropriate corrective action. A 
creditor must take corrective action that is reasonably likely to remedy 
the cause and effect of a likely violation by:
    (i) Identifying the policies or practices that are the likely cause 
of the violation; and

[[Page 102]]

    (ii) Assessing the extent and scope of any violation.
    (3) Types of relief. Appropriate corrective action may include both 
prospective and remedial relief, except that to establish a privilege 
under this section:
    (i) A creditor is not required to provide remedial relief to a 
tester used in a self-test;
    (ii) A creditor is only required to provide remedial relief to an 
applicant identified by the self-test as one whose rights were more 
likely than not violated; and
    (iii) A creditor is not required to provide remedial relief to a 
particular applicant if the statute of limitations applicable to the 
violation expired before the creditor obtained the results of the self-
test or the applicant is otherwise ineligible for such relief.
    (4) No admission of violation. Taking corrective action is not an 
admission that a violation occurred.
    (d) Scope of privilege--(1) General rule. The report or results of a 
privileged self-test may not be obtained or used:
    (i) By a government agency in any examination or investigation 
relating to compliance with the Act or this part; or
    (ii) By a government agency or an applicant (including a prospective 
applicant who alleges a violation of Sec. 1002.4(b)) in any proceeding 
or civil action in which a violation of the Act or this part is alleged.
    (2) Loss of privilege. The report or results of a self-test are not 
privileged under paragraph (d)(1) of this section if the creditor or a 
person with lawful access to the report or results:
    (i) Voluntarily discloses any part of the report or results, or any 
other information privileged under this section, to an applicant or 
government agency or to the public;
    (ii) Discloses any part of the report or results, or any other 
information privileged under this section, as a defense to charges that 
the creditor has violated the Act or regulation; or
    (iii) Fails or is unable to produce written or recorded information 
about the self-test that is required to be retained under Sec. 
1002.12(b)(6) when the information is needed to determine whether the 
privilege applies. This paragraph does not limit any other penalty or 
remedy that may be available for a violation of Sec. 1002.12.
    (3) Limited use of privileged information. Notwithstanding paragraph 
(d)(1) of this section, the self-test report or results and any other 
information privileged under this section may be obtained and used by an 
applicant or government agency solely to determine a penalty or remedy 
after a violation of the Act or this part has been adjudicated or 
admitted. Disclosures for this limited purpose may be used only for the 
particular proceeding in which the adjudication or admission was made. 
Information disclosed under this paragraph (d)(3) remains privileged 
under paragraph (d)(1) of this section.



Sec. 1002.16  Enforcement, penalties and liabilities.

    (a) Administrative enforcement. (1) As set forth more fully in 
section 704 of the Act, administrative enforcement of the Act and this 
part regarding certain creditors is assigned to the Comptroller of the 
Currency, Board of Governors of the Federal Reserve System, Board of 
Directors of the Federal Deposit Insurance Corporation, National Credit 
Union Administration, Surface Transportation Board, Civil Aeronautics 
Board, Secretary of Agriculture, Farm Credit Administration, Securities 
and Exchange Commission, Small Business Administration, Secretary of 
Transportation, and Bureau of Consumer Financial Protection.
    (2) Except to the extent that administrative enforcement is 
specifically assigned to some government agency other than the Bureau, 
and subject to subtitle B of the Consumer Financial Protection Act of 
2010, the Federal Trade Commission is authorized to enforce the 
requirements imposed under the Act and this part.
    (b) Penalties and liabilities. (1) Sections 702(g) and 706(a) and 
(b) of the Act provide that any creditor that fails to comply with a 
requirement imposed by the Act or this part is subject to civil 
liability for actual and punitive damages in individual or class 
actions. Pursuant to sections 702(g) and 704(b), (c), and (d) of the 
Act, violations of the Act or this part also constitute violations

[[Page 103]]

of other Federal laws. Liability for punitive damages can apply only to 
nongovernmental entities and is limited to $10,000 in individual actions 
and the lesser of $500,000 or 1 percent of the creditor's net worth in 
class actions. Section 706(c) provides for equitable and declaratory 
relief and section 706(d) authorizes the awarding of costs and 
reasonable attorney's fees to an aggrieved applicant in a successful 
action.
    (2) As provided in section 706(f) of the Act, a civil action under 
the Act or this part may be brought in the appropriate United States 
district court without regard to the amount in controversy or in any 
other court of competent jurisdiction within five years after the date 
of the occurrence of the violation, or within one year after the 
commencement of an administrative enforcement proceeding or of a civil 
action brought by the Attorney General of the United States within five 
years after the alleged violation.
    (3) If an agency responsible for administrative enforcement is 
unable to obtain compliance with the Act or this part, it may refer the 
matter to the Attorney General of the United States. If the Bureau, the 
Comptroller of the Currency, the Federal Deposit Insurance Corporation, 
the Board of Governors of the Federal Reserve System, or the National 
Credit Union Administration has reason to believe that one or more 
creditors have engaged in a pattern or practice of discouraging or 
denying applications in violation of the Act or this part, the agency 
shall refer the matter to the Attorney General. If the agency has reason 
to believe that one or more creditors violated section 701(a) of the 
Act, the agency may refer a matter to the Attorney General.
    (4) On referral, or whenever the Attorney General has reason to 
believe that one or more creditors have engaged in a pattern or practice 
in violation of the Act or this part, the Attorney General may bring a 
civil action for such relief as may be appropriate, including actual and 
punitive damages and injunctive relief.
    (5) If the Comptroller of the Currency, the Federal Deposit 
Insurance Corporation, the Board of Governors of the Federal Reserve 
System, or the National Credit Union Administration has reason to 
believe (as a result of a consumer complaint, a consumer compliance 
examination, or some other basis) that a violation of the Act or this 
part has occurred which is also a violation of the Fair Housing Act, and 
the matter is not referred to the Attorney General, the agency shall:
    (i) Notify the Secretary of Housing and Urban Development; and
    (ii) Inform the applicant that the Secretary of Housing and Urban 
Development has been notified and that remedies may be available under 
the Fair Housing Act.
    (c) Failure of compliance. A creditor's failure to comply with 
Sec. Sec. 1002.6(b)(6), 1002.9, 1002.10, 1002.12 or 1002.13 is not a 
violation if it results from an inadvertent error. On discovering an 
error under Sec. Sec. 1002.9 and 1002.10, the creditor shall correct it 
as soon as possible. If a creditor inadvertently obtains the monitoring 
information regarding the ethnicity, race, and sex of the applicant in a 
dwelling-related transaction not covered by Sec. 1002.13, the creditor 
may retain information and act on the application without violating the 
regulation.



 Sec. Appendix A to Part 1002--Federal Agencies to be Listed in Adverse 
                             Action Notices

    The following list indicates the Federal agency or agencies that 
should be listed in notices provided by creditors pursuant to Sec. 
1002.9(b)(1). Any questions concerning a particular creditor may be 
directed to such agencies. This list is not intended to describe 
agencies' enforcement authority for ECOA and Regulation B. Terms that 
are not defined in the Federal Deposit Insurance Act (12 U.S.C. 1813(s)) 
shall have the meaning given to them in the International Banking Act of 
1978 (12 U.S.C. 3101).
    1. Banks, savings associations, and credit unions with total assets 
of over $10 billion and their affiliates: Bureau of Consumer Financial 
Protection, 1700 G Street NW., Washington DC 20006. Such affiliates that 
are not banks, savings associations, or credit unions also should list, 
in addition to the Bureau: FTC Regional Office for region in which the 
creditor operates or Federal Trade Commission, Equal Credit Opportunity, 
Washington, DC 20580.
    2. To the extent not included in item 1 above:

[[Page 104]]

    a. National banks, Federal savings associations, and Federal 
branches and Federal agencies of foreign banks: Office of the 
Comptroller of the Currency, Customer Assistance Group, 1301 McKinney 
Street, Suite 3450, Houston, TX 77010-9050
    b. State member banks, branches and agencies of foreign banks (other 
than Federal branches, Federal agencies, and insured state branches of 
foreign banks), commercial lending companies owned or controlled by 
foreign banks, and organizations operating under section 25 or 25A of 
the Federal Reserve Act: Federal Reserve Consumer Help Center, P.O. Box 
1200, Minneapolis, MN 55480.
    c. Nonmember Insured Banks, Insured State Branches of Foreign Banks, 
and Insured State Savings Associations: FDIC Consumer Response Center, 
1100 Walnut Street, Box 11, Kansas City, MO 64106.
    d. Federal Credit Unions: National Credit Union Administration, 
Office of Consumer Protection (OCP), Division of Consumer Compliance and 
Outreach (DCCO), 1775 Duke Street, Alexandria, VA 22314.
    3. Air carriers: Assistant General Counsel for Aviation Enforcement 
and Proceedings, Department of Transportation, 400 Seventh Street SW., 
Washington, DC 20590.
    4. Creditors Subject to Surface Transportation Board: Office of 
Proceedings, Surface Transportation Board, Department of Transportation, 
1925 K Street NW., Washington, DC 20423.
    5. Creditors Subject to Packers and Stockyards Act: Nearest Packers 
and Stockyards Administration area supervisor.
    6. Small Business Investment Companies: Associate Deputy 
Administrator for Capital Access, United States Small Business 
Administration, 409 Third Street SW., 8th Floor, Washington, DC 20416.
    7. Brokers and Dealers: Securities and Exchange Commission, 
Washington, DC 20549.
    8. Federal Land Banks, Federal Land Bank Associations, Federal 
Intermediate Credit Banks, and Production Credit Associations: Farm 
Credit Administration, 1501 Farm Credit Drive, McLean, VA 22102-5090.
    9. Retailers, Finance Companies, and All Other Creditors Not Listed 
Above: FTC Regional Office for region in which the creditor operates or 
Federal Trade Commission, Equal Credit Opportunity, Washington, DC 
20580.



          Sec. Appendix B to Part 1002--Model Application Forms

    1. This Appendix contains five model credit application forms, each 
designated for use in a particular type of consumer credit transaction 
as indicated by the bracketed caption on each form. The first sample 
form is intended for use in open-end, unsecured transactions; the second 
for closed-end, secured transactions; the third for closed-end 
transactions, whether unsecured or secured; the fourth in transactions 
involving community property or occurring in community property states; 
and the fifth in residential mortgage transactions which contains a 
model disclosure for use in complying with Sec. 1002.13 for certain 
dwelling-related loans. All forms contained in this Appendix are models; 
their use by creditors is optional.
    2. The use or modification of these forms is governed by the 
following instructions. A creditor may change the forms: by asking for 
additional information not prohibited by Sec. 1002.5; by deleting any 
information request; or by rearranging the format without modifying the 
substance of the inquiries. In any of these three instances, however, 
the appropriate notices regarding the optional nature of courtesy 
titles, the option to disclose alimony, child support, or separate 
maintenance, and the limitation concerning marital status inquiries must 
be included in the appropriate places if the items to which they relate 
appear on the creditor's form.
    3. If a creditor uses an appropriate Appendix B model form, or 
modifies a form in accordance with the above instructions, that creditor 
shall be deemed to be acting in compliance with the provisions of 
paragraphs (b), (c) and (d) of Sec. 1002.5 of this part.


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         Sec. Appendix C to Part 1002--Sample Notification Forms

    1. This Appendix contains ten sample notification forms. Forms C-1 
through C-4 are intended for use in notifying an applicant that adverse 
action has been taken on an application or account under Sec. Sec. 
1002.9(a)(1) and (2)(i) of this part. Form C-5 is a notice of disclosure 
of the right to request specific reasons for adverse action under 
Sec. Sec. 1002.9(a)(1) and (2)(ii). Form C-6 is designed for use in 
notifying an applicant, under Sec. 1002.9(c)(2), that an application is 
incomplete. Forms C-7 and C-8 are intended for use in connection with 
applications for business credit under Sec. 1002.9(a)(3). Form C-9 is 
designed for use in notifying an applicant of the right to receive a 
copy of an appraisal under Sec. 1002.14. Form C-10 is designed for use 
in notifying an applicant for nonmortgage credit that the creditor is 
requesting applicant characteristic information.
    2. Form C-1 contains the Fair Credit Reporting Act disclosure as 
required by sections 615(a) and (b) of that act. Forms C-2 through C-5 
contain only the section 615(a) disclosure (that a creditor obtained 
information from a consumer reporting agency that was considered in the 
credit decision). A creditor must provide the section 615(a) disclosure 
when adverse action is taken against a consumer based on information 
from a consumer reporting agency. A creditor must provide the section 
615(b) disclosure when adverse action is taken based on information from 
an outside source other than a consumer reporting agency. In addition, a 
creditor must provide the section 615(b) disclosure if the creditor 
obtained information from an affiliate other than information in a 
consumer report or other than information concerning the affiliate's own 
transactions or experiences with the consumer. Creditors may comply with 
the disclosure requirements for adverse action based on information in a 
consumer report obtained from an affiliate by providing either the 
section 615(a) or section 615(b) disclosure. Optional language in Forms 
C-1 through C-5 may be used to direct the consumer to the entity that 
provided the credit score for any questions about the credit score, 
along with the entity's contact information. Creditors may use or not 
use this additional language without losing the safe harbor, since the 
language is optional.
    3. The sample forms are illustrative and may not be appropriate for 
all creditors. They were designed to include some of the factors that 
creditors most commonly consider. If a creditor chooses to use the 
checklist of reasons provided in one of the sample forms in this 
Appendix and if reasons commonly used by the creditor are not provided 
on the form, the creditor should modify the checklist by substituting or 
adding other reasons. For example, if ``inadequate down payment'' or 
``no deposit relationship with us'' are common reasons for taking 
adverse action on an application, the creditor ought to add or 
substitute such reasons for those presently contained on the sample 
forms.
    4. If the reasons listed on the forms are not the factors actually 
used, a creditor will not satisfy the notice requirement by simply 
checking the closest identifiable factor listed. For example, some 
creditors consider only references from banks or other depository 
institutions and disregard finance company references altogether; their 
statement of reasons should disclose ``insufficient bank references,'' 
not ``insufficient credit references.'' Similarly, a creditor that 
considers bank references and other credit references as distinct 
factors should treat the two factors separately and disclose them as 
appropriate. The creditor should either add such other factors to the 
form or check ``other'' and include the appropriate explanation. The 
creditor need not, however, describe how or why a factor adversely 
affected the application. For example, the notice may say ``length of 
residence'' rather than ``too short a period of residence.''
    5. A creditor may design its own notification forms or use all or a 
portion of the forms contained in this Appendix. Proper use of Forms C-1 
through C-4 will satisfy the requirement of Sec. 1002.9(a)(2)(i). 
Proper use of Forms C-5 and C-6 constitutes full compliance with 
Sec. Sec. 1002.9(a)(2)(ii) and 1002.9(c)(2), respectively. Proper use 
of Forms C-7 and C-8 will satisfy the requirements of Sec. Sec. 
1002.9(a)(2)(i) and (ii), respectively, for applications for business 
credit. Proper use of Form C-9 will satisfy the requirements of Sec. 
1002.14 of this part. Proper use of Form C-10 will satisfy the 
requirements of Sec. 1002.5(b)(1).

    Form C-1--Sample Notice of Action Taken and Statement of Reasons

Statement of Credit Denial, Termination or Change

 Date:__________________________________________________________________
 Applicant's Name:______________________________________________________
 Applicant's Address:___________________________________________________
 Description of Account, Transaction, or Requested Credit:______________
 Description of Action Taken:___________________________________________

  Part I--Principal Reason(s) for Credit Denial, Termination, or Other 
                     Action Taken Concerning Credit

    This section must be completed in all instances.

----Credit application incomplete
----Insufficient number of credit references provided
----Unacceptable type of credit references provided

[[Page 118]]

----Unable to verify credit references
----Temporary or irregular employment
----Unable to verify employment
----Length of employment
----Income insufficient for amount of credit requested
----Excessive obligations in relation to income
----Unable to verify income
----Length of residence
----Temporary residence
----Unable to verify residence
----No credit file
----Limited credit experience
----Poor credit performance with us
----Delinquent past or present credit obligations with others
----Collection action or judgment
----Garnishment or attachment
----Foreclosure or repossession
----Bankruptcy
----Number of recent inquiries on credit bureau report
----Value or type of collateral not sufficient
----Other, specify: ------

   Part II--Disclosure of Use of Information Obtained From an Outside 
                                 Source

    This section should be completed if the credit decision was based in 
whole or in part on information that has been obtained from an outside 
source.
----Our credit decision was based in whole or in part on information 
obtained in a report from the consumer reporting agency listed below. 
You have a right under the Fair Credit Reporting Act to know the 
information contained in your credit file at the consumer reporting 
agency. The reporting agency played no part in our decision and is 
unable to supply specific reasons why we have denied credit to you. You 
also have a right to a free copy of your report from the reporting 
agency, if you request it no later than 60 days after you receive this 
notice. In addition, if you find that any information contained in the 
report you receive is inaccurate or incomplete, you have the right to 
dispute the matter with the reporting agency.
 Name:__________________________________________________________________
 Address:_______________________________________________________________
 [Toll-free] Telephone number:__________________________________________
    [We also obtained your credit score from the consumer reporting 
agency and used it in making our credit decision. Your credit score is a 
number that reflects the information in your consumer report. Your 
credit score can change, depending on how the information in your 
consumer report changes.

 Your credit score:_____________________________________________________
 Date:__________________________________________________________________

    Scores range from a low of -------- to a high of --------.
    Key factors that adversely affected your credit score:

________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________

[Number of recent inquiries on consumer report, as a key factor]

    [If you have any questions regarding your credit score, you should 
contact [entity that provided the credit score] at:

 Address:_______________________________________________________________

[[Toll-free] Telephone number: --------]

----Our credit decision was based in whole or in part on information 
obtained from an affiliate or from an outside source other than a 
consumer reporting agency. Under the Fair Credit Reporting Act, you have 
the right to make a written request, no later than 60 days after you 
receive this notice, for disclosure of the nature of this information.

    If you have any questions regarding this notice, you should contact:

 Creditor's name:_______________________________________________________
 Creditor's address:____________________________________________________
 Creditor's telephone number:___________________________________________

    Notice: The Federal Equal Credit Opportunity Act prohibits creditors 
from discriminating against credit applicants on the basis of race, 
color, religion, national origin, sex, marital status, age (provided the 
applicant has the capacity to enter into a binding contract); because 
all or part of the applicant's income derives from any public assistance 
program; or because the applicant has in good faith exercised any right 
under the Consumer Credit Protection Act. The Federal agency that 
administers compliance with this law concerning this creditor is (name 
and address as specified by the appropriate agency listed in Appendix 
A).

    Form C-2--Sample Notice of Action Taken and Statement of Reasons

Date

    Dear Applicant: Thank you for your recent application. Your request 
for [a loan/a credit card/an increase in your credit limit] was 
carefully considered, and we regret that we are unable to approve your 
application at this time, for the following reason(s):
    Your Income:

----is below our minimum requirement.
----is insufficient to sustain payments on the amount of credit 
requested.
----could not be verified.

    Your Employment:

----is not of sufficient length to qualify.
----could not be verified.

    Your Credit History:

----of making payments on time was not satisfactory.
----could not be verified.

    Your Application:

----lacks a sufficient number of credit references.

[[Page 119]]

----lacks acceptable types of credit references.
----reveals that current obligations are excessive in relation to 
income.
 Other:_________________________________________________________________

    The consumer reporting agency contacted that provided information 
that influenced our decision in whole or in part was [name, address and 
[toll-free] telephone number of the reporting agency]. The reporting 
agency played no part in our decision and is unable to supply specific 
reasons why we have denied credit to you. You have a right under the 
Fair Credit Reporting Act to know the information contained in your 
credit file at the consumer reporting agency. You also have a right to a 
free copy of your report from the reporting agency, if you request it no 
later than 60 days after you receive this notice. In addition, if you 
find that any information contained in the report you receive is 
inaccurate or incomplete, you have the right to dispute the matter with 
the reporting agency. Any questions regarding such information should be 
directed to [consumer reporting agency]. If you have any questions 
regarding this letter, you should contact us at [creditor's name, 
address and telephone number].

    [We also obtained your credit score from the consumer reporting 
agency and used it in making our credit decision. Your credit score is a 
number that reflects the information in your consumer report. Your 
credit score can change, depending on how the information in your 
consumer report changes.

 Your credit score:_____________________________________________________
 Date:__________________________________________________________________

    Scores range from a low of -------- to a high of --------.
    Key factors that adversely affected your credit score:
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________

[Number of recent inquiries on consumer report, as a key factor]

    [If you have any questions regarding your credit score, you should 
contact [entity that provided the credit score] at:

 Address:_______________________________________________________________

[[Toll-free] Telephone number: --------]
    Notice: The Federal Equal Credit Opportunity Act prohibits creditors 
from discriminating against credit applicants on the basis of race, 
color, religion, national origin, sex, marital status, age (provided the 
applicant has the capacity to enter into a binding contract); because 
all or part of the applicant's income derives from any public assistance 
program; or because the applicant has in good faith exercised any right 
under the Consumer Credit Protection Act. The Federal agency that 
administers compliance with this law concerning this creditor is (name 
and address as specified by the appropriate agency listed in Appendix 
A).

Form C-3--Sample Notice of Action Taken and Statement of Reasons (Credit 
                                Scoring)

Date

    Dear Applicant: Thank you for your recent application for --------
--. We regret that we are unable to approve your request.
    [Reasons for Denial of Credit]
    Your application was processed by a [credit scoring] system that 
assigns a numerical value to the various items of information we 
consider in evaluating an application. These numerical values are based 
upon the results of analyses of repayment histories of large numbers of 
customers.
    The information you provided in your application did not score a 
sufficient number of points for approval of the application. The reasons 
you did not score well compared with other applicants were:

 Insufficient bank references
 Type of occupation
 Insufficient credit experience
 Number of recent inquiries on credit bureau report

    [Your Right to Get Your Consumer Report]
    In evaluating your application the consumer reporting agency listed 
below provided us with information that in whole or in part influenced 
our decision. The consumer reporting agency played no part in our 
decision and is unable to supply specific reasons why we have denied 
credit to you. You have a right under the Fair Credit Reporting Act to 
know the information contained in your credit file at the consumer 
reporting agency. It can be obtained by contacting: [Name, address, and 
[toll-free] telephone number of the consumer reporting agency]. You also 
have a right to a free copy of your report from the reporting agency, if 
you request it no later than 60 days after you receive this notice. In 
addition, if you find that any information contained in the report you 
receive is inaccurate or incomplete, you have the right to dispute the 
matter with the reporting agency.
    [Information about Your Credit Score]
    [Information about Your Credit Score]
    We also obtained your credit score from the consumer reporting 
agency and used it in making our credit decision. Your credit score is a 
number that reflects the information in your consumer report. Your 
credit score can change, depending on how the information in your 
consumer report changes.
 Your credit score:_____________________________________________________
 Date:__________________________________________________________________

    Scores range from a low of -------- to a high of --------.
    Key factors that adversely affected your credit score:

[[Page 120]]

________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________

[Number of recent inquiries on consumer report, as a key factor]

    [If you have any questions regarding your credit score, you should 
contact [entity that provided the credit score] at:
 Address:_______________________________________________________________

[Toll-free] Telephone number: --------]
    If you have any questions regarding this letter, you should contact 
us at
 Creditor's Name:_______________________________________________________
 Address:_______________________________________________________________
 Telephone:_____________________________________________________________
     Sincerely,
    Notice: The Federal Equal Credit Opportunity Act prohibits creditors 
from discriminating against credit applicants on the basis of race, 
color, religion, national origin, sex, marital status, age (with certain 
limited exceptions); because all or part of the applicant's income 
derives from any public assistance program; or because the applicant has 
in good faith exercised any right under the Consumer Credit Protection 
Act. The Federal agency that administers compliance with this law 
concerning this creditor is (name and address as specified by the 
appropriate agency listed in Appendix A).

   Form C-4--Sample Notice of Action Taken, Statement of Reasons and 
                              Counteroffer

Date

    Dear Applicant: Thank you for your application for ----------. We 
are unable to offer you credit on the terms that you requested for the 
following reason(s):----------
    We can, however, offer you credit on the following terms: ----------
    If this offer is acceptable to you, please notify us within [amount 
of time] at the following address: ----------.
    Our credit decision on your application was based in whole or in 
part on information obtained in a report from [name, address and [toll-
free] telephone number of the consumer reporting agency]. You have a 
right under the Fair Credit Reporting Act to know the information 
contained in your credit file at the consumer reporting agency. The 
reporting agency played no part in our decision and is unable to supply 
specific reasons why we have denied credit to you. You also have a right 
to a free copy of your report from the reporting agency, if you request 
it no later than 60 days after you receive this notice. In addition, if 
you find that any information contained in the report you receive is 
inaccurate or incomplete, you have the right to dispute the matter with 
the reporting agency.
    [We also obtained your credit score from the consumer reporting 
agency and used it in making our credit decision. Your credit score is a 
number that reflects the information in your consumer report. Your 
credit score can change, depending on how the information in your 
consumer report changes.
 Your credit score:_____________________________________________________
 Date:__________________________________________________________________
    Scores range from a low of -------- to a high of --------.
    Key factors that adversely affected your credit score:
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________

[Number of recent inquiries on consumer report, as a key factor]

    [If you have any questions regarding your credit score, you should 
contact [entity that provided the credit score] at:

 Address:_______________________________________________________________
    [Toll-free] Telephone number:--------]
    You should know that the Federal Equal Credit Opportunity Act 
prohibits creditors, such as ourselves, from discriminating against 
credit applicants on the basis of their race, color, religion, national 
origin, sex, marital status, age (provided the applicant has the 
capacity to enter into a binding contract), because they receive income 
from a public assistance program, or because they may have exercised 
their rights under the Consumer Credit Protection Act. If you believe 
there has been discrimination in handling your application you should 
contact the [name and address of the appropriate Federal enforcement 
agency listed in Appendix A].
     Sincerely,

  Form C-5--Sample Disclosure of Right To Request Specific Reasons for 
                              Credit Denial

Date
    Dear Applicant: Thank you for applying to us for ----------.
    After carefully reviewing your application, we are sorry to advise 
you that we cannot [open an account for you/grant a loan to you/increase 
your credit limit] at this time. If you would like a statement of 
specific reasons why your application was denied, please contact [our 
credit service manager] shown below within 60 days of the date of this 
letter. We will provide you with the statement of reasons within 30 days 
after receiving your request.

Creditor's name
Address
Telephone number

    If we obtained information from a consumer reporting agency as part 
of our consideration of your application, its name, address, and [toll-
free] telephone number is shown below. The reporting agency played

[[Page 121]]

no part in our decision and is unable to supply specific reasons why we 
have denied credit to you. [You have a right under the Fair Credit 
Reporting Act to know the information contained in your credit file at 
the consumer reporting agency.] You have a right to a free copy of your 
report from the reporting agency, if you request it no later than 60 
days after you receive this notice. In addition, if you find that any 
information contained in the report you received is inaccurate or 
incomplete, you have the right to dispute the matter with the reporting 
agency. You can find out about the information contained in your file 
(if one was used) by contacting:

Consumer reporting agency's name
Address
[Toll-free] Telephone number

    [We also obtained your credit score from the consumer reporting 
agency and used it in making our credit decision. Your credit score is a 
number that reflects the information in your consumer report. Your 
credit score can change, depending on how the information in your 
consumer report changes.
 Your credit score:_____________________________________________________
 Date:__________________________________________________________________

    Scores range from a low of -------- to a high of --------.
    Key factors that adversely affected your credit score:
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________

[Number of recent inquiries on consumer report, as a key factor]

    [If you have any questions regarding your credit score, you should 
contact [entity that provided the credit score] at:

 Address:_______________________________________________________________
[Toll-free] Telephone number: --------]
     Sincerely,
    Notice: The Federal Equal Credit Opportunity Act prohibits creditors 
from discriminating against credit applicants on the basis of race, 
color, religion, national origin, sex, marital status, age (provided the 
applicant has the capacity to enter into a binding contract); because 
all or part of the applicant's income derives from any public assistance 
program; or because the applicant has in good faith exercised any right 
under the Consumer Credit Protection Act. The Federal agency that 
administers compliance with this law concerning this creditor is (name 
and address as specified by the appropriate agency listed in Appendix 
A).

   Form C-6--Sample Notice of Incomplete Application and Request for 
                         Additional Information

Creditor's name
Address
Telephone number
Date

    Dear Applicant: Thank you for your application for credit. The 
following information is needed to make a decision on your application: 
----------
    We need to receive this information by ---------- (date). If we do 
not receive it by that date, we will regrettably be unable to give 
further consideration to your credit request.
     Sincerely,

    Form C-7--Sample Notice of Action Taken and Statement of Reasons 
                            (Business Credit)

Creditor's name
Creditor's address
Date

    Dear Applicant: Thank you for applying to us for credit. We have 
given your request careful consideration, and regret that we are unable 
to extend credit to you at this time for the following reasons:
    (Insert appropriate reason, such as: Value or type of collateral not 
sufficient; Lack of established earnings record; Slow or past due in 
trade or loan payments)
     Sincerely,
    Notice: The Federal Equal Credit Opportunity Act prohibits creditors 
from discriminating against credit applicants on the basis of race, 
color, religion, national origin, sex, marital status, age (provided the 
applicant has the capacity to enter into a binding contract); because 
all or part of the applicant's income derives from any public assistance 
program; or because the applicant has in good faith exercised any right 
under the Consumer Credit Protection Act. The Federal agency that 
administers compliance with this law concerning this creditor is [name 
and address as specified by the appropriate agency listed in Appendix 
A].

  Form C-8--Sample Disclosure of Right To Request Specific Reasons for 
      Credit Denial Given at Time of Application (Business Credit)

Creditor's name
Creditor's address

    If your application for business credit is denied, you have the 
right to a written statement of the specific reasons for the denial. To 
obtain the statement, please contact [name, address and telephone number 
of the person or office from which the statement of reasons can be 
obtained] within 60 days from the date you are notified of our decision. 
We will send you a written statement of reasons for the denial within 30 
days of receiving your request for the statement.
    Notice: The Federal Equal Credit Opportunity Act prohibits creditors 
from discriminating against credit applicants on the basis of race, 
color, religion, national origin, sex,

[[Page 122]]

marital status, age (provided the applicant has the capacity to enter 
into a binding contract); because all or part of the applicant's income 
derives from any public assistance program; or because the applicant has 
in good faith exercised any right under the Consumer Credit Protection 
Act. The Federal agency that administers compliance with this law 
concerning this creditor is [name and address as specified by the 
appropriate agency listed in Appendix A].

 Form C-9--Sample Disclosure of Right To Receive a Copy of an Appraisal

    You have the right to a copy of the appraisal report used in 
connection with your application for credit. If you wish a copy, please 
write to us at the mailing address we have provided. We must hear from 
you no later than 90 days after we notify you about the action taken on 
your credit application or you withdraw your application.
    [In your letter, give us the following information:]

       Form C-10--Sample Disclosure About Voluntary Data Notation

    We are requesting the following information to monitor our 
compliance with the Federal Equal Credit Opportunity Act, which 
prohibits unlawful discrimination. You are not required to provide this 
information. We will not take this information (or your decision not to 
provide this information) into account in connection with your 
application or credit transaction. The law provides that a creditor may 
not discriminate based on this information, or based on whether or not 
you choose to provide it. [If you choose not to provide the information, 
we will note it by visual observation or surname].



   Sec. Appendix D to Part 1002--Issuance of Official Interpretations

    1.Official Interpretations. Interpretations of this part issued by 
officials of the Bureau provide the protection afforded under section 
706(e) of the Act. Except in unusual circumstances, such interpretations 
will not be issued separately but will be incorporated in an official 
commentary to the regulation, which will be amended periodically.
    2. Requests for Issuance of Official Interpretations. A request for 
an official interpretation should be in writing and addressed to the 
Assistant Director, Office of Regulations, Division of Research, 
Markets, and Regulations, Bureau of Consumer Financial Protection, 1700 
G Street, NW., Washington, DC 20006. The request should contain a 
complete statement of all relevant facts concerning the issue, including 
copies of all pertinent documents.
    3. Scope of Interpretations. No interpretations will be issued 
approving creditors' forms or statements. This restriction does not 
apply to forms or statements whose use is required or sanctioned by a 
government agency.



        Sec. Supplement I to Part 1002--Official Interpretations

    Following is an official interpretation of Regulation B (12 CFR Part 
1002) issued by the Bureau of Consumer Financial Protection. References 
are to sections of the regulation or the Equal Credit Opportunity Act 
(15 U.S.C. 1601 et seq.).

                              Introduction

    1.Official status. Section 706(e) of the Equal Credit Opportunity 
Act protects a creditor from civil liability for any act done or omitted 
in good faith in conformity with an interpretation issued by a duly 
authorized official of the Bureau. This commentary is the means by which 
the Bureau of Consumer Financial Protection issues official 
interpretations of Regulation B. Good-faith compliance with this 
commentary affords a creditor protection under section 706(e) of the 
Act.
    2. Issuance of interpretations. Under Appendix D to the regulation, 
any person may request an official interpretation. Interpretations will 
be issued at the discretion of designated officials and incorporated in 
this commentary following publication for comment in the Federal 
Register. Except in unusual circumstances, official interpretations will 
be issued only by means of this commentary.
    3. Comment designations. The comments are designated with as much 
specificity as possible according to the particular regulatory provision 
addressed. Each comment in the commentary is identified by a number and 
the regulatory section or paragraph that it interprets. For example, 
comments to Sec. 1002.2(c) are further divided by subparagraph, such as 
comment 2(c)(1)(ii)-1 and comment 2(c)(2)(ii-1.

              Section 1002.1--Authority, Scope, and Purpose

    1(a) Authority and scope.
    1. Scope. The Equal Credit Opportunity Act and Regulation B apply to 
all credit--commercial as well as personal--without regard to the nature 
or type of the credit or the creditor, except for an entity excluded 
from coverage of this part (but not the Act) by section 1029 of the 
Consumer Financial Protection Act of 2010 (12 U.S.C. 5519). If a 
transaction provides for the deferral of the payment of a debt, it is 
credit covered by Regulation B even though it may not be a credit 
transaction covered by Regulation Z (Truth in Lending) (12 CFR Part 
1026). Further, the definition of creditor is not restricted to the 
party or person to whom the obligation is

[[Page 123]]

initially payable, as is the case under Regulation Z. Moreover, the Act 
and regulation apply to all methods of credit evaluation, whether 
performed judgmentally or by use of a credit scoring system.
    2. Foreign applicability. Regulation B generally does not apply to 
lending activities that occur outside the United States. The regulation 
does apply to lending activities that take place within the United 
States (as well as the Commonwealth of Puerto Rico and any territory or 
possession of the United States), whether or not the applicant is a 
citizen.
    3. Bureau. The term Bureau, as used in this part, means the Bureau 
of Consumer Financial Protection.

                       Section 1002.2--Definitions

    2(c) Adverse action.
    Paragraph 2(c)(1)(i).
    1. Application for credit. If the applicant applied in accordance 
with the creditor's procedures, a refusal to refinance or extend the 
term of a business or other loan is adverse action.
    Paragraph 2(c)(1)(ii).
    1. Move from service area. If a credit card issuer terminates the 
open-end account of a customer because the customer has moved out of the 
card issuer's service area, the termination is adverse action unless 
termination on this ground was explicitly provided for in the credit 
agreement between the parties. In cases where termination is adverse 
action, notification is required under Sec. 1002.9.
    2. Termination based on credit limit. If a creditor terminates 
credit accounts that have low credit limits (for example, under $400) 
but keeps open accounts with higher credit limits, the termination is 
adverse action and notification is required under Sec. 1002.9.
    Paragraph 2(c)(2)(ii).
    1. Default--exercise of due-on-sale clause. If a mortgagor sells or 
transfers mortgaged property without the consent of the mortgagee, and 
the mortgagee exercises its contractual right to accelerate the mortgage 
loan, the mortgagee may treat the mortgagor as being in default. An 
adverse action notice need not be given to the mortgagor or the 
transferee. (See comment 2(e)-1 for treatment of a purchaser who 
requests to assume the loan.)
    2. Current delinquency or default. The term adverse action does not 
include a creditor's termination of an account when the accountholder is 
currently in default or delinquent on that account. Notification in 
accordance with Sec. 1002.9 of the regulation generally is required, 
however, if the creditor's action is based on a past delinquency or 
default on the account.
    Paragraph 2(c)(2)(iii).
    1. Point-of-sale transactions. Denial of credit at point of sale is 
not adverse action except under those circumstances specified in the 
regulation. For example, denial at point of sale is not adverse action 
in the following situations:
    i. A credit cardholder presents an expired card or a card that has 
been reported to the card issuer as lost or stolen.
    ii. The amount of a transaction exceeds a cash advance or credit 
limit.
    iii. The circumstances (such as excessive use of a credit card in a 
short period of time) suggest that fraud is involved.
    iv. The authorization facilities are not functioning.
    v. Billing statements have been returned to the creditor for lack of 
a forwarding address.
    2. Application for increase in available credit. A refusal or 
failure to authorize an account transaction at the point of sale or loan 
is not adverse action except when the refusal is a denial of an 
application, submitted in accordance with the creditor's procedures, for 
an increase in the amount of credit.
    Paragraph 2(c)(2)(v).
    1. Terms of credit versus type of credit offered. When an applicant 
applies for credit and the creditor does not offer the credit terms 
requested by the applicant (for example, the interest rate, length of 
maturity, collateral, or amount of downpayment), a denial of the 
application for that reason is adverse action (unless the creditor makes 
a counteroffer that is accepted by the applicant) and the applicant is 
entitled to notification under Sec. 1002.9.
    2(e) Applicant.
    1. Request to assume loan. If a mortgagor sells or transfers the 
mortgaged property and the buyer makes an application to the creditor to 
assume the mortgage loan, the mortgagee must treat the buyer as an 
applicant unless its policy is not to permit assumptions.
    2(f) Application.
    1. General. A creditor has the latitude under the regulation to 
establish its own application process and to decide the type and amount 
of information it will require from credit applicants.
    2. Procedures used. The term ``procedures'' refers to the actual 
practices followed by a creditor for making credit decisions as well as 
its stated application procedures. For example, if a creditor's stated 
policy is to require all applications to be in writing on the creditor's 
application form, but the creditor also makes credit decisions based on 
oral requests, the creditor's procedures are to accept both oral and 
written applications.
    3. When an inquiry or prequalification request becomes an 
application. A creditor is encouraged to provide consumers with 
information about loan terms. However, if in giving information to the 
consumer the creditor also evaluates information about the consumer, 
decides to decline the request, and communicates this to the consumer, 
the creditor

[[Page 124]]

has treated the inquiry or prequalification request as an application 
and must then comply with the notification requirements under Sec. 
1002.9. Whether the inquiry or prequalification request becomes an 
application depends on how the creditor responds to the consumer, not on 
what the consumer says or asks. (See comment 9-5 for further discussion 
of prequalification requests; see comment 2(f)-5 for a discussion of 
preapproval requests.)
    4. Examples of inquiries that are not applications. The following 
examples illustrate situations in which only an inquiry has taken place:
    i. A consumer calls to ask about loan terms and an employee explains 
the creditor's basic loan terms, such as interest rates, loan-to-value 
ratio, and debt-to-income ratio.
    ii. A consumer calls to ask about interest rates for car loans, and, 
in order to quote the appropriate rate, the loan officer asks for the 
make and sales price of the car and the amount of the downpayment, then 
gives the consumer the rate.
    iii. A consumer asks about terms for a loan to purchase a home and 
tells the loan officer her income and intended downpayment, but the loan 
officer only explains the creditor's loan-to-value ratio policy and 
other basic lending policies, without telling the consumer whether she 
qualifies for the loan.
    iv. A consumer calls to ask about terms for a loan to purchase 
vacant land and states his income and the sales price of the property to 
be financed, and asks whether he qualifies for a loan; the employee 
responds by describing the general lending policies, explaining that he 
would need to look at all of the consumer's qualifications before making 
a decision, and offering to send an application form to the consumer.
    5. Examples of an application. An application for credit includes 
the following situations:
    i. A person asks a financial institution to ``preapprove'' her for a 
loan (for example, to finance a house or a vehicle she plans to buy) and 
the institution reviews the request under a program in which the 
institution, after a comprehensive analysis of her creditworthiness, 
issues a written commitment valid for a designated period of time to 
extend a loan up to a specified amount. The written commitment may not 
be subject to conditions other than conditions that require the 
identification of adequate collateral, conditions that require no 
material change in the applicant's financial condition or 
creditworthiness prior to funding the loan, and limited conditions that 
are not related to the financial condition or creditworthiness of the 
applicant that the lender ordinarily attaches to a traditional 
application (such as certification of a clear termite inspection for a 
home purchase loan, or a maximum mileage requirement for a used car 
loan). But if the creditor's program does not provide for giving written 
commitments, requests for preapprovals are treated as prequalification 
requests for purposes of the regulation.
    ii. Under the same facts as above, the financial institution 
evaluates the person's creditworthiness and determines that she does not 
qualify for a preapproval.
    6. Completed application--diligence requirement. The regulation 
defines a completed application in terms that give a creditor the 
latitude to establish its own information requirements. Nevertheless, 
the creditor must act with reasonable diligence to collect information 
needed to complete the application. For example, the creditor should 
request information from third parties, such as a credit report, 
promptly after receiving the application. If additional information is 
needed from the applicant, such as an address or a telephone number to 
verify employment, the creditor should contact the applicant promptly. 
(But see comment 9(a)(1)-3, which discusses the creditor's option to 
deny an application on the basis of incompleteness.)
    2(g) Business credit.
    1. Definition. The test for deciding whether a transaction qualifies 
as business credit is one of primary purpose. For example, an open-end 
credit account used for both personal and business purposes is not 
business credit unless the primary purpose of the account is business-
related. A creditor may rely on an applicant's statement of the purpose 
for the credit requested.
    2(j) Credit.
    1. General. Regulation B covers a wider range of credit transactions 
than Regulation Z (Truth in Lending). Under Regulation B, a transaction 
is credit if there is a right to defer payment of a debt--regardless of 
whether the credit is for personal or commercial purposes, the number of 
installments required for repayment, or whether the transaction is 
subject to a finance charge.
    2(l) Creditor.
    1. Assignees. The term creditor includes all persons participating 
in the credit decision. This may include an assignee or a potential 
purchaser of the obligation who influences the credit decision by 
indicating whether or not it will purchase the obligation if the 
transaction is consummated.
    2. Referrals to creditors. For certain purposes, the term creditor 
includes persons such as real estate brokers, automobile dealers, home 
builders, and home-improvement contractors who do not participate in 
credit decisions but who only accept applications and refer applicants 
to creditors, or select or offer to select creditors to whom credit 
requests can be made. These persons must

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comply with Sec. 1002.4(a), the general rule prohibiting 
discrimination, and with Sec. 1002.4(b), the general rule against 
discouraging applications.
    2(p) Empirically derived and other credit scoring systems.
    1. Purpose of definition. The definition under Sec. Sec. 
1002.2(p)(1)(i) through (iv) sets the criteria that a credit system must 
meet in order to use age as a predictive factor. Credit systems that do 
not meet these criteria are judgmental systems and may consider age only 
for the purpose of determining a ``pertinent element of 
creditworthiness.'' (Both types of systems may favor an elderly 
applicant. See Sec. 1002.6(b)(2).)
    2. Periodic revalidation. The regulation does not specify how often 
credit scoring systems must be revalidated. The credit scoring system 
must be revalidated frequently enough to ensure that it continues to 
meet recognized professional statistical standards for statistical 
soundness. To ensure that predictive ability is being maintained, the 
creditor must periodically review the performance of the system. This 
could be done, for example, by analyzing the loan portfolio to determine 
the delinquency rate for each score interval, or by analyzing population 
stability over time to detect deviations of recent applications from the 
applicant population used to validate the system. If this analysis 
indicates that the system no longer predicts risk with statistical 
soundness, the system must be adjusted as necessary to reestablish its 
predictive ability. A creditor is responsible for ensuring its system is 
validated and revalidated based on the creditor's own data.
    3. Pooled data scoring systems. A scoring system or the data from 
which to develop such a system may be obtained from either a single 
credit grantor or multiple credit grantors. The resulting system will 
qualify as an empirically derived, demonstrably and statistically sound, 
credit scoring system provided the criteria set forth in paragraph 
(p)(1)(i) through (iv) of this section are met. A creditor is 
responsible for ensuring its system is validated and revalidated based 
on the creditor's own data when it becomes available.
    4. Effects test and disparate treatment. An empirically derived, 
demonstrably and statistically sound, credit scoring system may include 
age as a predictive factor (provided that the age of an elderly 
applicant is not assigned a negative factor or value). Besides age, no 
other prohibited basis may be used as a variable. Generally, credit 
scoring systems treat all applicants objectively and thus avoid problems 
of disparate treatment. In cases where a credit scoring system is used 
in conjunction with individual discretion, disparate treatment could 
conceivably occur in the evaluation process. In addition, neutral 
factors used in credit scoring systems could nonetheless be subject to 
challenge under the effects test. (See comment 6(a)-2 for a discussion 
of the effects test).
    2(w) Open-end credit.
    1. Open-end real estate mortgages. The term ``open-end credit'' does 
not include negotiated advances under an open-end real estate mortgage 
or a letter of credit.
    2(z) Prohibited basis.
    1. Persons associated with applicant. As used in this part, 
prohibited basis refers not only to characteristics--the race, color, 
religion, national origin, sex, marital status, or age--of an applicant 
(or officers of an applicant in the case of a corporation) but also to 
the characteristics of individuals with whom an applicant is affiliated 
or with whom the applicant associates. This means, for example, that 
under the general rule stated in Sec. 1002.4(a), a creditor may not 
discriminate against an applicant because of that person's personal or 
business dealings with members of a certain religion, because of the 
national origin of any persons associated with the extension of credit 
(such as the tenants in the apartment complex being financed), or 
because of the race of other residents in the neighborhood where the 
property offered as collateral is located.
    2. National origin. A creditor may not refuse to grant credit 
because an applicant comes from a particular country but may take the 
applicant's immigration status into account. A creditor may also take 
into account any applicable law, regulation, or executive order 
restricting dealings with citizens (or the government) of a particular 
country or imposing limitations regarding credit extended for their use.
    3. Public assistance program. Any Federal, state, or local 
governmental assistance program that provides a continuing, periodic 
income supplement, whether premised on entitlement or need, is ``public 
assistance'' for purposes of the regulation. The term includes (but is 
not limited to) Temporary Aid to Needy Families, food stamps, rent and 
mortgage supplement or assistance programs, social security and 
supplemental security income, and unemployment compensation. Only 
physicians, hospitals, and others to whom the benefits are payable need 
consider Medicare and Medicaid as public assistance.

 Section 1002.3--Limited Exceptions for Certain Classes of Transactions

    1. Scope. Under this section, procedural requirements of the 
regulation do not apply to certain types of credit. All classes of 
transactions remain subject to Sec. 1002.4(a), the general rule barring 
discrimination on a prohibited basis, and to any other provision not 
specifically excepted.
    3(a) Public-utilities credit.
    1. Definition. This definition applies only to credit for the 
purchase of a utility service,

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such as electricity, gas, or telephone service. Credit provided or 
offered by a public utility for some other purpose--such as for 
financing the purchase of a gas dryer, telephone equipment, or other 
durable goods, or for insulation or other home improvements--is not 
excepted.
    2. Security deposits. A utility company is a creditor when it 
supplies utility service and bills the user after the service has been 
provided. Thus, any credit term (such as a requirement for a security 
deposit) is subject to the regulation's bar against discrimination on a 
prohibited basis.
    3. Telephone companies. A telephone company's credit transactions 
qualify for the exceptions provided in Sec. 1002.3(a)(2) only if the 
company is regulated by a government unit or files the charges for 
service, delayed payment, or any discount for prompt payment with a 
government unit.
    3(c) Incidental credit.
    1. Examples. If a service provider (such as a hospital, doctor, 
lawyer, or merchant) allows the client or customer to defer the payment 
of a bill, this deferral of debt is credit for purposes of the 
regulation, even though there is no finance charge and no agreement for 
payment in installments. Because of the exceptions provided by this 
section, however, these particular credit extensions are excepted from 
compliance with certain procedural requirements as specified in Sec. 
1002.3(c).
    3(d) Government credit.
    1. Credit to governments. The exception relates to credit extended 
to (not by) governmental entities. For example, credit extended to a 
local government is covered by this exception, but credit extended to 
consumers by a Federal or state housing agency does not qualify for 
special treatment under this category.

                      Section 1002.4--General Rules

    Paragraph 4(a).
    1. Scope of rule. The general rule stated in Sec. 1002.4(a) covers 
all dealings, without exception, between an applicant and a creditor, 
whether or not addressed by other provisions of the regulation. Other 
provisions of the regulation identify specific practices that the Bureau 
has decided are impermissible because they could result in credit 
discrimination on a basis prohibited by the Act. The general rule 
covers, for example, application procedures, criteria used to evaluate 
creditworthiness, administration of accounts, and treatment of 
delinquent or slow accounts. Thus, whether or not specifically 
prohibited elsewhere in the regulation, a credit practice that treats 
applicants differently on a prohibited basis violates the law because it 
violates the general rule. Disparate treatment on a prohibited basis is 
illegal whether or not it results from a conscious intent to 
discriminate.
    2. Examples.
    i. Disparate treatment would exist, for example, in the following 
situations:
    A. A creditor provides information only on ``subprime'' and similar 
products to minority applicants who request information about the 
creditor's mortgage products, but provides information on a wider 
variety of mortgage products to similarly situated nonminority 
applicants.
    B. A creditor provides more comprehensive information to men than to 
similarly situated women.
    C. A creditor requires a minority applicant to provide greater 
documentation to obtain a loan than a similarly situated nonminority 
applicant.
    D. A creditor waives or relaxes credit standards for a nonminority 
applicant but not for a similarly situated minority applicant.
    ii. Treating applicants differently on a prohibited basis is 
unlawful if the creditor lacks a legitimate nondiscriminatory reason for 
its action, or if the asserted reason is found to be a pretext for 
discrimination.
    Paragraph 4(b).
    1. Prospective applicants. Generally, the regulation's protections 
apply only to persons who have requested or received an extension of 
credit. In keeping with the purpose of the Act--to promote the 
availability of credit on a nondiscriminatory basis--Sec. 1002.4(b) 
covers acts or practices directed at prospective applicants that could 
discourage a reasonable person, on a prohibited basis, from applying for 
credit. Practices prohibited by this section include:
    i. A statement that the applicant should not bother to apply, after 
the applicant states that he is retired.
    ii. The use of words, symbols, models or other forms of 
communication in advertising that express, imply, or suggest a 
discriminatory preference or a policy of exclusion in violation of the 
Act.
    iii. The use of interview scripts that discourage applications on a 
prohibited basis.
    2. Affirmative advertising. A creditor may affirmatively solicit or 
encourage members of traditionally disadvantaged groups to apply for 
credit, especially groups that might not normally seek credit from that 
creditor.
    Paragraph 4(c).
    1. Requirement for written applications. Model application forms are 
provided in Appendix B to the regulation, although use of a printed form 
is not required. A creditor will satisfy the requirement by writing down 
the information that it normally considers in making a credit decision. 
The creditor may complete an application on behalf of an applicant and 
need not require the applicant to sign the application.
    2. Telephone applications. A creditor that accepts applications by 
telephone for dwelling-related credit covered by Sec. 1002.13 can

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meet the requirement for written applications by writing down pertinent 
information that is provided by the applicant.
    3. Computerized entry. Information entered directly into and 
retained by a computerized system qualifies as a written application 
under this paragraph. (See the commentary to Sec. 1002.13(b), 
Applications through electronic media and Applications through video.)
    Paragraph 4(d).
    1. Clear and conspicuous. This standard requires that disclosures be 
presented in a reasonably understandable format in a way that does not 
obscure the required information. No minimum type size is mandated, but 
the disclosures must be legible, whether typewritten, handwritten, or 
printed by computer.
    2. Form of disclosures. Whether the disclosures required to be on or 
with an application must be in electronic form depends upon the 
following:
    i. If an applicant accesses a credit application electronically 
(other than as described under ii below), such as online at a home 
computer, the creditor must provide the disclosures in electronic form 
(such as with the application form on its Web site) in order to meet the 
requirement to provide disclosures in a timely manner on or with the 
application. If the creditor instead mailed paper disclosures to the 
applicant, this requirement would not be met.
    ii. In contrast, if an applicant is physically present in the 
creditor's office, and accesses a credit application electronically, 
such as via a terminal or kiosk (or if the applicant uses a terminal or 
kiosk located on the premises of an affiliate or third party that has 
arranged with the creditor to provide applications to consumers), the 
creditor may provide disclosures in either electronic or paper form, 
provided the creditor complies with the timing, delivery, and 
retainability requirements of the regulation.

        Section 1002.5--Rules Concerning Requests for Information

    5(a) General rules.
    Paragraph 5(a)(1).
    1. Requests for information. This section governs the types of 
information that a creditor may gather. Section1002.6 governs how 
information may be used.
    Paragraph 5(a)(2).
    1. Local laws. Information that a creditor is allowed to collect 
pursuant to a ``state'' statute or regulation includes information 
required by a local statute, regulation, or ordinance.
    2. Information required by Regulation C. Regulation C generally 
requires creditors covered by the Home Mortgage Disclosure Act (HMDA) to 
collect and report information about the race, ethnicity, and sex of 
applicants for home-improvement loans and home-purchase loans, including 
some types of loans not covered by Sec. 1002.13.
    3. Collecting information on behalf of creditors. Persons such as 
loan brokers and correspondents do not violate the ECOA or Regulation B 
if they collect information that they are otherwise prohibited from 
collecting, where the purpose of collecting the information is to 
provide it to a creditor that is subject to the Home Mortgage Disclosure 
Act or another Federal or state statute or regulation requiring data 
collection.
    5(d) Other limitations on information requests.
    Paragraph 5(d)(1).
    1. Indirect disclosure of prohibited information. The fact that 
certain credit-related information may indirectly disclose marital 
status does not bar a creditor from seeking such information. For 
example, the creditor may ask about:
    i. The applicant's obligation to pay alimony, child support, or 
separate maintenance income.
    ii. The source of income to be used as the basis for repaying the 
credit requested, which could disclose that it is the income of a 
spouse.
    iii. Whether any obligation disclosed by the applicant has a co-
obligor, which could disclose that the co-obligor is a spouse or former 
spouse.
    iv. The ownership of assets, which could disclose the interest of a 
spouse.
    Paragraph 5(d)(2).
    1. Disclosure about income. The sample application forms in Appendix 
B to the regulation illustrate how a creditor may inform an applicant of 
the right not to disclose alimony, child support, or separate 
maintenance income.
    2. General inquiry about source of income. Since a general inquiry 
about the source of income may lead an applicant to disclose alimony, 
child support, or separate maintenance income, a creditor making such an 
inquiry on an application form should preface the request with the 
disclosure required by this paragraph.
    3. Specific inquiry about sources of income. A creditor need not 
give the disclosure if the inquiry about income is specific and worded 
in a way that is unlikely to lead the applicant to disclose the fact 
that income is derived from alimony, child support, or separate 
maintenance payments. For example, an application form that asks about 
specific types of income such as salary, wages, or investment income 
need not include the disclosure.

       Section 1002.6--Rules Concerning Evaluation of Applications

    6(a) General rule concerning use of information.
    1. General. When evaluating an application for credit, a creditor 
generally may consider

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any information obtained. However, a creditor may not consider in its 
evaluation of creditworthiness any information that it is barred by 
Sec. 1002.5 from obtaining or from using for any purpose other than to 
conduct a self-test under Sec. 1002.15.
    2. Effects test. The effects test is a judicial doctrine that was 
developed in a series of employment cases decided by the U.S. Supreme 
Court under Title VII of the Civil Rights Act of 1964 (42 U.S.C. 2000e 
et seq.), and the burdens of proof for such employment cases were 
codified by Congress in the Civil Rights Act of 1991 (42 U.S.C. 2000e-
2). Congressional intent that this doctrine apply to the credit area is 
documented in the Senate Report that accompanied H.R. 6516, No. 94-589, 
pp. 4-5; and in the House Report that accompanied H.R. 6516, No. 94-210, 
p.5. The Act and regulation may prohibit a creditor practice that is 
discriminatory in effect because it has a disproportionately negative 
impact on a prohibited basis, even though the creditor has no intent to 
discriminate and the practice appears neutral on its face, unless the 
creditor practice meets a legitimate business need that cannot 
reasonably be achieved as well by means that are less disparate in their 
impact. For example, requiring that applicants have income in excess of 
a certain amount to qualify for an overdraft line of credit could mean 
that women and minority applicants will be rejected at a higher rate 
than men and nonminority applicants. If there is a demonstrable 
relationship between the income requirement and creditworthiness for the 
level of credit involved, however, use of the income standard would 
likely be permissible.
    6(b) Specific rules concerning use of information.
    Paragraph 6(b)(1).
    1. Prohibited basis--special purpose credit. In a special purpose 
credit program, a creditor may consider a prohibited basis to determine 
whether the applicant possesses a characteristic needed for eligibility. 
(See Sec. 1002.8.)
    Paragraph 6(b)(2).
    1. Favoring the elderly. Any system of evaluating creditworthiness 
may favor a credit applicant who is age 62 or older. A credit program 
that offers more favorable credit terms to applicants age 62 or older is 
also permissible; a program that offers more favorable credit terms to 
applicants at an age lower than 62 is permissible only if it meets the 
special-purpose credit requirements of Sec. 1002.8.
    2. Consideration of age in a credit scoring system. Age may be taken 
directly into account in a credit scoring system that is ``demonstrably 
and statistically sound,'' as defined in Sec. 1002.2(p), with one 
limitation: Applicants age 62 years or older must be treated at least as 
favorably as applicants who are under age 62. If age is scored by 
assigning points to an applicant's age category, elderly applicants must 
receive the same or a greater number of points as the most favored class 
of nonelderly applicants.
    i. Age-split scorecards. Some credit systems segment the population 
and use different scorecards based on the age of an applicant. In such a 
system, one card may cover a narrow age range (for example, applicants 
in their twenties or younger) who are evaluated under attributes 
predictive for that age group. A second card may cover all other 
applicants, who are evaluated under the attributes predictive for that 
broader class. When a system uses a card covering a wide age range that 
encompasses elderly applicants, the credit scoring system is not deemed 
to score age. Thus, the system does not raise the issue of assigning a 
negative factor or value to the age of elderly applicants. But if a 
system segments the population by age into multiple scorecards, and 
includes elderly applicants in a narrower age range, the credit scoring 
system does score age. To comply with the Act and regulation in such a 
case, the creditor must ensure that the system does not assign a 
negative factor or value to the age of elderly applicants as a class.
    3. Consideration of age in a judgmental system. In a judgmental 
system, defined in Sec. 1002.2(t), a creditor may not decide whether to 
extend credit or set the terms and conditions of credit based on age or 
information related exclusively to age. Age or age-related information 
may be considered only in evaluating other ``pertinent elements of 
creditworthiness'' that are drawn from the particular facts and 
circumstances concerning the applicant. For example, a creditor may not 
reject an application or terminate an account because the applicant is 
60 years old. But a creditor that uses a judgmental system may relate 
the applicant's age to other information about the applicant that the 
creditor considers in evaluating creditworthiness. As the following 
examples illustrate, the evaluation must be made in an individualized, 
case-by-case manner:
    i. A creditor may consider the applicant's occupation and length of 
time to retirement to ascertain whether the applicant's income 
(including retirement income) will support the extension of credit to 
its maturity.
    ii. A creditor may consider the adequacy of any security offered 
when the term of the credit extension exceeds the life expectancy of the 
applicant and the cost of realizing on the collateral could exceed the 
applicant's equity. An elderly applicant might not qualify for a 5 
percent down, 30-year mortgage loan but might qualify with a larger 
downpayment or a shorter loan maturity.
    iii. A creditor may consider the applicant's age to assess the 
significance of length of employment (a young applicant may have just 
entered the job market) or length of time at an address (an elderly 
applicant may

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recently have retired and moved from a long-term residence).
    4. Consideration of age in a reverse mortgage. A reverse mortgage is 
a home-secured loan in which the borrower receives payments from the 
creditor, and does not become obligated to repay these amounts (other 
than in the case of default) until the borrower dies, moves permanently 
from the home, or transfers title to the home, or upon a specified 
maturity date. Disbursements to the borrower under a reverse mortgage 
typically are determined by considering the value of the borrower's 
home, the current interest rate, and the borrower's life expectancy. A 
reverse mortgage program that requires borrowers to be age 62 or older 
is permissible under Sec. 1002.6(b)(2)(iv). In addition, under Sec. 
1002.6(b)(2)(iii), a creditor may consider a borrower's age to evaluate 
a pertinent element of creditworthiness, such as the amount of the 
credit or monthly payments that the borrower will receive, or the 
estimated repayment date.
    5. Consideration of age in a combined system. A creditor using a 
credit scoring system that qualifies as ``empirically derived'' under 
Sec. 1002.2(p) may consider other factors (such as a credit report or 
the applicant's cash flow) on a judgmental basis. Doing so will not 
negate the classification of the credit scoring component of the 
combined system as ``demonstrably and statistically sound.'' While age 
could be used in the credit scoring portion, however, in the judgmental 
portion age may not be considered directly. It may be used only for the 
purpose of determining a ``pertinent element of creditworthiness.'' (See 
comment 6(b)(2)-3.)
    6. Consideration of public assistance. When considering income 
derived from a public assistance program, a creditor may take into 
account, for example:
    i. The length of time an applicant will likely remain eligible to 
receive such income.
    ii. Whether the applicant will continue to qualify for benefits 
based on the status of the applicant's dependents (as in the case of 
Temporary Aid to Needy Families, or social security payments to a 
minor).
    iii. Whether the creditor can attach or garnish the income to assure 
payment of the debt in the event of default.
    Paragraph 6(b)(5).
    1. Consideration of an individual applicant. A creditor must 
evaluate income derived from part-time employment, alimony, child 
support, separate maintenance payments, retirement benefits, or public 
assistance on an individual basis, not on the basis of aggregate 
statistics; and must assess its reliability or unreliability by 
analyzing the applicant's actual circumstances, not by analyzing 
statistical measures derived from a group.
    2. Payments consistently made. In determining the likelihood of 
consistent payments of alimony, child support, or separate maintenance, 
a creditor may consider factors such as whether payments are received 
pursuant to a written agreement or court decree; the length of time that 
the payments have been received; whether the payments are regularly 
received by the applicant; the availability of court or other procedures 
to compel payment; and the creditworthiness of the payor, including the 
credit history of the payor when it is available to the creditor.
    3. Consideration of income.
    i. A creditor need not consider income at all in evaluating 
creditworthiness. If a creditor does consider income, there are several 
acceptable methods, whether in a credit scoring or a judgmental system:
    A. A creditor may score or take into account the total sum of all 
income stated by the applicant without taking steps to evaluate the 
income for reliability.
    B. A creditor may evaluate each component of the applicant's income, 
and then score or take into account income determined to be reliable 
separately from other income; or the creditor may disregard that portion 
of income that is not reliable when it aggregates reliable income.
    C. A creditor that does not evaluate all income components for 
reliability must treat as reliable any component of protected income 
that is not evaluated.
    ii. In considering the separate components of an applicant's income, 
the creditor may not automatically discount or exclude from 
consideration any protected income. Any discounting or exclusion must be 
based on the applicant's actual circumstances.
    4. Part-time employment, sources of income. A creditor may score or 
take into account the fact that an applicant has more than one source of 
earned income--a full-time and a part-time job or two part-time jobs. A 
creditor may also score or treat earned income from a secondary source 
differently than earned income from a primary source. The creditor may 
not, however, score or otherwise take into account the number of sources 
for income such as retirement income, social security, supplemental 
security income, and alimony. Nor may the creditor treat negatively the 
fact that an applicant's only earned income is derived from, for 
example, a part-time job.
    Paragraph 6(b)(6).
    1. Types of credit references. A creditor may restrict the types of 
credit history and credit references that it will consider, provided 
that the restrictions are applied to all credit applicants without 
regard to sex, marital status, or any other prohibited basis. On the 
applicant's request, however, a creditor must consider credit 
information not reported

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through a credit bureau when the information relates to the same types 
of credit references and history that the creditor would consider if 
reported through a credit bureau.
    Paragraph 6(b)(7).
    1. National origin--immigration status. The applicant's immigration 
status and ties to the community (such as employment and continued 
residence in the area) could have a bearing on a creditor's ability to 
obtain repayment. Accordingly, the creditor may consider immigration 
status and differentiate, for example, between a noncitizen who is a 
long-time resident with permanent resident status and a noncitizen who 
is temporarily in this country on a student visa.
    2. National origin--citizenship. A denial of credit on the ground 
that an applicant is not a United States citizen is not per se 
discrimination based on national origin.
    Paragraph 6(b)(8).
    1. Prohibited basis--marital status. A creditor may consider the 
marital status of an applicant or joint applicant for the purpose of 
ascertaining the creditor's rights and remedies applicable to the 
particular extension of credit. For example, in a secured transaction 
involving real property, a creditor could take into account whether 
state law gives the applicant's spouse an interest in the property being 
offered as collateral.

          Section 1002.7--Rules Concerning Extensions of Credit

    7(a) Individual accounts.
    1. Open-end credit--authorized user. A creditor may not require a 
creditworthy applicant seeking an individual credit account to provide 
additional signatures. But the creditor may condition the designation of 
an authorized user by the account holder on the authorized user's 
becoming contractually liable for the account, as long as the creditor 
does not differentiate on any prohibited basis in imposing this 
requirement.
    2. Open-end credit--choice of authorized user. A creditor that 
permits an account holder to designate an authorized user may not 
restrict this designation on a prohibited basis. For example, if the 
creditor allows the designation of spouses as authorized users, the 
creditor may not refuse to accept a non-spouse as an authorized user.
    3. Overdraft authority on transaction accounts. If a transaction 
account (such as a checking account or NOW account) includes an 
overdraft line of credit, the creditor may require that all persons 
authorized to draw on the transaction account assume liability for any 
overdraft.
    7(b) Designation of name.
    1. Single name on account. A creditor may require that joint 
applicants on an account designate a single name for purposes of 
administering the account and that a single name be embossed on any 
credit cards issued on the account. But the creditor may not require 
that the name be the husband's name. (See Sec. 1002.10 for rules 
governing the furnishing of credit history on accounts held by spouses.)
    7(c) Action concerning existing open-end accounts.
    Paragraph 7(c)(1).
    1. Termination coincidental with marital status change. When an 
account holder's marital status changes, a creditor generally may not 
terminate the account unless it has evidence that the account holder is 
now unable or unwilling to repay. But the creditor may terminate an 
account on which both spouses are jointly liable, even if the action 
coincides with a change in marital status, when one or both spouses:
    i. Repudiate responsibility for future charges on the joint account.
    ii. Request separate accounts in their own names.
    iii. Request that the joint account be closed.
    2. Updating information. A creditor may periodically request updated 
information from applicants but may not use events related to a 
prohibited basis--such as an applicant's retirement or reaching a 
particular age, or a change in name or marital status--to trigger such a 
request.
    Paragraph 7(c)(2).
    1. Procedure pending reapplication. A creditor may require a 
reapplication from an account holder, even when there is no evidence of 
unwillingness or inability to repay, if (1) the credit was based on the 
qualifications of a person who is no longer available to support the 
credit and (2) the creditor has information indicating that the account 
holder's income may be insufficient to support the credit. While a 
reapplication is pending, the creditor must allow the account holder 
full access to the account under the existing contract terms. The 
creditor may specify a reasonable time period within which the account 
holder must submit the required information.
    7(d) Signature of spouse or other person.
    1. Qualified applicant. The signature rules ensure that qualified 
applicants are able to obtain credit in their own names. Thus, when an 
applicant requests individual credit, a creditor generally may not 
require the signature of another person unless the creditor has first 
determined that the applicant alone does not qualify for the credit 
requested.
    2. Unqualified applicant. When an applicant requests individual 
credit but does not meet a creditor's standards, the creditor may 
require a cosigner, guarantor, endorser, or similar party--but cannot 
require that it be the spouse. (See commentary to Sec. Sec. 
1002.7(d)(5) and (6).)
    Paragraph 7(d)(1).

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    1. Signature of another person. It is impermissible for a creditor 
to require an applicant who is individually creditworthy to provide a 
cosigner-even if the creditor applies the requirement without regard to 
sex, marital status, or any other prohibited basis. (But see comment 
7(d)(6)-1 concerning guarantors of closely held corporations.)
    2. Joint applicant. The term ``joint applicant'' refers to someone 
who applies contemporaneously with the applicant for shared or joint 
credit. It does not refer to someone whose signature is required by the 
creditor as a condition for granting the credit requested.
    3. Evidence of joint application. A person's intent to be a joint 
applicant must be evidenced at the time of application. Signatures on a 
promissory note may not be used to show intent to apply for joint 
credit. On the other hand, signatures or initials on a credit 
application affirming applicants' intent to apply for joint credit may 
be used to establish intent to apply for joint credit. (See Appendix B.) 
The method used to establish intent must be distinct from the means used 
by individuals to affirm the accuracy of information. For example, 
signatures on a joint financial statement affirming the veracity of 
information are not sufficient to establish intent to apply for joint 
credit.
    Paragraph 7(d)(2).
    1. Jointly owned property. If an applicant requests unsecured 
credit, does not own sufficient separate property, and relies on joint 
property to establish creditworthiness, the creditor must value the 
applicant's interest in the jointly owned property. A creditor may not 
request that a nonapplicant joint owner sign any instrument as a 
condition of the credit extension unless the applicant's interest does 
not support the amount and terms of the credit sought.
    i. Valuation of applicant's interest. In determining the value of an 
applicant's interest in jointly owned property, a creditor may consider 
factors such as the form of ownership and the property's susceptibility 
to attachment, execution, severance, or partition; the value of the 
applicant's interest after such action; and the cost associated with the 
action. This determination must be based on the existing form of 
ownership, and not on the possibility of a subsequent change. For 
example, in determining whether a married applicant's interest in 
jointly owned property is sufficient to satisfy the creditor's standards 
of creditworthiness for individual credit, a creditor may not consider 
that the applicant's separate property could be transferred into tenancy 
by the entirety after consummation. Similarly, a creditor may not 
consider the possibility that the couple may divorce. Accordingly, a 
creditor may not require the signature of the non-applicant spouse in 
these or similar circumstances.
    ii. Other options to support credit. If the applicant's interest in 
jointly owned property does not support the amount and terms of credit 
sought, the creditor may offer the applicant other options to qualify 
for the extension of credit. For example:
    A. Providing a co-signer or other party (Sec. 1002.7(d)(5));
    B. Requesting that the credit be granted on a secured basis (Sec. 
1002.7(d)(4)); or
    C. Providing the signature of the joint owner on an instrument that 
ensures access to the property in the event of the applicant's death or 
default, but does not impose personal liability unless necessary under 
state law (such as a limited guarantee). A creditor may not routinely 
require, however, that a joint owner sign an instrument (such as a 
quitclaim deed) that would result in the forfeiture of the joint owner's 
interest in the property.
    2. Need for signature--reasonable belief. A creditor's reasonable 
belief as to what instruments need to be signed by a person other than 
the applicant should be supported by a thorough review of pertinent 
statutory and decisional law or an opinion of the state attorney 
general.
    Paragraph 7(d)(3).
    1. Residency. In assessing the creditworthiness of a person who 
applies for credit in a community property state, a creditor may assume 
that the applicant is a resident of the state unless the applicant 
indicates otherwise.
    Paragraph 7(d)(4).
    1. Creation of enforceable lien. Some state laws require that both 
spouses join in executing any instrument by which real property is 
encumbered. If an applicant offers such property as security for credit, 
a creditor may require the applicant's spouse to sign the instruments 
necessary to create a valid security interest in the property. The 
creditor may not require the spouse to sign the note evidencing the 
credit obligation if signing only the mortgage or other security 
agreement is sufficient to make the property available to satisfy the 
debt in the event of default. However, if under state law both spouses 
must sign the note to create an enforceable lien, the creditor may 
require the signatures.
    2. Need for signature--reasonable belief. Generally, a signature to 
make the secured property available will only be needed on a security 
agreement. A creditor's reasonable belief that, to ensure access to the 
property, the spouse's signature is needed on an instrument that imposes 
personal liability should be supported by a thorough review of pertinent 
statutory and decisional law or an opinion of the state attorney 
general.
    3. Integrated instruments. When a creditor uses an integrated 
instrument that combines the note and the security agreement, the

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spouse cannot be asked to sign the integrated instrument if the 
signature is only needed to grant a security interest. But the spouse 
could be asked to sign an integrated instrument that makes clear--for 
example, by a legend placed next to the spouse's signature--that the 
spouse's signature is only to grant a security interest and that signing 
the instrument does not impose personal liability.
    Paragraph 7(d)(5).
    1. Qualifications of additional parties. In establishing guidelines 
for eligibility of guarantors, cosigners, or similar additional parties, 
a creditor may restrict the applicant's choice of additional parties but 
may not discriminate on the basis of sex, marital status, or any other 
prohibited basis. For example, the creditor could require that the 
additional party live in the creditor's market area.
    2. Reliance on income of another person--individual credit. An 
applicant who requests individual credit relying on the income of 
another person (including a spouse in a non-community property state) 
may be required to provide the signature of the other person to make the 
income available to pay the debt. In community property states, the 
signature of a spouse may be required if the applicant relies on the 
spouse's separate income. If the applicant relies on the spouse's future 
earnings that as a matter of state law cannot be characterized as 
community property until earned, the creditor may require the spouse's 
signature, but need not do so--even if it is the creditor's practice to 
require the signature when an applicant relies on the future earnings of 
a person other than a spouse. (See Sec. 1002.6(c) on consideration of 
state property laws.)
    3. Renewals. If the borrower's creditworthiness is reevaluated when 
a credit obligation is renewed, the creditor must determine whether an 
additional party is still warranted and, if not warranted, release the 
additional party.
    Paragraph 7(d)(6).
    1. Guarantees. A guarantee on an extension of credit is part of a 
credit transaction and therefore subject to the regulation. A creditor 
may require the personal guarantee of the partners, directors, or 
officers of a business, and the shareholders of a closely held 
corporation, even if the business or corporation is creditworthy. The 
requirement must be based on the guarantor's relationship with the 
business or corporation, however, and not on a prohibited basis. For 
example, a creditor may not require guarantees only for women-owned or 
minority-owned businesses. Similarly, a creditor may not require 
guarantees only of the married officers of a business or the married 
shareholders of a closely held corporation.
    2. Spousal guarantees. The rules in Sec. 1002.7(d) bar a creditor 
from requiring the signature of a guarantor's spouse just as they bar 
the creditor from requiring the signature of an applicant's spouse. For 
example, although a creditor may require all officers of a closely held 
corporation to personally guarantee a corporate loan, the creditor may 
not automatically require that spouses of married officers also sign the 
guarantee. If an evaluation of the financial circumstances of an officer 
indicates that an additional signature is necessary, however, the 
creditor may require the signature of another person in appropriate 
circumstances in accordance with Sec. 1002.7(d)(2).
    7(e) Insurance.
    1. Differences in terms. Differences in the availability, rates, and 
other terms on which credit-related casualty insurance or credit life, 
health, accident, or disability insurance is offered or provided to an 
applicant does not violate Regulation B.
    2. Insurance information. A creditor may obtain information about an 
applicant's age, sex, or marital status for insurance purposes. The 
information may only be used for determining eligibility and premium 
rates for insurance, however, and not in making the credit decision.

             Section 1002.8--Special Purpose Credit Programs

    8(a) Standards for programs.
    1. Determining qualified programs. The Bureau does not determine 
whether individual programs qualify for special purpose credit status, 
or whether a particular program benefits an ``economically disadvantaged 
class of persons.'' The agency or creditor administering or offering the 
loan program must make these decisions regarding the status of its 
program.
    2. Compliance with a program authorized by Federal or state law. A 
creditor does not violate Regulation B when it complies in good faith 
with a regulation promulgated by a government agency implementing a 
special purpose credit program under Sec. 1002.8(a)(1). It is the 
agency's responsibility to promulgate a regulation that is consistent 
with Federal and state law.
    3. Expressly authorized. Credit programs authorized by Federal or 
state law include programs offered pursuant to Federal, state, or local 
statute, regulation or ordinance, or pursuant to judicial or 
administrative order.
    4. Creditor liability. A refusal to grant credit to an applicant is 
not a violation of the Act or regulation if the applicant does not meet 
the eligibility requirements under a special purpose credit program.
    5. Determining need. In designing a special purpose credit program 
under Sec. 1002.8(a), a for-profit organization must determine that the 
program will benefit a class of people who would otherwise be denied 
credit or would receive it on less favorable terms. This determination 
can be based on a broad analysis using the organization's own research 
or

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data from outside sources, including governmental reports and studies. 
For example, a creditor might design new products to reach consumers who 
would not meet, or have not met, its traditional standards of 
creditworthiness due to such factors as credit inexperience or the use 
of credit sources that may not report to consumer reporting agencies. 
Or, a bank could review Home Mortgage Disclosure Act data along with 
demographic data for its assessment area and conclude that there is a 
need for a special purpose credit program for low-income minority 
borrowers.
    6. Elements of the program. The written plan must contain 
information that supports the need for the particular program. The plan 
also must either state a specific period of time for which the program 
will last, or contain a statement regarding when the program will be 
reevaluated to determine if there is a continuing need for it.
    8(b) Rules in other sections.
    1. Applicability of rules. A creditor that rejects an application 
because the applicant does not meet the eligibility requirements (common 
characteristic or financial need, for example) must nevertheless notify 
the applicant of action taken as required by Sec. 1002.9.
    8(c) Special rule concerning requests and use of information.
    1. Request of prohibited basis information. This section permits a 
creditor to request and consider certain information that would 
otherwise be prohibited by Sec. Sec. 1002.5 and 1002.6 to determine an 
applicant's eligibility for a particular program.
    2. Examples. Examples of programs under which the creditor can ask 
for and consider information about a prohibited basis are:
    i. Energy conservation programs to assist the elderly, for which the 
creditor must consider the applicant's age.
    ii. Programs under a Minority Enterprise Small Business Investment 
Corporation, for which a creditor must consider the applicant's minority 
status.
    8(d) Special rule in the case of financial need.
    1. Request of prohibited basis information. This section permits a 
creditor to request and consider certain information that would 
otherwise be prohibited by Sec. Sec. 1002.5 and 1002.6, and to require 
signatures that would otherwise be prohibited by Sec. 1002.7(d).
    2. Examples. Examples of programs in which financial need is a 
criterion are:
    i. Subsidized housing programs for low-to moderate-income 
households, for which a creditor may have to consider the applicant's 
receipt of alimony or child support, the spouse's or parents' income, 
etc.
    ii. Student loan programs based on the family's financial need, for 
which a creditor may have to consider the spouse's or parents' financial 
resources.
    3. Student loans. In a guaranteed student loan program, a creditor 
may obtain the signature of a parent as a guarantor when required by 
Federal or state law or agency regulation, or when the student does not 
meet the creditor's standards of creditworthiness. (See Sec. Sec. 
1002.7(d)(1) and (5).) The creditor may not require an additional 
signature when a student has a work or credit history that satisfies the 
creditor's standards.

                      Section 1002.9--Notifications

    1. Use of the term adverse action. The regulation does not require 
that a creditor use the term adverse action in communicating to an 
applicant that a request for an extension of credit has not been 
approved. In notifying an applicant of adverse action as defined by 
Sec. 1002.2(c)(1), a creditor may use any words or phrases that 
describe the action taken on the application.
    2. Expressly withdrawn applications. When an applicant expressly 
withdraws a credit application, the creditor is not required to comply 
with the notification requirements under Sec. 1002.9. (The creditor 
must comply, however, with the record retention requirements of the 
regulation. See Sec. 1002.12(b)(3).)
    3. When notification occurs. Notification occurs when a creditor 
delivers or mails a notice to the applicant's last known address or, in 
the case of an oral notification, when the creditor communicates the 
credit decision to the applicant.
    4. Location of notice. The notifications required under Sec. 1002.9 
may appear on either or both sides of a form or letter.
    5. Prequalification requests. Whether a creditor must provide a 
notice of action taken for a prequalification request depends on the 
creditor's response to the request, as discussed in comment 2(f)-3. For 
instance, a creditor may treat the request as an inquiry if the creditor 
evaluates specific information about the consumer and tells the consumer 
the loan amount, rate, and other terms of credit the consumer could 
qualify for under various loan programs, explaining the process the 
consumer must follow to submit a mortgage application and the 
information the creditor will analyze in reaching a credit decision. On 
the other hand, a creditor has treated a request as an application, and 
is subject to the adverse action notice requirements of Sec. 1002.9 if, 
after evaluating information, the creditor decides that it will not 
approve the request and communicates that decision to the consumer. For 
example, if the creditor tells the consumer that it would not approve an 
application for a mortgage because of a bankruptcy in the consumer's 
record, the creditor has denied an application for credit.
    9(a) Notification of action taken, ECOA notice, and statement of 
specific reasons.
    Paragraph 9(a)(1).

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    1. Timing of notice--when an application is complete. Once a 
creditor has obtained all the information it normally considers in 
making a credit decision, the application is complete and the creditor 
has 30 days in which to notify the applicant of the credit decision. 
(See also comment 2(f)-6.)
    2. Notification of approval. Notification of approval may be express 
or by implication. For example, the creditor will satisfy the 
notification requirement when it gives the applicant the credit card, 
money, property, or services requested.
    3. Incomplete application--denial for incompleteness. When an 
application is incomplete regarding information that the applicant can 
provide and the creditor lacks sufficient data for a credit decision, 
the creditor may deny the application giving as the reason for denial 
that the application is incomplete. The creditor has the option, 
alternatively, of providing a notice of incompleteness under Sec. 
1002.9(c).
    4. Incomplete application--denial for reasons other than 
incompleteness. When an application is missing information but provides 
sufficient data for a credit decision, the creditor may evaluate the 
application, make its credit decision, and notify the applicant 
accordingly. If credit is denied, the applicant must be given the 
specific reasons for the credit denial (or notice of the right to 
receive the reasons); in this instance missing information or 
``incomplete application'' cannot be given as the reason for the denial.
    5. Length of counteroffer. Section 1002.9(a)(1)(iv) does not require 
a creditor to hold a counteroffer open for 90 days or any other 
particular length of time.
    6. Counteroffer combined with adverse action notice. A creditor that 
gives the applicant a combined counteroffer and adverse action notice 
that complies with Sec. 1002.9(a)(2) need not send a second adverse 
action notice if the applicant does not accept the counteroffer. A 
sample of a combined notice is contained in form C-4 of Appendix C to 
the regulation.
    7. Denial of a telephone application. When an application is made by 
telephone and adverse action is taken, the creditor must request the 
applicant's name and address in order to provide written notification 
under this section. If the applicant declines to provide that 
information, then the creditor has no further notification 
responsibility.
    Paragraph 9(a)(3).
    1. Coverage. In determining which rules in this paragraph apply to a 
given business credit application, a creditor may rely on the 
applicant's assertion about the revenue size of the business. 
(Applications to start a business are governed by the rules in Sec. 
1002.9(a)(3)(i).) If an applicant applies for credit as a sole 
proprietor, the revenues of the sole proprietorship will determine which 
rules govern the application. However, if an applicant applies for 
business credit as an individual, the rules in Sec. 1002.9(a)(3)(i) 
apply unless the application is for trade or similar credit.
    2. Trade credit. The term trade credit generally is limited to a 
financing arrangement that involves a buyer and a seller--such as a 
supplier who finances the sale of equipment, supplies, or inventory; it 
does not apply to an extension of credit by a bank or other financial 
institution for the financing of such items.
    3. Factoring. Factoring refers to a purchase of accounts receivable, 
and thus is not subject to the Act or regulation. If there is a credit 
extension incident to the factoring arrangement, the notification rules 
in Sec. 1002.9(a)(3)(ii) apply, as do other relevant sections of the 
Act and regulation.
    4. Manner of compliance. In complying with the notice provisions of 
the Act and regulation, creditors offering business credit may follow 
the rules governing consumer credit. Similarly, creditors may elect to 
treat all business credit the same (irrespective of revenue size) by 
providing notice in accordance with Sec. 1002.9(a)(3)(i).
    5. Timing of notification. A creditor subject to Sec. 
1002.9(a)(3)(ii)(A) is required to notify a business credit applicant, 
orally or in writing, of action taken on an application within a 
reasonable time of receiving a completed application. Notice provided in 
accordance with the timing requirements of Sec. 1002.9(a)(1) is deemed 
reasonable in all instances.
    9(b) Form of ECOA notice and statement of specific reasons.
    Paragraph 9(b)(1).
    1. Substantially similar notice. The ECOA notice sent with a 
notification of a credit denial or other adverse action will comply with 
the regulation if it is ``substantially similar'' to the notice 
contained in Sec. 1002.9(b)(1). For example, a creditor may add a 
reference to the fact that the ECOA permits age to be considered in 
certain credit scoring systems, or add a reference to a similar state 
statute or regulation and to a state enforcement agency.
    Paragraph 9(b)(2).
    1. Number of specific reasons. A creditor must disclose the 
principal reasons for denying an application or taking other adverse 
action. The regulation does not mandate that a specific number of 
reasons be disclosed, but disclosure of more than four reasons is not 
likely to be helpful to the applicant.
    2. Source of specific reasons. The specific reasons disclosed under 
Sec. Sec. 1002.9(a)(2) and (b)(2) must relate to and accurately 
describe the factors actually considered or scored by a creditor.
    3. Description of reasons. A creditor need not describe how or why a 
factor adversely

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affected an applicant. For example, the notice may say ``length of 
residence'' rather than ``too short a period of residence.''
    4. Credit scoring system. If a creditor bases the denial or other 
adverse action on a credit scoring system, the reasons disclosed must 
relate only to those factors actually scored in the system. Moreover, no 
factor that was a principal reason for adverse action may be excluded 
from disclosure. The creditor must disclose the actual reasons for 
denial (for example, ``age of automobile'') even if the relationship of 
that factor to predicting creditworthiness may not be clear to the 
applicant.
    5. Credit scoring--method for selecting reasons. The regulation does 
not require that any one method be used for selecting reasons for a 
credit denial or other adverse action that is based on a credit scoring 
system. Various methods will meet the requirements of the regulation. 
One method is to identify the factors for which the applicant's score 
fell furthest below the average score for each of those factors achieved 
by applicants whose total score was at or slightly above the minimum 
passing score. Another method is to identify the factors for which the 
applicant's score fell furthest below the average score for each of 
those factors achieved by all applicants. These average scores could be 
calculated during the development or use of the system. Any other method 
that produces results substantially similar to either of these methods 
is also acceptable under the regulation.
    6. Judgmental system. If a creditor uses a judgmental system, the 
reasons for the denial or other adverse action must relate to those 
factors in the applicant's record actually reviewed by the person making 
the decision.
    7. Combined credit scoring and judgmental system. If a creditor 
denies an application based on a credit evaluation system that employs 
both credit scoring and judgmental components, the reasons for the 
denial must come from the component of the system that the applicant 
failed. For example, if a creditor initially credit scores an 
application and denies the credit request as a result of that scoring, 
the reasons disclosed to the applicant must relate to the factors scored 
in the system. If the application passes the credit scoring stage but 
the creditor then denies the credit request based on a judgmental 
assessment of the applicant's record, the reasons disclosed must relate 
to the factors reviewed judgmentally, even if the factors were also 
considered in the credit scoring component. If the application is not 
approved or denied as a result of the credit scoring, but falls into a 
gray band, and the creditor performs a judgmental assessment and denies 
the credit after that assessment, the reasons disclosed must come from 
both components of the system. The same result applies where a 
judgmental assessment is the first component of the combined system. As 
provided in comment 9(b)(2)-1, disclosure of more than a combined total 
of four reasons is not likely to be helpful to the applicant.
    8. Automatic denial. Some credit decision methods contain features 
that call for automatic denial because of one or more negative factors 
in the applicant's record (such as the applicant's previous bad credit 
history with that creditor, the applicant's declaration of bankruptcy, 
or the fact that the applicant is a minor). When a creditor denies the 
credit request because of an automatic-denial factor, the creditor must 
disclose that specific factor.
    9. Combined ECOA-FCRA disclosures. The ECOA requires disclosure of 
the principal reasons for denying or taking other adverse action on an 
application for an extension of credit. The Fair Credit Reporting Act 
(FCRA) requires a creditor to disclose when it has based its decision in 
whole or in part on information from a source other than the applicant 
or its own files. Disclosing that a credit report was obtained and used 
in the denial of the application, as the FCRA requires, does not satisfy 
the ECOA requirement to disclose specific reasons. For example, if the 
applicant's credit history reveals delinquent credit obligations and the 
application is denied for that reason, to satisfy Sec. 1002.9(b)(2) the 
creditor must disclose that the application was denied because of the 
applicant's delinquent credit obligations. The FCRA also requires a 
creditor to disclose, as applicable, a credit score it used in taking 
adverse action along with related information, including up to four key 
factors that adversely affected the consumer's credit score (or up to 
five factors if the number of inquiries made with respect to that 
consumer report is a key factor). Disclosing the key factors that 
adversely affected the consumer's credit score does not satisfy the ECOA 
requirement to disclose specific reasons for denying or taking other 
adverse action on an application or extension of credit. Sample forms C-
1 through C-5 of Appendix C of the regulation provide for both the ECOA 
and FCRA disclosures. See also comment 9(b)(2)-1.
    9(c) Incomplete applications.
    Paragraph 9(c)(1).
    1. Exception for preapprovals. The requirement to provide a notice 
of incompleteness does not apply to preapprovals that constitute 
applications under Sec. 1002.2(f).
    Paragraph 9(c)(2).
    1. Reapplication. If information requested by a creditor is 
submitted by an applicant after the expiration of the time period 
designated by the creditor, the creditor may require the applicant to 
make a new application.
    Paragraph 9(c)(3).

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    1. Oral inquiries for additional information. If an applicant fails 
to provide the information in response to an oral request, a creditor 
must send a written notice to the applicant within the 30-day period 
specified in Sec. Sec. 1002.9(c)(1) and (2). If the applicant provides 
the information, the creditor must take action on the application and 
notify the applicant in accordance with Sec. 1002.9(a).
    9(g) Applications submitted through a third party.
    1. Third parties. The notification of adverse action may be given by 
one of the creditors to whom an application was submitted, or by a 
noncreditor third party. If one notification is provided on behalf of 
multiple creditors, the notice must contain the name and address of each 
creditor. The notice must either disclose the applicant's right to a 
statement of specific reasons within 30 days, or give the primary 
reasons each creditor relied upon in taking the adverse action--clearly 
indicating which reasons relate to which creditor.
    2. Third party notice--enforcement agency. If a single adverse 
action notice is being provided to an applicant on behalf of several 
creditors and they are under the jurisdiction of different Federal 
enforcement agencies, the notice need not name each agency; disclosure 
of any one of them will suffice.
    3. Third-party notice--liability. When a notice is to be provided 
through a third party, a creditor is not liable for an act or omission 
of the third party that constitutes a violation of the regulation if the 
creditor accurately and in a timely manner provided the third party with 
the information necessary for the notification and maintains reasonable 
procedures adapted to prevent such violations.

            Section 1002.10--Furnishing of Credit Information

    1. Scope. The requirements of Sec. 1002.10 for designating and 
reporting credit information apply only to consumer credit transactions. 
Moreover, they apply only to creditors that opt to furnish credit 
information to credit bureaus or to other creditors; there is no 
requirement that a creditor furnish credit information on its accounts.
    2. Reporting on all accounts. The requirements of Sec. 1002.10 
apply only to accounts held or used by spouses. However, a creditor has 
the option to designate all joint accounts (or all accounts with an 
authorized user) to reflect the participation of both parties, whether 
or not the accounts are held by persons married to each other.
    3. Designating accounts. In designating accounts and reporting 
credit information, a creditor need not distinguish between accounts on 
which the spouse is an authorized user and accounts on which the spouse 
is a contractually liable party.
    4. File and index systems. The regulation does not require the 
creation or maintenance of separate files in the name of each 
participant on a joint or user account, or require any other particular 
system of recordkeeping or indexing. It requires only that a creditor be 
able to report information in the name of each spouse on accounts 
covered by Sec. 1002.10. Thus, if a creditor receives a credit inquiry 
about the wife, it should be able to locate her credit file without 
asking the husband's name.
    10(a) Designation of accounts.
    1. New parties. When new parties who are spouses undertake a legal 
obligation on an account, as in the case of a mortgage loan assumption, 
the creditor must change the designation on the account to reflect the 
new parties and must furnish subsequent credit information on the 
account in the new names.
    2. Request to change designation of account. A request to change the 
manner in which information concerning an account is furnished does not 
alter the legal liability of either spouse on the account and does not 
require a creditor to change the name in which the account is 
maintained.

                 Section 1002.11--Relation to State Law

    11(a) Inconsistent state laws.
    1. Preemption determination--New York. The Bureau recognizes state 
law preemption determinations made by the Board of Governors of the 
Federal Reserve System prior to July 21, 2011, until and unless the 
Bureau makes and publishes any contrary determination. The Board of 
Governors determined that the following provisions in the state law of 
New York are preempted by the Federal law, effective November 11, 1988:
    i. Article 15, section 296a(1)(b). Unlawful discriminatory practices 
in relation to credit on the basis of race, creed, color, national 
origin, age, sex, marital status, or disability. This provision is 
preempted to the extent that it bars taking a prohibited basis into 
account when establishing eligibility for certain special-purpose credit 
programs.
    ii. Article 15, section 296a(1)(c). Unlawful discriminatory practice 
to make any record or inquiry based on race, creed, color, national 
origin, age, sex, marital status, or disability. This provision is 
preempted to the extent that it bars a creditor from requesting and 
considering information regarding the particular characteristics (for 
example, race, national origin, or sex) required for eligibility for 
special-purpose credit programs.
    2. Preemption determination--Ohio. The Bureau recognizes state law 
preemption determinations made by the Board of Governors of the Federal 
Reserve System prior to July 21, 2011, until and unless the Bureau makes 
and publishes any contrary determination. The Board of Governors 
determined that the following provision in the state law of Ohio

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is preempted by the Federal law, effective July 23, 1990:
    i. Section 4112.021(B)(1)--Unlawful discriminatory practices in 
credit transactions. This provision is preempted to the extent that it 
bars asking or favorably considering the age of an elderly applicant; 
prohibits the consideration of age in a credit scoring system; permits 
without limitation the consideration of age in real estate transactions; 
and limits the consideration of age in special-purpose credit programs 
to certain government-sponsored programs identified in the state law.

                    Section 1002.12--Record Retention

    12(a) Retention of prohibited information.
    1. Receipt of prohibited information. Unless the creditor 
specifically requested such information, a creditor does not violate 
this section when it receives prohibited information from a consumer 
reporting agency.
    2. Use of retained information. Although a creditor may keep in its 
files prohibited information as provided in Sec. 1002.12(a), the 
creditor may use the information in evaluating credit applications only 
if permitted to do so by Sec. 1002.6.
    12(b) Preservation of records.
    1. Copies. Copies of the original record include carbon copies, 
photocopies, microfilm or microfiche copies, or copies produced by any 
other accurate retrieval system, such as documents stored and reproduced 
by computer. A creditor that uses a computerized or mechanized system 
need not keep a paper copy of a document (for example, of an adverse 
action notice) if it can regenerate all pertinent information in a 
timely manner for examination or other purposes.
    2. Computerized decisions. A creditor that enters information items 
from a written application into a computerized or mechanized system and 
makes the credit decision mechanically, based only on the items of 
information entered into the system, may comply with Sec. 1002.12(b) by 
retaining the information actually entered. It is not required to store 
the complete written application, nor is it required to enter the 
remaining items of information into the system. If the transaction is 
subject to Sec. 1002.13, however, the creditor is required to enter and 
retain the data on personal characteristics in order to comply with the 
requirements of that section.
    Paragraph 12(b)(3).
    1. Withdrawn and brokered applications. In most cases, the 25-month 
retention period for applications runs from the date a notification is 
sent to the applicant granting or denying the credit requested. In 
certain transactions, a creditor is not obligated to provide a notice of 
the action taken. (See, for example, comment 9-2.) In such cases, the 
25-month requirement runs from the date of application, as when:
    i. An application is withdrawn by the applicant.
    ii. An application is submitted to more than one creditor on behalf 
of the applicant, and the application is approved by one of the other 
creditors.
    12(b)(6) Self-tests.
    1. The rule requires all written or recorded information about a 
self-test to be retained for 25 months after a self-test has been 
completed. For this purpose, a self-test is completed after the creditor 
has obtained the results and made a determination about what corrective 
action, if any, is appropriate. Creditors are required to retain 
information about the scope of the self-test, the methodology used and 
time period covered by the self-test, the report or results of the self-
test including any analysis or conclusions, and any corrective action 
taken in response to the self-test.
    12(b)(7) Preapplication marketing information.
    1. Prescreened credit solicitations. The rule requires creditors to 
retain copies of prescreened credit solicitations. For purposes of this 
part, a prescreened solicitation is an ``offer of credit'' as described 
in 15 U.S.C. 1681a(1) of the Fair Credit Reporting Act. A creditor 
complies with this rule if it retains a copy of each solicitation 
mailing that contains different terms, such as the amount of credit 
offered, annual percentage rate, or annual fee.
    2. List of criteria. A creditor must retain the list of criteria 
used to select potential recipients. This includes the criteria used by 
the creditor both to determine the potential recipients of the 
particular solicitation and to determine who will actually be offered 
credit.
    3. Correspondence. A creditor may retain correspondence relating to 
consumers' complaints about prescreened solicitations in any manner that 
is reasonably accessible and is understandable to examiners. There is no 
requirement to establish a separate database or set of files for such 
correspondence, or to match consumer complaints with specific 
solicitation programs.

          Section 1002.13--Information for Monitoring Purposes

    13(a) Information to be requested.
    1. Natural person. Section1002.13 applies only to applications from 
natural persons.
    2. Principal residence. The requirements of Sec. 1002.13 apply only 
if an application relates to a dwelling that is or will be occupied by 
the applicant as the principal residence. A credit application related 
to a vacation home or a rental unit is not covered. In the case of a 
two-to four-unit dwelling, the application is covered if the applicant 
intends to occupy one of the units as a principal residence.

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    3. Temporary financing. An application for temporary financing to 
construct a dwelling is not subject to Sec. 1002.13. But an application 
for both a temporary loan to finance construction of a dwelling and a 
permanent mortgage loan to take effect upon the completion of 
construction is subject to Sec. 1002.13.
    4. New principal residence. A person can have only one principal 
residence at a time. However, if a person buys or builds a new dwelling 
that will become that person's principal residence within a year or upon 
completion of construction, the new dwelling is considered the principal 
residence for purposes of Sec. 1002.13.
    5. Transactions not covered. The information-collection requirements 
of this section apply to applications for credit primarily for the 
purchase or refinancing of a dwelling that is or will become the 
applicant's principal residence. Therefore, applications for credit 
secured by the applicant's principal residence but made primarily for a 
purpose other than the purchase or refinancing of the principal 
residence (such as loans for home improvement and debt consolidation) 
are not subject to the information-collection requirements. An 
application for an open-end home equity line of credit is not subject to 
this section unless it is readily apparent to the creditor when the 
application is taken that the primary purpose of the line is for the 
purchase or refinancing of a principal dwelling.
    6. Refinancings. A refinancing occurs when an existing obligation is 
satisfied and replaced by a new obligation undertaken by the same 
borrower. A creditor that receives an application to refinance an 
existing extension of credit made by that creditor for the purchase of 
the applicant's dwelling may request the monitoring information again 
but is not required to do so if it was obtained in the earlier 
transaction.
    7. Data collection under Regulation C. See comment 5(a)(2)-2.
    13(b) Obtaining of information.
    1. Forms for collecting data. A creditor may collect the information 
specified in Sec. 1002.13(a) either on an application form or on a 
separate form referring to the application. The applicant must be 
offered the option to select more than one racial designation.
    2. Written applications. The regulation requires written 
applications for the types of credit covered by Sec. 1002.13. A 
creditor can satisfy this requirement by recording on paper or by means 
of computer the information that the applicant provides orally and that 
the creditor normally considers in a credit decision.
    3. Telephone, mail applications.
    i. A creditor that accepts an application by telephone or mail must 
request the monitoring information.
    ii. A creditor that accepts an application by mail need not make a 
special request for the monitoring information if the applicant has 
failed to provide it on the application form returned to the creditor.
    iii. If it is not evident on the face of an application that it was 
received by mail, telephone, or via an electronic medium, the creditor 
should indicate on the form or other application record how the 
application was received.
    4. Video and other electronic-application processes.
    i. If a creditor takes an application through an electronic medium 
that allows the creditor to see the applicant, the creditor must treat 
the application as taken in person. The creditor must note the 
monitoring information on the basis of visual observation or surname, if 
the applicant chooses not to provide the information.
    ii. If an applicant applies through an electronic medium without 
video capability, the creditor treats the application as if it were 
received by mail.
    5. Applications through loan-shopping services. When a creditor 
receives an application through an unaffiliated loan-shopping service, 
it does not have to request the monitoring information for purposes of 
the ECOA or Regulation B. Creditors subject to the Home Mortgage 
Disclosure Act should be aware, however, that data collection may be 
called for under Regulation C (12 CFR part 1003), which generally 
requires creditors to report, among other things, the sex and race of an 
applicant on brokered applications or applications received through a 
correspondent.
    6. Inadvertent notation. If a creditor inadvertently obtains the 
monitoring information in a dwelling-related transaction not covered by 
Sec. 1002.13, the creditor may process and retain the application 
without violating the regulation.
    13(c) Disclosure to applicants.
    1. Procedures for providing disclosures. The disclosure to an 
applicant regarding the monitoring information may be provided in 
writing. Appendix B contains a sample disclosure. A creditor may devise 
its own disclosure so long as it is substantially similar. The creditor 
need not orally request the monitoring information if it is requested in 
writing.
    13(d) Substitute monitoring program.
    1. Substitute program. An enforcement agency may adopt, under its 
established rulemaking or enforcement procedures, a program requiring 
creditors under its jurisdiction to collect information in addition to 
information required by this section.

          Section 1002.14--Rules on Providing Appraisal Reports

    14(a) Providing appraisals.

[[Page 139]]

    1. Coverage. This section covers applications for credit to be 
secured by a lien on a dwelling, as that term is defined in Sec. 
1002.14(c), whether the credit is for a business purpose (for example, a 
loan to start a business) or a consumer purpose (for example, a loan to 
finance a child's education).
    2. Renewals. This section applies when an applicant requests the 
renewal of an existing extension of credit and the creditor obtains a 
new appraisal report. This section does not apply when a creditor uses 
the appraisal report previously obtained to evaluate the renewal 
request.
    14(a)(2)(i) Notice.
    1. Multiple applicants. When an application that is subject to this 
section involves more than one applicant, the notice about the appraisal 
report need only be given to one applicant, but it must be given to the 
primary applicant where one is readily apparent.
    14(a)(2)(ii) Delivery.
    1. Reimbursement. Creditors may charge for photocopy and postage 
costs incurred in providing a copy of the appraisal report, unless 
prohibited by state or other law. If the consumer has already paid for 
the report--for example, as part of an application fee--the creditor may 
not require additional fees for the appraisal (other than photocopy and 
postage costs).
    14(c) Definitions.
    1. Appraisal reports. Examples of appraisal reports are:
    i. A report prepared by an appraiser (whether or not licensed or 
certified), including written comments and other documents submitted to 
the creditor in support of the appraiser's estimate or opinion of the 
property's value.
    ii. A document prepared by the creditor's staff that assigns value 
to the property, if a third-party appraisal report has not been used.
    iii. An internal review document reflecting that the creditor's 
valuation is different from a valuation in a third party's appraisal 
report (or different from valuations that are publicly available or 
valuations such as manufacturers' invoices for mobile homes).
    2. Other reports. The term ``appraisal report'' does not cover all 
documents relating to the value of the applicant's property. Examples of 
reports not covered are:
    i. Internal documents, if a third-party appraisal report was used to 
establish the value of the property.
    ii. Governmental agency statements of appraised value.
    iii. Valuations lists that are publicly available (such as published 
sales prices or mortgage amounts, tax assessments, and retail price 
ranges) and valuations such as manufacturers' invoices for mobile homes.

    Section 1002.15--Incentives for Self-Testing and Self-Correction

    15(a) General rules.
    15(a)(1) Voluntary self-testing and correction.
    1. Activities required by any governmental authority are not 
voluntary self-tests. A governmental authority includes both 
administrative and judicial authorities for Federal, State, and local 
governments.
    15(a)(2) Corrective action required.
    1. To qualify for the privilege, appropriate corrective action is 
required when the results of a self-test show that it is more likely 
than not that there has been a violation of the ECOA or this part. A 
self-test is also privileged when it identifies no violations.
    2. In some cases, the issue of whether certain information is 
privileged may arise before the self-test is complete or corrective 
actions are fully under way. This would not necessarily prevent a 
creditor from asserting the privilege. In situations where the self-test 
is not complete, for the privilege to apply the lender must satisfy the 
regulation's requirements within a reasonable period of time. To assert 
the privilege where the self-test shows a likely violation, the rule 
requires, at a minimum, that the creditor establish a plan for 
corrective action and a method to demonstrate progress in implementing 
the plan. Creditors must take appropriate corrective action on a timely 
basis after the results of the self-test are known.
    3. A creditor's determination about the type of corrective action 
needed, or a finding that no corrective action is required, is not 
conclusive in determining whether the requirements of this paragraph 
have been satisfied. If a creditor's claim of privilege is challenged, 
an assessment of the need for corrective action or the type of 
corrective action that is appropriate must be based on a review of the 
self-testing results, which may require an in camera inspection of the 
privileged documents.
    15(a)(3) Other privileges.
    1. A creditor may assert the privilege established under this 
section in addition to asserting any other privilege that may apply, 
such as the attorney-client privilege or the work-product privilege. 
Self-testing data may be privileged under this section whether or not 
the creditor's assertion of another privilege is upheld.
    15(b) Self-test defined.
    15(b)(1) Definition.
    Paragraph 15(b)(1)(i).
    1. To qualify for the privilege, a self-test must be sufficient to 
constitute a determination of the extent or effectiveness of the 
creditor's compliance with the Act and Regulation B. Accordingly, a 
self-test is only privileged if it was designed and used for that 
purpose. A self-test that is designed or used to determine compliance 
with other laws or regulations or for other purposes is

[[Page 140]]

not privileged under this rule. For example, a self-test designed to 
evaluate employee efficiency or customers' satisfaction with the level 
of service provided by the creditor is not privileged even if evidence 
of discrimination is uncovered incidentally. If a self-test is designed 
for multiple purposes, only the portion designed to determine compliance 
with the ECOA is eligible for the privilege.
    Paragraph 15(b)(1)(ii).
    1. The principal attribute of self-testing is that it constitutes a 
voluntary undertaking by the creditor to produce new data or factual 
information that otherwise would not be available and could not be 
derived from loan or application files or other records related to 
credit transactions. Self-testing includes, but is not limited to, the 
practice of using fictitious applicants for credit (testers), either 
with or without the use of matched pairs. A creditor may elect to test a 
defined segment of its business, for example, loan applications 
processed by a specific branch or loan officer, or applications made for 
a particular type of credit or loan program. A creditor also may use 
other methods of generating information that is not available in loan 
and application files, such as surveying mortgage loan applicants. To 
the extent permitted by law, creditors might also develop new methods 
that go beyond traditional pre-application testing, such as hiring 
testers to submit fictitious loan applications for processing.
    2. The privilege does not protect a creditor's analysis performed as 
part of processing or underwriting a credit application. A creditor's 
evaluation or analysis of its loan files, Home Mortgage Disclosure Act 
data, or similar types of records (such as broker or loan officer 
compensation records) does not produce new information about a 
creditor's compliance and is not a self-test for purposes of this 
section. Similarly, a statistical analysis of data derived from existing 
loan files is not privileged.
    15(b)(3) Types of information not privileged.
    Paragraph 15(b)(3)(i).
    1. The information listed in this paragraph is not privileged and 
may be used to determine whether the prerequisites for the privilege 
have been satisfied. Accordingly, a creditor might be asked to identify 
the self-testing method, for example, whether preapplication testers 
were used or data were compiled by surveying loan applicants. 
Information about the scope of the self-test (such as the types of 
credit transactions examined, or the geographic area covered by the 
test) also is not privileged.
    Paragraph 15(b)(3)(ii).
    1. Property appraisal reports, minutes of loan committee meetings or 
other documents reflecting the basis for a decision to approve or deny 
an application, loan policies or procedures, underwriting standards, and 
broker compensation records are examples of the types of records that 
are not privileged. If a creditor arranges for testers to submit loan 
applications for processing, the records are not related to actual 
credit transactions for purposes of this paragraph and may be privileged 
self-testing records.
    15(c) Appropriate corrective action.
    1. The rule only addresses the corrective actions required for a 
creditor to take advantage of the privilege in this section. A creditor 
may be required to take other actions or provide additional relief if a 
formal finding of discrimination is made.
    15(c)(1) General requirement.
    1. Appropriate corrective action is required even though no 
violation has been formally adjudicated or admitted by the creditor. In 
determining whether it is more likely than not that a violation 
occurred, a creditor must treat testers as if they are actual applicants 
for credit. A creditor may not refuse to take appropriate corrective 
action under this section because the self-test used fictitious loan 
applicants. The fact that a tester's agreement with the creditor waives 
the tester's legal right to assert a violation does not eliminate the 
requirement for the creditor to take corrective action, although no 
remedial relief for the tester is required under paragraph 15(c)(3).
    15(c)(2) Determining the scope of appropriate corrective action.
    1. Whether a creditor has taken or is taking corrective action that 
is appropriate will be determined on a case-by-case basis. Generally, 
the scope of the corrective action that is needed to preserve the 
privilege is governed by the scope of the self-test. For example, a 
creditor that self-tests mortgage loans and discovers evidence of 
discrimination may focus its corrective actions on mortgage loans, and 
is not required to expand its testing to other types of loans.
    2. In identifying the policies or practices that are a likely cause 
of the violation, a creditor might identify inadequate or improper 
lending policies, failure to implement established policies, employee 
conduct, or other causes. The extent and scope of a likely violation may 
be assessed by determining which areas of operations are likely to be 
affected by those policies and practices, for example, by determining 
the types of loans and stages of the application process involved and 
the branches or offices where the violations may have occurred.
    3. Depending on the method and scope of the self-test and the 
results of the test, appropriate corrective action may include one or 
more of the following:
    i. If the self-test identifies individuals whose applications were 
inappropriately processed, offering to extend credit if the application 
was improperly denied and compensating such persons for out-of-pocket 
costs and other compensatory damages;

[[Page 141]]

    ii. Correcting institutional policies or procedures that may have 
contributed to the likely violation, and adopting new policies as 
appropriate;
    iii. Identifying and then training and/or disciplining the employees 
involved;
    iv. Developing outreach programs, marketing strategies, or loan 
products to serve more effectively segments of the lender's markets that 
may have been affected by the likely discrimination; and
    v. Improving audit and oversight systems to avoid a recurrence of 
the likely violations.
    15(c)(3) Types of relief.
    Paragraph 15(c)(3)(ii).
    1. The use of pre-application testers to identify policies and 
practices that illegally discriminate does not require creditors to 
review existing loan files for the purpose of identifying and 
compensating applicants who might have been adversely affected.
    2. If a self-test identifies a specific applicant who was 
discriminated against on a prohibited basis, to qualify for the 
privilege in this section the creditor must provide appropriate remedial 
relief to that applicant; the creditor is not required to identify other 
applicants who might also have been adversely affected.
    Paragraph 15(c)(3)(iii).
    1. A creditor is not required to provide remedial relief to an 
applicant that would not be available by law. An applicant might also be 
ineligible for certain types of relief due to changed circumstances. For 
example, a creditor is not required to offer credit to a denied 
applicant if the applicant no longer qualifies for the credit due to a 
change in financial circumstances, although some other type of relief 
might be appropriate.
    15(d)(1) Scope of privilege.
    1. The privilege applies with respect to any examination, 
investigation or proceeding by Federal, State, or local government 
agencies relating to compliance with the Act or this part. Accordingly, 
in a case brought under the ECOA, the privilege established under this 
section preempts any inconsistent laws or court rules to the extent they 
might require disclosure of privileged self-testing data. The privilege 
does not apply in other cases (such as in litigation filed solely under 
a State's fair lending statute). In such cases, if a court orders a 
creditor to disclose self-test results, the disclosure is not a 
voluntary disclosure or waiver of the privilege for purposes of 
paragraph 15(d)(2); a creditor may protect the information by seeking a 
protective order to limit availability and use of the self-testing data 
and prevent dissemination beyond what is necessary in that case. 
Paragraph 15(d)(1) precludes a party who has obtained privileged 
information from using it in a case brought under the ECOA, provided the 
creditor has not lost the privilege through voluntary disclosure under 
paragraph 15(d)(2).
    15(d)(2) Loss of privilege.
    Paragraph 15(d)(2)(i).
    1. A creditor's corrective action, by itself, is not considered a 
voluntary disclosure of the self-test report or results. For example, a 
creditor does not disclose the results of a self-test merely by offering 
to extend credit to a denied applicant or by inviting the applicant to 
reapply for credit. Voluntary disclosure could occur under this 
paragraph, however, if the creditor disclosed the self-test results in 
connection with a new offer of credit.
    2. The disclosure of self-testing results to an independent 
contractor acting as an auditor or consultant for the creditor on 
compliance matters does not result in loss of the privilege.
    Paragraph 15(d)(2)(ii).
    1. The privilege is lost if the creditor discloses privileged 
information, such as the results of the self-test. The privilege is not 
lost if the creditor merely reveals or refers to the existence of the 
self-test.
    Paragraph 15(d)(2)(iii).
    1. A creditor's claim of privilege may be challenged in a court or 
administrative law proceeding with appropriate jurisdiction. In 
resolving the issue, the presiding officer may require the creditor to 
produce privileged information about the self-test.
    Paragraph 15(d)(3) Limited use of privileged information.
    1. A creditor may be required to produce privileged documents for 
the purpose of determining a penalty or remedy after a violation of the 
ECOA or Regulation B has been formally adjudicated or admitted. A 
creditor's compliance with such a requirement does not evidence the 
creditor's intent to forfeit the privilege.

        Section 1002.16--Enforcement, Penalties, and Liabilities

    16(c) Failure of compliance.
    1. Inadvertent errors. Inadvertent errors include, but are not 
limited to, clerical mistake, calculation error, computer malfunction, 
and printing error. An error of legal judgment is not an inadvertent 
error under the regulation.
    2. Correction of error. For inadvertent errors that occur under 
Sec. Sec. 1002.12 and 1002.13, this section requires that they be 
corrected prospectively.

                   Appendix B--Model Application Forms

    1. Freddie Mac/Fannie Mae form--residential loan application. The 
uniform residential loan application form (Freddie Mac 65/Fannie Mae 
1003), including supplemental form (Freddie Mac 65A/Fannie Mae 1003A), 
prepared by the Federal Home Loan Mortgage Corporation

[[Page 142]]

and the Federal National Mortgage Association and dated October 1992 may 
be used by creditors without violating this part. Creditors that are 
governed by the monitoring requirements of this part (which limits 
collection to applications primarily for the purchase or refinancing of 
the applicant's principal residence) should delete, strike, or modify 
the data-collection section on the form when using it for transactions 
not covered by Sec. 1002.13(a) to ensure that they do not collect the 
information. Creditors that are subject to more extensive collection 
requirements by a substitute monitoring program under Sec. 1002.13(d) 
or by the Home Mortgage Disclosure Act (HMDA) may use the form as 
issued, in compliance with the substitute program or HMDA.
    2. FHLMC/FNMA form--home improvement loan application. The home-
improvement and energy loan application form (FHLMC 703/FNMA 1012), 
prepared by the Federal Home Loan Mortgage Corporation and the Federal 
National Mortgage Association and dated October 1986, complies with the 
requirements of the regulation for some creditors but not others because 
of the form's section ``Information for Government Monitoring 
Purposes.'' Creditors that are governed by Sec. 1002.13(a) of the 
regulation (which limits collection to applications primarily for the 
purchase or refinancing of the applicant's principal residence) should 
delete, strike, or modify the data-collection section on the form when 
using it for transactions not covered by Sec. 1002.13(a) to ensure that 
they do not collect the information. Creditors that are subject to more 
extensive collection requirements by a substitute monitoring program 
under Sec. 1002.13(d) may use the form as issued, in compliance with 
that substitute program.

                  Appendix C--Sample Notification Forms

    1. Form C-9. Creditors may design their own form, add to, or modify 
the model form to reflect their individual policies and procedures. For 
example, a creditor may want to add:
    i. A telephone number that applicants may call to leave their name 
and the address to which an appraisal report should be sent.
    ii. A notice of the cost the applicant will be required to pay the 
creditor for the appraisal or a copy of the report.



PART 1003_HOME MORTGAGE DISCLOSURE (REGULATION C)--Table of Contents



Sec.
1003.1 Authority, purpose, and scope.
1003.2 Definitions.
1003.3 Exempt institutions.
1003.4 Compilation of loan data.
1003.5 Disclosure and reporting.
1003.6 Enforcement.

Appendix A to Part 1003--Form and Instructions for Completion of HMDA 
          Loan/Application Register
Appendix B to Part 1003--Form and Instructions for Data Collection on 
          Ethnicity, Race, and Sex
Supplement I to Part 1003--Staff Commentary

    Authority: 12 U.S.C. 2803, 2804, 2805, 5512, 5581.

    Source: 76 FR 78468, Dec. 19, 2011, unless otherwise noted.



Sec. 1003.1  Authority, purpose, and scope.

    (a) Authority. This part, known as Regulation C, is issued by the 
Bureau of Consumer Financial Protection (Bureau) pursuant to the Home 
Mortgage Disclosure Act (HMDA) (12 U.S.C. 2801 et seq.), as amended. The 
information-collection requirements have been approved by the U.S. 
Office of Management and Budget (OMB) under 44 U.S.C. 3501 et seq. and 
have been assigned OMB numbers for institutions reporting data to the 
Office of the Comptroller of the Currency (1557-0159), the Federal 
Deposit Insurance Corporation (3064-0046), the Federal Reserve System 
(7100-0247), the Department of Housing and Urban Development (HUD) 
(2502-0529), the National Credit Union Administration (3133-0166), and 
the Bureau of Consumer Financial Protection (3170-0008).
    (b) Purpose. (1) This part implements the Home Mortgage Disclosure 
Act, which is intended to provide the public with loan data that can be 
used:
    (i) To help determine whether financial institutions are serving the 
housing needs of their communities;
    (ii) To assist public officials in distributing public-sector 
investment so as to attract private investment to areas where it is 
needed; and
    (iii) To assist in identifying possible discriminatory lending 
patterns and enforcing antidiscrimination statutes.
    (2) Neither the act nor this part is intended to encourage unsound 
lending practices or the allocation of credit.
    (c) Scope. This part applies to certain financial institutions, 
including banks, savings associations, credit unions, and other mortgage 
lending institutions, as defined in Sec. 1003.2. The regulation 
requires an institution to report data to the appropriate Federal agency 
about

[[Page 143]]

home purchase loans, home improvement loans, and refinancings that it 
originates or purchases, or for which it receives applications; and to 
disclose certain data to the public.



Sec. 1003.2  Definitions.

    In this part:
    Act means the Home Mortgage Disclosure Act (HMDA) (12 U.S.C. 2801 et 
seq.), as amended.
    Application--(1) In general. Application means an oral or written 
request for a home purchase loan, a home improvement loan, or a 
refinancing that is made in accordance with procedures used by a 
financial institution for the type of credit requested.
    (2) Preapproval programs. A request for preapproval for a home 
purchase loan is an application under this section if the request is 
reviewed under a program in which the financial institution, after a 
comprehensive analysis of the creditworthiness of the applicant, issues 
a written commitment to the applicant valid for a designated period of 
time to extend a home purchase loan up to a specified amount. The 
written commitment may not be subject to conditions other than:
    (i) Conditions that require the identification of a suitable 
property;
    (ii) Conditions that require that no material change has occurred in 
the applicant's financial condition or creditworthiness prior to 
closing; and
    (iii) Limited conditions that are not related to the financial 
condition or creditworthiness of the applicant that the lender 
ordinarily attaches to a traditional home mortgage application (such as 
certification of a clear termite inspection).
    Branch office means:
    (1) Any office of a bank, savings association, or credit union that 
is approved as a branch by a Federal or state supervisory agency, but 
excludes free-standing electronic terminals such as automated teller 
machines; and
    (2) Any office of a for-profit mortgage-lending institution (other 
than a bank, savings association, or credit union) that takes 
applications from the public for home purchase loans, home improvement 
loans, or refinancings. A for-profit mortgage-lending institution is 
also deemed to have a branch office in an MSA or in a Metropolitan 
Division, if, in the preceding calendar year, it received applications 
for, originated, or purchased five or more home purchase loans, home 
improvement loans, or refinancings related to property located in that 
MSA or Metropolitan Division, respectively.
    Dwelling means a residential structure (whether or not attached to 
real property) located in a state of the United States of America, the 
District of Columbia, or the Commonwealth of Puerto Rico. The term 
includes an individual condominium unit, cooperative unit, or mobile or 
manufactured home.
    Financial institution means:
    (1) A bank, savings association, or credit union that:
    (i) On the preceding December 31 had assets in excess of the asset 
threshold established and published annually by the Bureau for coverage 
by the act, based on the year-to-year change in the average of the 
Consumer Price Index for Urban Wage Earners and Clerical Workers, not 
seasonally adjusted, for each twelve month period ending in November, 
with rounding to the nearest million;
    (ii) On the preceding December 31, had a home or branch office in an 
MSA;
    (iii) In the preceding calendar year, originated at least one home 
purchase loan (excluding temporary financing such as a construction 
loan) or refinancing of a home purchase loan, secured by a first lien on 
a one-to four-family dwelling; and
    (iv) Meets one or more of the following three criteria:
    (A) The institution is Federally insured or regulated;
    (B) The mortgage loan referred to in paragraph (1)(iii) of this 
definition was insured, guaranteed, or supplemented by a Federal agency; 
or
    (C) The mortgage loan referred to in paragraph (1)(iii) of this 
definition was intended by the institution for sale to Fannie Mae or 
Freddie Mac; and
    (2) A for-profit mortgage-lending institution (other than a bank, 
savings association, or credit union) that:
    (i) In the preceding calendar year, either:

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    (A) Originated home purchase loans, including refinancings of home 
purchase loans, that equaled at least 10 percent of its loan-origination 
volume, measured in dollars; or
    (B) Originated home purchase loans, including refinancings of home 
purchase loans, that equaled at least $25 million; and
    (ii) On the preceding December 31, had a home or branch office in an 
MSA; and
    (iii) Either:
    (A) On the preceding December 31, had total assets of more than $10 
million, counting the assets of any parent corporation; or
    (B) In the preceding calendar year, originated at least 100 home 
purchase loans, including refinancings of home purchase loans.
    Home-equity line of credit means an open-end credit plan secured by 
a dwelling as defined in Regulation Z (Truth in Lending), 12 CFR part 
1026.
    Home improvement loan means:
    (1) A loan secured by a lien on a dwelling that is for the purpose, 
in whole or in part, of repairing, rehabilitating, remodeling, or 
improving a dwelling or the real property on which it is located; and
    (2) A non-dwelling secured loan that is for the purpose, in whole or 
in part, of repairing, rehabilitating, remodeling, or improving a 
dwelling or the real property on which it is located, and that is 
classified by the financial institution as a home improvement loan.
    Home purchase loan means a loan secured by and made for the purpose 
of purchasing a dwelling.
    Manufactured home means any residential structure as defined under 
regulations of the Department of Housing and Urban Development 
establishing manufactured home construction and safety standards (24 CFR 
3280.2).
    Metropolitan Statistical Area or MSA and Metropolitan Division or 
MD. (1) Metropolitan Statistical Area or MSA means a metropolitan 
statistical area as defined by the U.S. Office of Management and Budget.
    (2) Metropolitan Division or MD means a metropolitan division of an 
MSA, as defined by the U.S. Office of Management and Budget.
    Refinancing means a new obligation that satisfies and replaces an 
existing obligation by the same borrower, in which:
    (1) For coverage purposes, the existing obligation is a home 
purchase loan (as determined by the lender, for example, by reference to 
available documents; or as stated by the applicant), and both the 
existing obligation and the new obligation are secured by first liens on 
dwellings; and
    (2) For reporting purposes, both the existing obligation and the new 
obligation are secured by liens on dwellings.



Sec. 1003.3  Exempt institutions.

    (a) Exemption based on state law. (1) A state-chartered or state-
licensed financial institution is exempt from the requirements of this 
part if the Bureau determines that the institution is subject to a state 
disclosure law that contains requirements substantially similar to those 
imposed by this part and that contains adequate provisions for 
enforcement.
    (2) Any state, state-chartered or state-licensed financial 
institution, or association of such institutions, may apply to the 
Bureau for an exemption under paragraph (a) of this section.
    (3) An institution that is exempt under paragraph (a) of this 
section shall use the disclosure form required by its state law and 
shall submit the data required by that law to its state supervisory 
agency for purposes of aggregation.
    (b) Loss of exemption. An institution losing a state-law exemption 
under paragraph (a) of this section shall comply with this part 
beginning with the calendar year following the year for which it last 
reported loan data under the state disclosure law.



Sec. 1003.4  Compilation of loan data.

    (a) Data format and itemization. A financial institution shall 
collect data regarding applications for, and originations and purchases 
of, home purchase loans, home improvement loans, and refinancings for 
each calendar year. An institution is required to collect data regarding 
requests under a preapproval program (as defined in Sec. 1003.2) only 
if

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the preapproval request is denied or results in the origination of a 
home purchase loan. All reportable transactions shall be recorded, 
within thirty calendar days after the end of the calendar quarter in 
which final action is taken (such as origination or purchase of a loan, 
or denial or withdrawal of an application), on a register in the format 
prescribed in appendix A of this part. The data recorded shall include 
the following items:
    (1) An identifying number for the loan or loan application, and the 
date the application was received.
    (2) The type of loan or application.
    (3) The purpose of the loan or application.
    (4) Whether the application is a request for preapproval and whether 
it resulted in a denial or in an origination.
    (5) The property type to which the loan or application relates.
    (6) The owner-occupancy status of the property to which the loan or 
application relates.
    (7) The amount of the loan or the amount applied for.
    (8) The type of action taken, and the date.
    (9) The location of the property to which the loan or application 
relates, by MSA or by Metropolitan Division, by state, by county, and by 
census tract, if the institution has a home or branch office in that MSA 
or Metropolitan Division.
    (10) The ethnicity, race, and sex of the applicant or borrower, and 
the gross annual income relied on in processing the application.
    (11) The type of entity purchasing a loan that the institution 
originates or purchases and then sells within the same calendar year 
(this information need not be included in quarterly updates).
    (12)(i) For originated loans subject to Regulation Z, 12 CFR part 
1026, the difference between the loan's annual percentage rate (APR) and 
the average prime offer rate for a comparable transaction as of the date 
the interest rate is set, if that difference is equal to or greater than 
1.5 percentage points for loans secured by a first lien on a dwelling, 
or equal to or greater than 3.5 percentage points for loans secured by a 
subordinate lien on a dwelling.
    (ii) ``Average prime offer rate'' means an annual percentage rate 
that is derived from average interest rates, points, and other loan 
pricing terms currently offered to consumers by a representative sample 
of creditors for mortgage loans that have low-risk pricing 
characteristics. The Bureau publishes average prime offer rates for a 
broad range of types of transactions in tables updated at least weekly, 
as well as the methodology the Bureau uses to derive these rates.
    (13) Whether the loan is subject to the Home Ownership and Equity 
Protection Act of 1994, as implemented in Regulation Z (12 CFR 1026.32).
    (14) The lien status of the loan or application (first lien, 
subordinate lien, or not secured by a lien on a dwelling).
    (b) Collection of data on ethnicity, race, sex, and income. (1) A 
financial institution shall collect data about the ethnicity, race, and 
sex of the applicant or borrower as prescribed in Appendix B of this 
part.
    (2) Ethnicity, race, sex, and income data may but need not be 
collected for loans purchased by the financial institution.
    (c) Optional data. A financial institution may report:
    (1) The reasons it denied a loan application;
    (2) Requests for preapproval that are approved by the institution 
but not accepted by the applicant; and
    (3) Home-equity lines of credit made in whole or in part for the 
purpose of home improvement or home purchase.
    (d) Excluded data. A financial institution shall not report:
    (1) Loans originated or purchased by the financial institution 
acting in a fiduciary capacity (such as trustee);
    (2) Loans on unimproved land;
    (3) Temporary financing (such as bridge or construction loans);
    (4) The purchase of an interest in a pool of loans (such as 
mortgage-participation certificates, mortgage-backed securities, or real 
estate mortgage investment conduits);
    (5) The purchase solely of the right to service loans; or

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    (6) Loans acquired as part of a merger or acquisition, or as part of 
the acquisition of all of the assets and liabilities of a branch office 
as defined in Sec. 1003.2.
    (e) Data reporting for banks and savings associations that are 
required to report data on small business, small farm, and community 
development lending under CRA. Banks and savings associations that are 
required to report data on small business, small farm, and community 
development lending under regulations that implement the Community 
Reinvestment Act of 1977 (12 U.S.C. 2901 et seq.) shall also collect the 
location of property located outside MSAs and Metropolitan Divisions in 
which the institution has a home or branch office, or outside any MSA.



Sec. 1003.5  Disclosure and reporting.

    (a) Reporting to agency. (1) By March 1 following the calendar year 
for which the loan data are compiled, a financial institution shall send 
its complete loan/application register to the agency office specified in 
appendix A of this part. The institution shall retain a copy for its 
records for at least three years.
    (2) A subsidiary of a bank or savings association shall complete a 
separate loan/application register. The subsidiary shall submit the 
register, directly or through its parent, to the same agency as its 
parent.
    (b) Public disclosure of statement. (1) The Federal Financial 
Institutions Examination Council (FFIEC) will prepare a disclosure 
statement from the data each financial institution submits.
    (2) An institution shall make its disclosure statement (prepared by 
the FFIEC) available to the public at the institution's home office no 
later than three business days after receiving the disclosure statement 
from the FFIEC.
    (3) In addition, an institution shall either:
    (i) Make its disclosure statement available to the public, within 
ten business days of receiving it, in at least one branch office in each 
other MSA and each other Metropolitan Division where the institution has 
offices (the disclosure statement need only contain data relating to the 
MSA or Metropolitan Division where the branch is located); or
    (ii) Post the address for sending written requests in the lobby of 
each branch office in other MSAs and Metropolitan Divisions where the 
institution has offices; and mail or deliver a copy of the disclosure 
statement within fifteen calendar days of receiving a written request 
(the disclosure statement need only contain data relating to the MSA or 
Metropolitan Division for which the request is made). Including the 
address in the general notice required under paragraph (e) of this 
section satisfies this requirement.
    (c) Public disclosure of modified loan/application register. A 
financial institution shall make its loan/application register available 
to the public after removing the following information regarding each 
entry: The application or loan number, the date that the application was 
received, and the date action was taken. An institution shall make its 
modified register available following the calendar year for which the 
data are compiled, by March 31 for a request received on or before March 
1, and within thirty calendar days for a request received after March 1. 
The modified register need only contain data relating to the MSA or 
Metropolitan Division for which the request is made.
    (d) Availability of data. A financial institution shall make its 
modified register available to the public for a period of three years 
and its disclosure statement available for a period of five years. An 
institution shall make the data available for inspection and copying 
during the hours the office is normally open to the public for business. 
It may impose a reasonable fee for any cost incurred in providing or 
reproducing the data.
    (e) Notice of availability. A financial institution shall post a 
general notice about the availability of its HMDA data in the lobby of 
its home office and of each branch office located in an MSA and 
Metropolitan Division. An institution shall provide promptly upon 
request the location of the institution's offices where the statement is 
available for inspection and copying, or it may include the location in 
the lobby notice.

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    (f) Loan aggregation and central data depositories. Using the loan 
data submitted by financial institutions, the FFIEC will produce reports 
for individual institutions and reports of aggregate data for each MSA 
and Metropolitan Division, showing lending patterns by property 
location, age of housing stock, and income level, sex, ethnicity, and 
race. These reports will be available to the public at central data 
depositories located in each MSA and Metropolitan Division. A listing of 
central data depositories can be obtained from the Federal Financial 
Institutions Examination Council, Washington, DC 20006.



Sec. 1003.6  Enforcement.

    (a) Administrative enforcement. A violation of the Act or this part 
is subject to administrative sanctions as provided in section 305 of the 
Act, including the imposition of civil money penalties, where 
applicable. Compliance is enforced by the agencies listed in section 305 
of the Act (12 U.S.C. 2804).
    (b) Bona fide errors. (1) An error in compiling or recording loan 
data is not a violation of the act or this part if the error was 
unintentional and occurred despite the maintenance of procedures 
reasonably adapted to avoid such errors.
    (2) An incorrect entry for a census tract number is deemed a bona 
fide error, and is not a violation of the act or this part, provided 
that the institution maintains procedures reasonably adapted to avoid 
such errors.
    (3) If an institution makes a good-faith effort to record all data 
concerning covered transactions fully and accurately within thirty 
calendar days after the end of each calendar quarter, and some data are 
nevertheless inaccurate or incomplete, the error or omission is not a 
violation of the act or this part provided that the institution corrects 
or completes the information prior to submitting the loan/application 
register to its regulatory agency.



 Sec. Appendix A to Part 1003--Form and Instructions for Completion of 
                     HMDA Loan/Application Register

                     Paperwork Reduction Act Notice

    This report is required by law (12 U.S.C. 2801-2810 and 12 CFR 
1003). An agency may not conduct or sponsor, and an organization is not 
required to respond to, a collection of information unless it displays a 
valid Office of Management and Budget (OMB) Control Number. See 12 CFR 
1003.1(a) for the valid OMB Control Numbers applicable to this 
information collection. Send comments regarding this burden estimate or 
any other aspect of this collection of information, including 
suggestions for reducing the burden, to the respective agencies and to 
OMB, Office of Information and Regulatory Affairs, Paperwork Reduction 
Project, Washington, DC 20503. Be sure to reference the applicable 
agency and the OMB Control Number, as found in 12 CFR 1003.1(a), when 
submitting comments to OMB.

       I. Instructions for Completion of Loan/Application Register

                   A. Application or Loan Information

    1. Application or Loan Number. Enter an identifying loan number that 
can be used later to retrieve the loan or application file. It can be 
any number of your institution's choosing (not exceeding 25 characters). 
You may use letters, numerals, or a combination of both.
    2. Date Application Received. Enter the date the loan application 
was received by your institution by month, day, and year. If your 
institution normally records the date shown on the application form you 
may use that date instead. Enter ``NA'' for loans purchased by your 
institution. For paper submissions only, use numerals in the form MM/DD/
YYYY (for example, 01/15/2003). For submissions in electronic form, the 
proper format is YYYYMMDD.
    3. Type of Loan or Application. Indicate the type of loan or 
application by entering the applicable Code from the following:

Code 1--Conventional (any loan other than FHA, VA, FSA, or RHS loans)
Code 2--FHA-insured (Federal Housing Administration)
Code 3--VA-guaranteed (Veterans Administration)
Code 4--FSA/RHS-guaranteed (Farm Service Agency or Rural Housing 
Service)

    4. Property Type. Indicate the property type by entering the 
applicable Code from the following:

Code 1--One-to four-family dwelling (other than manufactured housing)
Code 2--Manufactured housing

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Code 3--Multifamily dwelling

    a. Use Code 1, not Code 3, for loans on individual condominium or 
cooperative units.
    b. If you cannot determine (despite reasonable efforts to find out) 
whether the loan or application relates to a manufactured home, use Code 
1.
    5. Purpose of Loan or Application. Indicate the purpose of the loan 
or application by entering the applicable Code from the following:

Code 1--Home purchase
Code 2--Home improvement
Code 3--Refinancing

    a. Do not report a refinancing if, under the loan agreement, you 
were unconditionally obligated to refinance the obligation, or you were 
obligated to refinance the obligation subject to conditions within the 
borrower's control.
    6. Owner Occupancy. Indicate whether the property to which the loan 
or loan application relates is to be owner-occupied as a principal 
residence by entering the applicable Code from the following:

Code 1--Owner-occupied as a principal dwelling
Code 2--Not owner-occupied as a principal dwelling
Code 3--Not applicable

    a. For purchased loans, use Code 1 unless the loan documents or 
application indicate that the property will not be owner-occupied as a 
principal residence.
    b. Use Code 2 for second homes or vacation homes, as well as for 
rental properties.
    c. Use Code 3 if the property to which the loan relates is a 
multifamily dwelling; is not located in an MSA; or is located in an MSA 
or an MD in which your institution has neither a home nor a branch 
office. Alternatively, at your institution's option, you may report the 
actual occupancy status, using Code 1 or 2 as applicable.
    7. Loan Amount. Enter the amount of the loan or application. Do not 
report loans below $500. Show the amount in thousands, rounding to the 
nearest thousand (round $500 up to the next $1,000). For example, a loan 
for $167,300 should be entered as 167 and one for $15,500 as 16.
    a. For a home purchase loan that you originated, enter the principal 
amount of the loan.
    b. For a home purchase loan that you purchased, enter the unpaid 
principal balance of the loan at the time of purchase.
    c. For a home improvement loan, enter the entire amount of the 
loan--including unpaid finance charges if that is how such loans are 
recorded on your books--even if only a part of the proceeds is intended 
for home improvement.
    d. If you opt to report home-equity lines of credit, report only the 
portion of the line intended for home improvement or home purchase.
    e. For a refinancing, indicate the total amount of the refinancing, 
including both the amount outstanding on the original loan and any 
amount of ``new money.''
    f. For a loan application that was denied or withdrawn, enter the 
amount for which the applicant applied.
    8. Request for Preapproval of a Home Purchase Loan. Indicate whether 
the application or loan involved a request for preapproval of a home 
purchase loan by entering the applicable Code from the following:

Code 1--Preapproval requested
Code 2--Preapproval not requested
Code 3--Not applicable

    a. Enter Code 2 if your institution has a covered preapproval 
program but the applicant does not request a preapproval.
    b. Enter Code 3 if your institution does not have a preapproval 
program as defined in Sec. 1003.2.
    c. Enter Code 3 for applications or loans for home improvement or 
refinancing, and for purchased loans.

                             B. Action Taken

    1. Type of Action. Indicate the type of action taken on the 
application or loan by using one of the following Codes.

Code 1--Loan originated
Code 2--Application approved but not accepted
Code 3--Application denied
Code 4--Application withdrawn
Code 5--File closed for incompleteness
Code 6--Loan purchased by your institution
Code 7--Preapproval request denied
Code 8--Preapproval request approved but not accepted (optional 
reporting)

    a. Use Code 1 for a loan that is originated, including one resulting 
from a request for preapproval.
    b. For a counteroffer (your offer to the applicant to make the loan 
on different terms or in a different amount from the terms or amount 
applied for), use Code 1 if the applicant accepts. Use Code 3 if the 
applicant turns down the counteroffer or does not respond.
    c. Use Code 2 when the application is approved but the applicant (or 
the loan broker or correspondent) fails to respond to your notification 
of approval or your commitment letter within the specified time. Do not 
use this Code for a preapproval request.
    d. Use Code 4 only when the application is expressly withdrawn by 
the applicant before a credit decision is made. Do not use Code 4 if a 
request for preapproval is withdrawn; preapproval requests that are 
withdrawn are not reported under HMDA.
    e. Use Code 5 if you sent a written notice of incompleteness under 
Sec. 1002.9(c)(2) of Regulation B (Equal Credit Opportunity) and the

[[Page 149]]

applicant did not respond to your request for additional information 
within the period of time specified in your notice. Do not use this Code 
for requests for preapproval that are incomplete; these preapproval 
requests are not reported under HMDA.
    2. Date of Action. For paper submissions only, enter the date by 
month, day, and year, using numerals in the form MM/DD/YYYY (for 
example, 02/22/2003). For submissions in electronic form, the proper 
format is YYYYMMDD.
    a. For loans originated, enter the settlement or closing date.
    b. For loans purchased, enter the date of purchase by your 
institution.
    c. For applications and preapprovals denied, applications and 
preapprovals approved but not accepted by the applicant, and files 
closed for incompleteness, enter the date that the action was taken by 
your institution or the date the notice was sent to the applicant.
    d. For applications withdrawn, enter the date you received the 
applicant's express withdrawal, or enter the date shown on the 
notification from the applicant, in the case of a written withdrawal.
    e. For preapprovals that lead to a loan origination, enter the date 
of the origination.

                          C. Property Location

    Except as otherwise provided, enter in these columns the applicable 
Codes for the MSA, or the MD if the MSA is divided into MDs, state, 
county, and census tract to indicate the location of the property to 
which a loan relates.
    1. MSA or Metropolitan Division.--For each loan or loan application, 
enter the MSA, or the MD number if the MSA is divided into MDs. MSA and 
MD boundaries are defined by OMB; use the boundaries that were in effect 
on January 1 of the calendar year for which you are reporting. A listing 
of MSAs and MDs is available from the appropriate Federal agency to 
which you report data or the FFIEC.
    2. State and County. Use the Federal Information Processing Standard 
(FIPS) two-digit numerical code for the state and the three-digit 
numerical code for the county. These codes are available from the 
appropriate Federal agency to which you report data or the FFIEC.
    3. Census Tract.--Indicate the census tract where the property is 
located. Notwithstanding paragraph 6, if the property is located in a 
county with a population of 30,000 or less in the 2000 Census, enter 
``NA'' (even if the population has increased above 30,000 since 2000), 
or enter the census tract number. County population data can be obtained 
from the U.S. Census Bureau.
    4. Census Tract Number.--For the census tract number, consult the 
resources provided by the U.S. Census Bureau or the FFIEC.
    5. Property Located Outside MSAs or Metropolitan Divisions.--For 
loans on property located outside the MSAs and MDs in which an 
institution has a home or branch office, or for property located outside 
of any MSA or MD, the institution may choose one of the following two 
options. Under option one, the institution may enter the MSA or MD, 
state and county codes and the census tract number; and if the property 
is not located in any MSA or MD, the institution may enter ``NA'' in the 
MSA or MD column. (Codes exist for all states and counties and numbers 
exist for all census tracts.) Under this first option, the codes and 
census tract number must accurately identify the property location. 
Under the second option, which is not available if paragraph 6 applies, 
an institution may enter ``NA'' in all four columns, whether or not the 
codes or numbers exist for the property location.
    6. Data Reporting for Banks and Savings Associations Required To 
Report Data on Small Business, Small Farm, and Community Development 
Lending Under the CRA Regulations.--If your institution is a bank or 
savings association that is required to report data under the 
regulations that implement the CRA, you must enter the property location 
on your HMDA/LAR even if the property is outside the MSAs or MDs in 
which you have a home or branch office, or is not located in any MSA.
    7. Requests for Preapproval. Notwithstanding paragraphs 1 through 6, 
if the application is a request for preapproval that is denied or that 
is approved but not accepted by the applicant, you may enter ``NA'' in 
all four columns.

       D. Applicant Information--Ethnicity, Race, Sex, and Income

    Appendix B contains instructions for the collection of data on 
ethnicity, race, and sex, and also contains a sample form for data 
collection.
    1. Applicability. Report this information for loans that you 
originate as well as for applications that do not result in an 
origination.
    a. You need not collect or report this information for loans 
purchased. If you choose not to report this information, use the Codes 
for ``not applicable.''
    b. If the borrower or applicant is not a natural person (a 
corporation or partnership, for example), use the Codes for ``not 
applicable.''
    2. Mail, Internet, or Telephone Applications.--All loan 
applications, including applications taken by mail, internet, or 
telephone must use a collection form similar to that shown in Appendix B 
regarding ethnicity, race, and sex. For applications taken

[[Page 150]]

by telephone, the information in the collection form must be stated 
orally by the lender, except for information that pertains uniquely to 
applications taken in writing. If the applicant does not provide these 
data in an application taken by mail or telephone or on the internet, 
enter the Code for ``information not provided by applicant in mail, 
internet, or telephone application'' specified in paragraphs I.D.3., 4., 
and 5. of this appendix. (See Appendix B for complete information on the 
collection of these data in mail, Internet, or telephone applications.)
    3. Ethnicity of Borrower or Applicant. Use the following Codes to 
indicate the ethnicity of the applicant or borrower under column ``A'' 
and of any co-applicant or co-borrower under column ``CA.''

Code 1--Hispanic or Latino
Code 2--Not Hispanic or Latino
Code 3--Information not provided by applicant in mail, internet, or 
telephone application
Code 4--Not applicable
Code 5--No co-applicant

    4. Race of Borrower or Applicant. Use the following Codes to 
indicate the race of the applicant or borrower under column ``A'' and of 
any co-applicant or co-borrower under column ``CA.''

Code 1--American Indian or Alaska Native
Code 2--Asian
Code 3--Black or African American
Code 4--Native Hawaiian or Other Pacific Islander
Code 5--White
Code 6--Information not provided by applicant in mail, internet, or 
telephone application
Code 7--Not applicable
Code 8--No co-applicant

    a. If an applicant selects more than one racial designation, enter 
all Codes corresponding to the applicant's selections.
    b. Use Code 4 (for ethnicity) and Code 7 (for race) for ``not 
applicable'' only when the applicant or co-applicant is not a natural 
person or when applicant or co-applicant information is unavailable 
because the loan has been purchased by your institution.
    c. If there is more than one co-applicant, provide the required 
information only for the first co-applicant listed on the application 
form. If there are no co-applicants or co-borrowers, use Code 5 (for 
ethnicity) and Code 8 (for race) for ``no co-applicant'' in the co-
applicant column.
    5. Sex of Borrower or Applicant. Use the following Codes to indicate 
the sex of the applicant or borrower under column ``A'' and of any co-
applicant or co-borrower under column ``CA.''

Code 1--Male
Code 2--Female
Code 3--Information not provided by applicant in mail, internet, or 
telephone application
Code 4--Not applicable
Code 5--No co-applicant or co-borrower

    a. Use Code 4 for ``not applicable'' only when the applicant or co-
applicant is not a natural person or when applicant or co-applicant 
information is unavailable because the loan has been purchased by your 
institution.
    b. If there is more than one co-applicant, provide the required 
information only for the first co-applicant listed on the application 
form. If there are no co-applicants or co-borrowers, use Code 5 for ``no 
co-applicant'' in the co-applicant column.
    6. Income. Enter the gross annual income that your institution 
relied on in making the credit decision.
    a. Round all dollar amounts to the nearest thousand (round $500 up 
to the next $1,000), and show in thousands. For example, report $35,500 
as 36.
    b. For loans on multifamily dwellings, enter ``NA.''
    c. If no income information is asked for or relied on in the credit 
decision, enter ``NA.''
    d. If the applicant or co-applicant is not a natural person or the 
applicant or co-applicant information is unavailable because the loan 
has been purchased by your institution, enter ``NA.''

                          E. Type of Purchaser

    Enter the applicable Code to indicate whether a loan that your 
institution originated or purchased was then sold to a secondary market 
entity within the same calendar year:

Code 0--Loan was not originated or was not sold in calendar year covered 
by register
Code 1--Fannie Mae
Code 2--Ginnie Mae
Code 3--Freddie Mac
Code 4--Farmer Mac
Code 5--Private securitization
Code 6--Commercial bank, savings bank, or savings association
Code 7--Life insurance company, credit union, mortgage bank, or finance 
company
Code 8--Affiliate institution
Code 9--Other type of purchaser

    a. Use Code 0 for applications that were denied, withdrawn, or 
approved but not accepted by the applicant; and for files closed for 
incompleteness.
    b. Use Code 0 if you originated or purchased a loan and did not sell 
it during that same calendar year. If you sell the loan in a succeeding 
year, you need not report the sale.
    c. Use Code 2 if you conditionally assign a loan to Ginnie Mae in 
connection with a mortgage-backed security transaction.

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    d. Use Code 8 for loans sold to an institution affiliated with you, 
such as your subsidiary or a subsidiary of your parent corporation.

                          F. Reasons for Denial

    1. You may report the reason for denial, and you may indicate up to 
three reasons, using the following Codes. Leave this column blank if the 
``action taken'' on the application is not a denial. For example, do not 
complete this column if the application was withdrawn or the file was 
closed for incompleteness.

Code 1--Debt-to-income ratio
Code 2--Employment history
Code 3--Credit history
Code 4--Collateral
Code 5--Insufficient cash (downpayment, closing costs)
Code 6--Unverifiable information
Code 7--Credit application incomplete
Code 8--Mortgage insurance denied
Code 9--Other

    2. If your institution uses the model form for adverse action 
contained in Appendix C to Regulation B (Form C-1, Sample Notification 
Form), use the foregoing Codes as follows:
    a. Code 1 for: Income insufficient for amount of credit requested, 
and Excessive obligations in relation to income.
    b. Code 2 for: Temporary or irregular employment, and Length of 
employment.
    c. Code 3 for: Insufficient number of credit references provided; 
Unacceptable type of credit references provided; No credit file; Limited 
credit experience; Poor credit performance with us; Delinquent past or 
present credit obligations with others; Garnishment, attachment, 
foreclosure, repossession, collection action, or judgment; and 
Bankruptcy.
    d. Code 4 for: Value or type of collateral not sufficient.
    e. Code 6 for: Unable to verify credit references; Unable to verify 
employment; Unable to verify income; and Unable to verify residence.
    f. Code 7 for: Credit application incomplete.
    g. Code 9 for: Length of residence; Temporary residence; and Other 
reasons specified on notice.

                         G. Pricing-Related Data

    1. Rate Spread. a. For a home-purchase loan, a refinancing, or a 
dwelling-secured home improvement loan that you originated, report the 
spread between the annual percentage rate (APR) and the average prime 
offer rate for a comparable transaction if the spread is equal to or 
greater than 1.5 percentage points for first-lien loans or 3.5 
percentage points for subordinate-lien loans. To determine whether the 
rate spread meets this threshold, use the average prime offer rate in 
effect for the type of transaction as of the date the interest rate was 
set, and use the APR for the loan, as calculated and disclosed to the 
consumer under Sec. Sec. 1026.6 or 1026.18, as applicable, of 
Regulation Z (12 CFR part 1026). Current and historic average prime 
offer rates are set forth in the tables published on the FFIEC's Web 
site (http://www.ffiec.gov/hmda) entitled ``Average Prime Offer Rates-
Fixed'' and ``Average Prime Offer Rates-Adjustable.'' Use the most 
recently available average prime offer rate. ``Most recently available'' 
means the average prime offer rate set forth in the applicable table 
with the most recent effective date as of the date the interest rate was 
set. Do not use an average prime offer rate before its effective date.
    b. If the loan is not subject to Regulation Z, or is a home 
improvement loan that is not dwelling-secured, or is a loan that you 
purchased, enter ``NA.''
    c. Enter ``NA'' in the case of an application that does not result 
in a loan origination.
    d. Enter the rate spread to two decimal places, and use a leading 
zero. For example, enter 03.29. If the difference between the APR and 
the average prime offer rate is a figure with more than two decimal 
places, round the figure or truncate the digits beyond two decimal 
places.
    e. If the difference between the APR and the average prime offer 
rate is less than 1.5 percentage points for a first-lien loan and less 
than 3.5 percentage points for a subordinate-lien loan, enter ``NA.''
    2. Date the interest rate was set. The relevant date to use to 
determine the average prime offer rate for a comparable transaction is 
the date on which the loan's interest rate was set by the financial 
institution for the final time before closing. If an interest rate is 
set pursuant to a ``lock-in'' agreement between the lender and the 
borrower, then the date on which the agreement fixes the interest rate 
is the date the rate was set. If a rate is re-set after a lock-in 
agreement is executed (for example, because the borrower exercises a 
float-down option or the agreement expires), then the relevant date is 
the date the rate is re-set for the final time before closing. If no 
lock-in agreement is executed, then the relevant date is the date on 
which the institution sets the rate for the final time before closing.
    3. HOEPA Status. a. For a loan that you originated or purchased that 
is subject to the Home Ownership and Equity Protection Act of 1994 
(HOEPA), as implemented in Regulation Z (12 CFR 1026.32), because the 
APR or the points and fees on the loan exceed the HOEPA triggers, enter 
Code 1.
    b. Enter Code 2 in all other cases. For example, enter Code 2 for a 
loan that you originated or purchased that is not subject to the 
requirements of HOEPA for any reason; also

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enter Code 2 in the case of an application that does not result in a 
loan origination.

                             H. Lien Status

    Use the following Codes for loans that you originate and for 
applications that do not result in an origination:

Code 1--Secured by a first lien.
Code 2--Secured by a subordinate lien.
Code 3--Not secured by a lien.
Code 4--Not applicable (purchased loan).

    a. Use Codes 1 through 3 for loans that you originate, as well as 
for applications that do not result in an origination (applications that 
are approved but not accepted, denied, withdrawn, or closed for 
incompleteness).
    b. Use Code 4 for loans that you purchase.

           II. Appropriate Federal Agencies for HMDA Reporting

    A. You are strongly encouraged to submit your loan/application 
register via email. If you elect to use this method of transmission and 
the appropriate Federal agency for your institution is the Bureau of 
Consumer Financial Protection, the Office of the Comptroller of the 
Currency, the Federal Deposit Insurance Corporation, or the National 
Credit Union Administration, then you should submit your institution's 
files to the email address dedicated to that purpose by the Bureau, 
which can be found on the Web site of the FFIEC. If one of the foregoing 
agencies is the appropriate Federal agency for your institution and you 
elect to submit your data by regular mail, then use the following 
address: HMDA, Federal Reserve Board, Attention: HMDA Processing, 
(insert name of the appropriate Federal agency for your institution), 
20th & Constitution Ave NW., MS N502, Washington, DC 20551-0001.
    B. If the Federal Reserve System (but not the Bureau of Consumer 
Financial Protection) is the appropriate Federal agency for your 
institution, you should use the email or regular mail address of your 
district bank indicated on the Web site of the FFIEC. If the Department 
of Housing and Urban Development is the appropriate Federal agency for 
your institution, then you should use the email or regular mail address 
indicated on the Web site of the FFIEC.


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Sec. Appendix B to Part 1003--Form and Instructions for Data Collection 
                       on Ethnicity, Race, and Sex

    I. Instructions on Collection of Data on Ethnicity, Race, and Sex

    You may list questions regarding the ethnicity, race, and sex of the 
applicant on your loan application form, or on a separate form that 
refers to the application. (See the sample form below for model 
language.)

                             II. Procedures

    A. You must ask the applicant for this information (but you cannot 
require the applicant to provide it) whether the application is taken in 
person, by mail or telephone, or on the internet. For applications taken 
by telephone, the information in the collection form must be stated 
orally by the lender, except for that information which pertains 
uniquely to applications taken in writing.
    B. Inform the applicant that the Federal government requests this 
information in order to monitor compliance with Federal statutes that 
prohibit lenders from discriminating against applicants on these bases. 
Inform the applicant that if the information is not provided where the 
application is taken in person, you are required to note the data on the 
basis of visual observation or surname.
    C. You must offer the applicant the option of selecting one or more 
racial designations.
    D. If the applicant chooses not to provide the information for an 
application taken in person, note this fact on the form and then note 
the applicant's ethnicity, race, and sex on the basis of visual 
observation and surname, to the extent possible.
    E. If the applicant declines to answer these questions or fails to 
provide the information on an application taken by mail or telephone or 
on the internet, the data need not be provided. In such a case, indicate 
that the application was received by mail, telephone, or Internet, if it 
is not otherwise evident on the face of the application.

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            Sec. Supplement I to Part 1003--Staff Commentary

                              Introduction

    1. Status. The commentary in this supplement is the vehicle by which 
the Bureau of Consumer Financial Protection issues formal staff 
interpretations of Regulation C (12 CFR part 1003).

              Section 1003.1--Authority, Purpose, and Scope

    1(c) Scope.
    1. General. The comments in this section address issues affecting 
coverage of institutions and exemptions from coverage.
    2. The broker rule and the meaning of ``broker'' and ``investor.'' 
For the purposes of the guidance given in this commentary, an 
institution that takes and processes a loan application and arranges for 
another institution to acquire the loan at or after closing is

[[Page 158]]

acting as a ``broker,'' and an institution that acquires a loan from a 
broker at or after closing is acting as an ``investor.'' (The terms used 
in this commentary may have different meanings in certain parts of the 
mortgage lending industry, and other terms may be used in place of these 
terms, for example in the Federal Housing Administration mortgage 
insurance programs.) Depending on the facts, a broker may or may not 
make a credit decision on an application (and thus it may or may not 
have reporting responsibilities). If the broker makes a credit decision, 
it reports that decision; if it does not make a credit decision, it does 
not report. If an investor reviews an application and makes a credit 
decision prior to closing, the investor reports that decision. If the 
investor does not review the application prior to closing, it reports 
only the loans that it purchases; it does not report the loans it does 
not purchase. An institution that makes a credit decision on an 
application prior to closing reports that decision regardless of whose 
name the loan closes in.
    3. Illustrations of the broker rule. Assume that, prior to closing, 
four investors receive the same application from a broker; two deny it, 
one approves it, and one approves it and acquires the loan. In these 
circumstances, the first two report denials, the third reports the 
transaction as approved but not accepted, and the fourth reports an 
origination (whether the loan closes in the name of the broker or the 
investor). Alternatively, assume that the broker denies a loan before 
sending it to an investor; in this situation, the broker reports a 
denial.
    4. Broker's use of investor's underwriting criteria. If a broker 
makes a credit decision based on underwriting criteria set by an 
investor, but without the investor's review prior to closing, the broker 
has made the credit decision. The broker reports as an origination a 
loan that it approves and closes, and reports as a denial an application 
that it turns down (either because the application does not meet the 
investor's underwriting guidelines or for some other reason). The 
investor reports as purchases only those loans it purchases.
    5. Insurance and other criteria. If an institution evaluates an 
application based on the criteria or actions of a third party other than 
an investor (such as a government or private insurer or guarantor), the 
institution must report the action taken on the application (loan 
originated, approved but not accepted, or denied, for example).
    6. Credit decision of agent is decision of principal. If an 
institution approves loans through the actions of an agent, the 
institution must report the action taken on the application (loan 
originated, approved but not accepted, or denied, for example). State 
law determines whether one party is the agent of another.
    7. Affiliate bank underwriting (250.250 review). If an institution 
makes an independent evaluation of the creditworthiness of an applicant 
(for example, as part of a preclosing review by an affiliate bank under 
12 CFR 250.250, a regulation of the Board of Governors of the Federal 
Reserve System that interprets section 23A of the Federal Reserve Act), 
the institution is making a credit decision. If the institution then 
acquires the loan, it reports the loan as an origination whether the 
loan closes in the name of the institution or its affiliate. An 
institution that does not acquire the loan but takes some other action 
reports that action.
    8. Participation loan. An institution that originates a loan and 
then sells partial interests to other institutions reports the loan as 
an origination. An institution that acquires only a partial interest in 
such a loan does not report the transaction even if it has participated 
in the underwriting and origination of the loan.
    9. Assumptions. An assumption occurs when an institution enters into 
a written agreement accepting a new borrower as the obligor on an 
existing obligation. An institution reports an assumption (or an 
application for an assumption) as a home purchase loan in the amount of 
the outstanding principal. If a transaction does not involve a written 
agreement between a new borrower and the institution, it is not an 
assumption for HMDA purposes and is not reported.

                       Section 1003.2--Definitions

    Application.
    1. Consistency With Regulation B. Bureau interpretations that appear 
in the official staff commentary to Regulation B (Equal Credit 
Opportunity, 12 CFR part 1002, Supplement I) are generally applicable to 
the definition of an application under Regulation C. However, under 
Regulation C the definition of an application does not include 
prequalification requests.
    2. Prequalification. A prequalification request is a request by a 
prospective loan applicant (other than a request for preapproval) for a 
preliminary determination on whether the prospective applicant would 
likely qualify for credit under an institution's standards, or for a 
determination on the amount of credit for which the prospective 
applicant would likely qualify. Some institutions evaluate 
prequalification requests through a procedure that is separate from the 
institution's normal loan application process; others use the same 
process. In either case, Regulation C does not require an institution to 
report prequalification requests on the HMDA/LAR, even though these 
requests may constitute applications under Regulation B for purposes of 
adverse action notices.

[[Page 159]]

    3. Requests for preapproval. To be a covered preapproval program, 
the written commitment issued under the program must result from a full 
review of the creditworthiness of the applicant, including such 
verification of income, resources and other matters as is typically done 
by the institution as part of its normal credit evaluation program. In 
addition to conditions involving the identification of a suitable 
property and verification that no material change has occurred in the 
applicant's financial condition or creditworthiness, the written 
commitment may be subject only to other conditions (unrelated to the 
financial condition or creditworthiness of the applicant) that the 
lender ordinarily attaches to a traditional home mortgage application 
approval. These conditions are limited to conditions such as requiring 
an acceptable title insurance binder or a certificate indicating clear 
termite inspection, and, in the case where the applicant plans to use 
the proceeds from the sale of the applicant's present home to purchase a 
new home, a settlement statement showing adequate proceeds from the sale 
of the present home.
    Branch office.
    1. Credit union. For purposes of Regulation C, a ``branch'' of a 
credit union is any office where member accounts are established or 
loans are made, whether or not the office has been approved as a branch 
by a Federal or state agency. (See 12 U.S.C. 1752.)
    2. Depository institution. A branch of a depository institution does 
not include a loan-production office, the office of an affiliate, or the 
office of a third party such as a loan broker. (But see Appendix A, 
paragraph I.C.6, which requires certain depository institutions to 
report property location even for properties located outside those MSAs 
or Metropolitan Divisions in which the institution has a home or branch 
office.)
    3. Nondepository institution. For a nondepository institution, 
``branch office'' does not include the office of an affiliate or other 
third party such as a loan broker. (But note that certain nondepository 
institutions must report property location even in MSAs or Metropolitan 
Divisions where they do not have a physical location.)
    Dwelling.
    1. Coverage. The definition of ``dwelling'' is not limited to the 
principal or other residence of the applicant or borrower, and thus 
includes vacation or second homes and rental properties. A dwelling also 
includes a multifamily structure such as an apartment building.
    2. Exclusions. Recreational vehicles such as boats or campers are 
not dwellings for purposes of HMDA. Also excluded are transitory 
residences such as hotels, hospitals, and college dormitories, whose 
occupants have principal residences elsewhere.
    Financial institution.
    1. General. An institution that met the test for coverage under HMDA 
in year 1, and then ceases to meet the test (for example, because its 
assets fall below the threshold on December 31 of year 2) stops 
collecting HMDA data beginning with year 3. Similarly, an institution 
that did not meet the coverage test for a given year, and then meets the 
test in the succeeding year, begins collecting HMDA data in the calendar 
year following the year in which it meets the test for coverage. For 
example, a for-profit mortgage lending institution (other than a bank, 
savings association, or credit union) that, in year 1, falls below the 
thresholds specified in the definition of Financial institution in Sec. 
1003.2, but meets one of them in year 2, need not collect data in year 
2, but begins collecting data in year 3.
    2. Adjustment of exemption threshold for depository institutions. 
For data collection in 2011, the asset-size exemption threshold is $40 
million. Depository institutions with assets at or below $40 million as 
of December 31, 2010 are exempt from collecting data for 2011.
    3. Coverage after a merger. Several scenarios of data-collection 
responsibilities for the calendar year of a merger are described below. 
Under all the scenarios, if the merger results in a covered institution, 
that institution must begin data collection January 1 of the following 
calendar year.
    i. Two institutions are not covered by Regulation C because of asset 
size. The institutions merge. No data collection is required for the 
year of the merger (even if the merger results in a covered 
institution).
    ii. A covered institution and an exempt institution merge. The 
covered institution is the surviving institution. For the year of the 
merger, data collection is required for the covered institution's 
transactions. Data collection is optional for transactions handled in 
offices of the previously exempt institution.
    iii. A covered institution and an exempt institution merge. The 
exempt institution is the surviving institution, or a new institution is 
formed. Data collection is required for transactions of the covered 
institution that take place prior to the merger. Data collection is 
optional for transactions taking place after the merger date.
    iv. Two covered institutions merge. Data collection is required for 
the entire year. The surviving or resulting institution files either a 
consolidated submission or separate submissions for that year.
    4. Originations. HMDA coverage depends in part on whether an 
institution has originated home purchase loans. To determine whether 
activities with respect to a particular loan constitute an origination, 
institutions should consult, among other parts of the staff commentary, 
the discussion of the broker rule under Sec. Sec. 1003.1(c) and 
1003.4(a).

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    5. Branches of foreign banks--treated as banks. A Federal branch or 
a state-licensed insured branch of a foreign bank is a ``bank'' under 
section 3(a)(1) of the Federal Deposit Insurance Act (12 U.S.C. 
1813(a)), and is covered by HMDA if it meets the tests for a depository 
institution found in Sec. 1003.2 of Regulation C.
    6. Branches and offices of foreign banks--treated as for-profit 
mortgage lending institutions. Federal agencies, state-licensed 
agencies, state-licensed uninsured branches of foreign banks, commercial 
lending companies owned or controlled by foreign banks, and entities 
operating under section 25 or 25A of the Federal Reserve Act, 12 U.S.C. 
601 and 611 (Edge Act and agreement corporations) are not ``banks'' 
under the Federal Deposit Insurance Act. These entities are nonetheless 
covered by HMDA if they meet the tests for a for-profit nondepository 
mortgage lending institution found in Sec. 1003.2 of Regulation C.
    Home improvement loan.
    1. Classification requirement for loans not secured by a lien on a 
dwelling. An institution has ``classified'' a loan that is not secured 
by a lien on a dwelling as a home improvement loan if it has entered the 
loan on its books as a home improvement loan, or has otherwise coded or 
identified the loan as a home improvement loan. For example, an 
institution that has booked a loan or reported it on a ``call report'' 
as a home improvement loan has classified it as a home improvement loan. 
An institution may also classify loans as home improvement loans in 
other ways (for example, by color-coding loan files).
    2. Improvements to real property. Home improvements include 
improvements both to a dwelling and to the real property on which the 
dwelling is located (for example, installation of a swimming pool, 
construction of a garage, or landscaping).
    3. Commercial and other loans. A home improvement loan may include a 
loan originated outside an institution's residential mortgage lending 
division (such as a loan to improve an apartment building made through 
the commercial loan department).
    4. Mixed-use property. A loan to improve property used for 
residential and commercial purposes (for example, a building containing 
apartment units and retail space) is a home improvement loan if the loan 
proceeds are used primarily to improve the residential portion of the 
property. If the loan proceeds are used to improve the entire property 
(for example, to replace the heating system), the loan is a home 
improvement loan if the property itself is primarily residential. An 
institution may use any reasonable standard to determine the primary use 
of the property, such as by square footage or by the income generated. 
An institution may select the standard to apply on a case-by-case basis. 
If the loan is unsecured, to report the loan as a home improvement loan 
the institution must also have classified it as such.
    5. Multiple-category loans. If a loan is a home improvement loan as 
well as a refinancing, an institution reports the loan as a home 
improvement loan.
    Home purchase loan.
    1. Multiple properties. A home purchase loan includes a loan secured 
by one dwelling and used to purchase another dwelling.
    2. Mixed-use property. A dwelling-secured loan to purchase property 
used primarily for residential purposes (for example, an apartment 
building containing a convenience store) is a home purchase loan. An 
institution may use any reasonable standard to determine the primary use 
of the property, such as by square footage or by the income generated. 
An institution may select the standard to apply on a case-by-case basis.
    3. Farm loan. A loan to purchase property used primarily for 
agricultural purposes is not a home purchase loan even if the property 
includes a dwelling. An institution may use any reasonable standard to 
determine the primary use of the property, such as by reference to the 
exemption from Regulation X (Real Estate Settlement Procedures, 12 CFR 
1024.5(b)(1)) for a loan on property of 25 acres or more. An institution 
may select the standard to apply on a case-by-case basis.
    4. Commercial and other loans. A home purchase loan may include a 
loan originated outside an institution's residential mortgage lending 
division (such as a loan for the purchase of an apartment building made 
through the commercial loan department).
    5. Construction and permanent financing. A home purchase loan 
includes both a combined construction/permanent loan and the permanent 
financing that replaces a construction-only loan. It does not include a 
construction-only loan, which is considered ``temporary financing'' 
under Regulation C and is not reported.
    6. Second mortgages that finance the downpayments on first 
mortgages. If an institution making a first mortgage loan to a home 
purchaser also makes a second mortgage loan to the same purchaser to 
finance part or all of the home purchaser's downpayment, the institution 
reports each loan separately as a home purchase loan.
    7. Multiple-category loans. If a loan is a home purchase loan as 
well as a home improvement loan, or a refinancing, an institution 
reports the loan as a home purchase loan.
    Manufactured home.
    1. Definition of a manufactured home. The definition in Sec. 1003.2 
refers to the Federal building code for factory-built housing 
established by the Department of Housing and Urban Development (HUD). 
The HUD code requires generally that housing be essentially ready for 
occupancy upon leaving the

[[Page 161]]

factory and being transported to a building site. Modular homes that 
meet all of the HUD code standards are included in the definition 
because they are ready for occupancy upon leaving the factory. Other 
factory-built homes, such as panelized and pre-cut homes, generally do 
not meet the HUD code because they require a significant amount of 
construction on site before they are ready for occupancy. Loans and 
applications relating to manufactured homes that do not meet the HUD 
code should not be identified as manufactured housing under HMDA.
    Metropolitan Statistical Areas and Metropolitan Divisions.
    1. Use of terms ``Metropolitan Statistical Area'' and ``Metropolitan 
Division.'' The U.S. Office of Management and Budget defines 
Metropolitan Statistical Areas and Metropolitan Divisions to provide 
nationally consistent definitions for collecting, tabulating, and 
publishing Federal statistics for a set of geographic areas. OMB divides 
every Metropolitan Statistical Area (MSA) with a population of 2.5 
million or more into Metropolitan Divisions (MDs); MSAs with populations 
under 2.5 million population are not so divided. 67 FR 82228 (December 
27, 2000). For all purposes under Regulation C, if an MSA is divided by 
OMB into MDs, the appropriate geographic unit to be used is the MD; if 
an MSA is not so divided by OMB into MDs, the appropriate geographic 
unit to be used is the MSA.

                Section 1003.4--Compilation of Loan Data

    4(a) Data format and itemization.
    1. Reporting requirements. i. An institution reports data on loans 
that it originated and loans that it purchased during the calendar year 
described in the report. An institution reports these data even if the 
loans were subsequently sold by the institution.
    ii. An institution reports the data for loan applications that did 
not result in originations--for example, applications that the 
institution denied or that the applicant withdrew during the calendar 
year covered by the report.
    iii. In the case of brokered loan applications or applications 
forwarded through a correspondent, the institution reports as 
originations the loans that it approved and subsequently acquired per a 
pre-closing arrangement (whether or not they closed in the institution's 
name). Additionally, the institution reports the data for all 
applications that did not result in originations--for example, 
applications that the institution denied or that the applicant withdrew 
during the calendar year covered by the report (whether or not they 
would have closed in the institution's name). For all of these loans and 
applications, the institution reports the required data regarding the 
borrower's or applicant's ethnicity, race, sex, and income.
    iv. Loan originations are to be reported only once. If the 
institution is the loan broker or correspondent, it does not report as 
originations the loans that it forwarded to another lender for approval 
prior to closing, and that were approved and subsequently acquired by 
that lender (whether or not they closed in the institution's name).
    v. An institution reports applications that were received in the 
previous calendar year but were acted upon during the calendar year 
covered by the current register.
    vi. A financial institution submits all required data to the 
appropriate Federal agency in one package, with the prescribed 
transmittal sheet. An officer of the institution certifies to the 
accuracy of the data.
    vii. The transmittal sheet states the total number of line entries 
contained in the accompanying data transmission.
    2. Updating--agency requirements. Certain state or Federal 
regulations, such as the Federal Deposit Insurance Corporation's 
regulations, may require an institution to update its data more 
frequently than is required under Regulation C.
    3. Form of quarterly updating. An institution may maintain the 
quarterly updates of the HMDA/LAR in electronic or any other format, 
provided the institution can make the information available to its 
regulatory agency in a timely manner upon request.
    Paragraph 4(a)(1).
    1. Application date--consistency. In reporting the date of 
application, an institution reports the date the application was 
received or the date shown on the application. Although an institution 
need not choose the same approach for its entire HMDA submission, it 
should be generally consistent (such as by routinely using one approach 
within a particular division of the institution or for a category of 
loans).
    2. Application date--application forwarded by a broker. For an 
application forwarded by a broker, an institution reports the date the 
application was received by the broker, the date the application was 
received by the institution, or the date shown on the application. 
Although an institution need not choose the same approach for its entire 
HMDA submission, it should be generally consistent (such as by routinely 
using one approach within a particular division of the institution or 
for a category of loans).
    3. Application date--reinstated application. If, within the same 
calendar year, an applicant asks an institution to reinstate a 
counteroffer that the applicant previously did not accept (or asks the 
institution to reconsider an application that was denied, withdrawn, or 
closed for incompleteness), the institution may treat that request as 
the continuation of the earlier transaction or as a new transaction. If 
the institution treats

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the request for reinstatement or reconsideration as a new transaction, 
it reports the date of the request as the application date.
    4. Application or loan number. An institution must ensure that each 
identifying number is unique within the institution. If an institution's 
register contains data for branch offices, for example, the institution 
could use a letter or a numerical code to identify the loans or 
applications of different branches, or could assign a certain series of 
numbers to particular branches to avoid duplicate numbers. Institutions 
are strongly encouraged not to use the applicant's or borrower's name or 
social security number, for privacy reasons.
    5. Application--year action taken. An institution must report an 
application in the calendar year in which the institution takes final 
action on the application.
    Paragraph 4(a)(3).
    1. Purpose--statement of applicant. An institution may rely on the 
oral or written statement of an applicant regarding the proposed use of 
loan proceeds. For example, a lender could use a check-box, or a purpose 
line, on a loan application to determine whether or not the applicant 
intends to use loan proceeds for home improvement purposes.
    2. Purpose--multiple-purpose loan. If a loan is a home purchase loan 
as well as a home improvement loan, or a refinancing, an institution 
reports the loan as a home purchase loan. If a loan is a home 
improvement loan as well as a refinancing, an institution reports the 
loan as a home improvement loan.
    Paragraph 4(a)(6).
    1. Occupancy--multiple properties. If a loan relates to multiple 
properties, the institution reports the owner occupancy status of the 
property for which property location is being reported. (See the 
comments to paragraph 4(a)(9)).
    Paragraph 4(a)(7).
    1. Loan amount--counteroffer. If an applicant accepts a counteroffer 
for an amount different from the amount initially requested, the 
institution reports the loan amount granted. If an applicant does not 
accept a counteroffer or fails to respond, the institution reports the 
loan amount initially requested.
    2. Loan amount--multiple-purpose loan. Except in the case of a home-
equity line of credit, an institution reports the entire amount of the 
loan, even if only a part of the proceeds is intended for home purchase 
or home improvement.
    3. Loan amount--home-equity line. An institution that has chosen to 
report home-equity lines of credit reports only the part that is 
intended for home-improvement or home-purchase purposes.
    4. Loan amount--assumption. An institution that enters into a 
written agreement accepting a new party as the obligor on a loan reports 
the amount of the outstanding principal on the assumption as the loan 
amount.
    Paragraph 4(a)(8).
    1. Action taken--counteroffers. If an institution makes a 
counteroffer to lend on terms different from the applicant's initial 
request (for example, for a shorter loan maturity or in a different 
amount) and the applicant does not accept the counteroffer or fails to 
respond, the institution reports the action taken as a denial on the 
original terms requested by the applicant.
    2. Action taken--rescinded transactions. If a borrower rescinds a 
transaction after closing, the institution may report the transaction 
either as an origination or as an application that was approved but not 
accepted.
    3. Action taken--purchased loans. An institution reports the loans 
that it purchased during the calendar year, and does not report the 
loans that it declined to purchase.
    4. Action taken--conditional approvals. If an institution issues a 
loan approval subject to the applicant's meeting underwriting conditions 
(other than customary loan commitment or loan-closing conditions, such 
as a clear-title requirement or an acceptable property survey) and the 
applicant does not meet them, the institution reports the action taken 
as a denial.
    5. Action taken date--approved but not accepted. For a loan approved 
by an institution but not accepted by the applicant, the institution 
reports any reasonable date, such as the approval date, the deadline for 
accepting the offer, or the date the file was closed. Although an 
institution need not choose the same approach for its entire HMDA 
submission, it should be generally consistent (such as by routinely 
using one approach within a particular division of the institution or 
for a category of loans).
    6. Action taken date--originations. For loan originations, an 
institution generally reports the settlement or closing date. For loan 
originations that an institution acquires through a broker, the 
institution reports either the settlement or closing date, or the date 
the institution acquired the loan from the broker. If the disbursement 
of funds takes place on a date later than the settlement or closing 
date, the institution may use the date of disbursement. For a 
construction/permanent loan, the institution reports either the 
settlement or closing date, or the date the loan converts to the 
permanent financing. Although an institution need not choose the same 
approach for its entire HMDA submission, it should be generally 
consistent (such as by routinely using one approach within a particular 
division of the institution or for a category of loans). Notwithstanding 
this flexibility regarding the use of the closing date in connection 
with reporting the date action was taken, the year in which an 
origination goes to closing is the

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year in which the institution must report the origination.
    7. Action taken--pending applications. An institution does not 
report any loan application still pending at the end of the calendar 
year; it reports that application on its register for the year in which 
final action is taken.
    Paragraph 4(a)(9).
    1. Property location--multiple properties (home improvement/
refinance of home improvement). For a home improvement loan, an 
institution reports the property being improved. If more than one 
property is being improved, the institution reports the location of one 
of the properties or reports the loan using multiple entries on its 
HMDA/LAR (with unique identifiers) and allocating the loan amount among 
the properties.
    2. Property location--multiple properties (home purchase/refinance 
of home purchase). For a home purchase loan, an institution reports the 
property taken as security. If an institution takes more than one 
property as security, the institution reports the location of the 
property being purchased if there is just one. If the loan is to 
purchase multiple properties and is secured by multiple properties, the 
institution reports the location of one of the properties or reports the 
loan using multiple entries on its HMDA/LAR (with unique identifiers) 
and allocating the loan amount among the properties.
    3. Property location--loans purchased from another institution. The 
requirement to report the property location by census tract in an MSA or 
Metropolitan Division where the institution has a home or branch office 
applies not only to loan applications and originations but also to loans 
purchased from another institution. This includes loans purchased from 
an institution that did not have a home or branch office in that MSA or 
Metropolitan Division and did not collect the property-location 
information.
    4. Property location--mobile or manufactured home. If information 
about the potential site of a mobile or manufactured home is not 
available, an institution reports using the Code for ``not applicable.''
    Paragraph 4(a)(10).
    1. Applicant data--completion by applicant. An institution reports 
the monitoring information as provided by the applicant. For example, if 
an applicant checks the ``Asian'' box the institution reports using the 
``Asian'' Code.
    2. Applicant data--completion by lender. If an applicant fails to 
provide the requested information for an application taken in person, 
the institution reports the data on the basis of visual observation or 
surname.
    3. Applicant data--application completed in person. When an 
applicant meets in person with a lender to complete an application that 
was begun by mail, internet, or telephone, the institution must request 
the monitoring information. If the meeting occurs after the application 
process is complete, for example, at closing, the institution is not 
required to obtain monitoring information.
    4. Applicant data--joint applicant. A joint applicant may enter the 
government monitoring information on behalf of an absent joint 
applicant. If the information is not provided, the institution reports 
using the Code for ``information not provided by applicant in mail, 
internet, or telephone application.''
    5. Applicant data--video and other electronic-application processes. 
An institution that accepts applications through electronic media with a 
video component treats the applications as taken in person and collects 
the information about the ethnicity, race, and sex of applicants. An 
institution that accepts applications through electronic media without a 
video component (for example, the internet or facsimile) treats the 
applications as accepted by mail.
    6. Income data--income relied on. An institution reports the gross 
annual income relied on in evaluating the creditworthiness of 
applicants. For example, if an institution relies on an applicant's 
salary to compute a debt-to-income ratio but also relies on the 
applicant's annual bonus to evaluate creditworthiness, the institution 
reports the salary and the bonus to the extent relied upon. Similarly, 
if an institution relies on the income of a cosigner to evaluate 
creditworthiness, the institution includes this income to the extent 
relied upon. But an institution does not include the income of a 
guarantor who is only secondarily liable.
    7. Income data--co-applicant. If two persons jointly apply for a 
loan and both list income on the application, but the institution relies 
only on the income of one applicant in computing ratios and in 
evaluating creditworthiness, the institution reports only the income 
relied on.
    8. Income data--loan to employee. An institution may report ``NA'' 
in the income field for loans to its employees to protect their privacy, 
even though the institution relied on their income in making its credit 
decisions.
    Paragraph 4(a)(11).
    1. Type of purchaser--loan-participation interests sold to more than 
one entity. An institution that originates a loan, and then sells it to 
more than one entity, reports the ``type of purchaser'' based on the 
entity purchasing the greatest interest, if any. If an institution 
retains a majority interest, it does not report the sale.
    2. Type of purchaser--swapped loans. Loans ``swapped'' for mortgage-
backed securities are to be treated as sales; the purchaser is the type 
of entity receiving the loans that are swapped.
    Paragraph 4(a)(12)(ii).
    1. Average prime offer rate. Average prime offer rates are annual 
percentage rates derived from average interest rates, points, and

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other loan pricing terms offered to borrowers by a representative sample 
of lenders for mortgage loans that have low-risk pricing 
characteristics. Other pricing terms include commonly used indices, 
margins, and initial fixed-rate periods for variable-rate transactions. 
Relevant pricing characteristics include a consumer's credit history and 
transaction characteristics such as the loan-to-value ratio, owner-
occupant status, and purpose of the transaction. To obtain average prime 
offer rates, the Bureau uses a survey of lenders that both meets the 
criteria of Sec. 1003.4(a)(12)(ii) and provides pricing terms for at 
least two types of variable-rate transactions and at least two types of 
non-variable-rate transactions. An example of such a survey is the 
Freddie Mac Primary Mortgage Market Survey[supreg].
    2. Comparable transaction. The rate spread reporting requirement 
applies to a reportable loan with an annual percentage rate that exceeds 
by the specified margin (or more) the average prime offer rate for a 
comparable transaction as of the date the interest rate is set. The 
tables of average prime offer rates published by the Bureau (see comment 
4(a)(12)(ii)-3) indicate how to identify the comparable transaction.
    3. Bureau tables. The Bureau publishes on the FFIEC's Web site 
(http://www.ffiec.gov/hmda), in table form, average prime offer rates 
for a wide variety of transaction types. The Bureau calculates an annual 
percentage rate, consistent with Regulation Z (see 12 CFR 1026.22 and 
Part 1026, Appendix J), for each transaction type for which pricing 
terms are available from the survey described in comment 4(a)(12)(ii)-1. 
The Bureau estimates annual percentage rates for other types of 
transactions for which direct survey data are not available based on the 
loan pricing terms available in the survey and other information. The 
Bureau publishes on the FFIEC's Web site the methodology it uses to 
arrive at these estimates.
    Paragraph 4(a)(14).
    1. Determining lien status for applications and loans originated. i. 
Lenders are required to report lien status for loans they originate and 
applications that do not result in originations. Lien status is 
determined by reference to the best information readily available to the 
lender at the time final action is taken and to the lender's own 
procedures. Thus, lenders may rely on the title search they routinely 
perform as part of their underwriting procedures--for example, for home 
purchase loans. Regulation C does not require lenders to perform title 
searches solely to comply with HMDA reporting requirements. Lenders may 
rely on other information that is readily available to them at the time 
final action is taken and that they reasonably believe is accurate, such 
as the applicant's statement on the application or the applicant's 
credit report. For example, where the applicant indicates on the 
application that there is a mortgage on the property or where the 
applicant's credit report shows that the applicant has a mortgage--and 
that mortgage is not going to be paid off as part of the transaction--
the lender may assume that the loan it originates is secured by a 
subordinate lien. If the same application did not result in an 
origination--for example, because the application is denied or 
withdrawn--the lender would report the application as an application for 
a subordinate-lien loan.
    ii. Lenders may also consider their established procedures when 
determining lien status for applications that do not result in 
originations. For example, a consumer applies to a lender to refinance a 
$100,000 first mortgage; the consumer also has a home equity line of 
credit for $20,000. If the lender's practice in such a case is to ensure 
that it will have first-lien position--through a subordination agreement 
with the holder of the mortgage on the home equity line--then the lender 
should report the application as an application for a first-lien loan.
    Paragraph 4(c)(3).
    1. An institution that opts to report home-equity lines reports the 
disposition of all applications, not just originations.
    4(d) Excluded data.
    1. Mergers, purchases in bulk, and branch acquisitions. If a covered 
institution acquires loans in bulk from another institution (for 
example, from the receiver for a failed institution) but no merger or 
acquisition of the institution, or acquisition of a branch, is involved, 
the institution reports the loans as purchased loans.

               Section 1003.5(a)--Disclosure and Reporting

    5(a) Reporting to agency.
    1. Submission of data. Institutions submit data to the appropriate 
Federal agencies in an automated, machine-readable form. The format must 
conform to that of the HMDA/LAR. An institution should contact the 
appropriate Federal agency for information regarding procedures and 
technical specifications for automated data submission; in some cases, 
agencies also make software available for automated data submission. The 
data are edited before submission, using the edits included in the 
agency-supplied software or equivalent edits in software available from 
vendors or developed in-house.
    2. Submission in paper form. Institutions that report twenty-five or 
fewer entries on their HMDA/LAR may collect and report the data in paper 
form. An institution that submits its register in non-automated form 
sends two copies that are typed or computer printed and must use the 
format of the HMDA/LAR (but need not use the form itself). Each page 
must be numbered along

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with the total number of pages (for example, ``Page 1 of 3'').
    3. Procedures for entering data. The required data are entered in 
the register for each loan origination, each application acted on, and 
each loan purchased during the calendar year. The institution should 
decide on the procedure it wants to follow--for example, whether to 
begin entering the required data, when an application is received, or to 
wait until final action is taken (such as when a loan goes to closing or 
an application is denied).
    4. Options for collection. An institution may collect data on 
separate registers at different branches, or on separate registers for 
different loan types (such as for home purchase or home improvement 
loans, or for loans on multifamily dwellings). Entries need not be 
grouped on the register by MSA or Metropolitan Division, or 
chronologically, or by census tract numbers, or in any other particular 
order.
    5. Change in appropriate Federal agency. If the appropriate Federal 
agency for a covered institution changes (as a consequence of a merger 
or a change in the institution's charter, for example), the institution 
must report data to the new appropriate Federal agency beginning with 
the year of the change.
    6. Subsidiaries. An institution is a subsidiary of a bank or savings 
association (for purposes of reporting HMDA data to the same agency as 
the parent) if the bank or savings association holds or controls an 
ownership interest that is greater than 50 percent of the institution.
    7. Transmittal sheet--additional data submissions. If an additional 
data submission becomes necessary (for example, because the institution 
discovers that data were omitted from the initial submission, or because 
revisions are called for), that submission must be accompanied by a 
transmittal sheet.
    8. Transmittal sheet--revisions or deletions. If a data submission 
involves revisions or deletions of previously submitted data, it must 
state the total of all line entries contained in that submission, 
including both those representing revisions or deletions of previously 
submitted entries, and those that are being resubmitted unchanged or are 
being submitted for the first time. Depository institutions must provide 
a list of the MSAs or Metropolitan Divisions in which they have home or 
branch offices.
    5(b) Public disclosure of statement.
    1. Business day. For purposes of Sec. 1003.5, a business day is any 
calendar day other than a Saturday, Sunday, or legal public holiday.
    2. Format. An institution may make the disclosure statement 
available in paper form or, if the person requesting the data agrees, in 
electronic form.
    5(c) Public disclosure of modified loan/application register.
    1. Format. An institution may make the modified register available 
in paper or electronic form. Although institutions are not required to 
make the modified register available in census tract order, they are 
strongly encouraged to do so in order to enhance its utility to users.
    5(e) Notice of availability.
    1. Poster--suggested text. An institution may use any text that 
meets the requirements of the regulation. Some of the Federal agencies 
that receive HMDA data provide HMDA posters that an institution can use 
to inform the public of the availability of its HMDA data, or the 
institution may create its own posters. If an institution prints its 
own, the following language is suggested but is not required:

                   Home Mortgage Disclosure Act Notice

    The HMDA data about our residential mortgage lending are available 
for review. The data show geographic distribution of loans and 
applications; ethnicity, race, sex, and income of applicants and 
borrowers; and information about loan approvals and denials. Inquire at 
this office regarding the locations where HMDA data may be inspected.
    2. Additional language for institutions making the disclosure 
statement available on request. An institution that posts a notice 
informing the public of the address to which a request should be sent 
could include the following sentence, for example, in its general 
notice: ``To receive a copy of these data send a written request to 
[address].''

                       Section 1003.6--Enforcement

    6(b) Bona fide errors.
    1. Bona fide error--information from third parties. An institution 
that obtains the property-location information for applications and 
loans from third parties (such as appraisers or vendors of ``geocoding'' 
services) is responsible for ensuring that the information reported on 
its HMDA/LAR is correct.



PART 1004_ALTERNATIVE MORTGAGE TRANSACTION PARITY (REGULATION D)--Table
of Contents



Sec.
1004.1 Authority, purpose, and scope.
1004.2 Definitions.
1004.3 Preemption of State law.
1004.4 Requirements for alternative mortgage transactions.

Appendix A to Part 1004--Official Commentary on Regulation D

    Authority: 12 U.S.C. 3802, 3803; 15 U.S.C. 1604, 1639b; Pub. L. No. 
111-203, 124 Stat. 1376.

    Source: 76 FR 44242, July 22, 2011, unless otherwise noted.

[[Page 166]]



Sec. 1004.1  Authority, purpose, and scope.

    (a) Authority. This regulation, known as Regulation D, is issued by 
the Bureau of Consumer Financial Protection to implement the Alternative 
Mortgage Transaction Parity Act, 12 U.S.C. 3801 et seq., as amended by 
title X, Section 1083 of the Dodd-Frank Wall Street Reform and Consumer 
Protection Act (Pub. L. 111-203, 124 Stat. 1376). Section 1004.4 is 
issued pursuant to the Alternative Mortgage Transaction Parity Act (as 
amended) and the Truth in Lending Act, 15 U.S.C. 1601 et seq.
    (b) Purpose. Consistent with the Alternative Mortgage Transaction 
Parity Act, the Truth in Lending Act, and the Dodd-Frank Wall Street 
Reform and Consumer Protection Act, the purpose of this regulation is to 
balance access to responsible credit and enhanced parity between State 
and federal housing creditors regarding the making, purchase, and 
enforcement of alternative mortgage transactions with consumer 
protection and the interests of the States in regulating mortgage 
transactions generally.
    (c) Scope. This regulation applies to an alternative mortgage 
transaction if the creditor received an application for that transaction 
on or after July 22, 2011. This regulation does not apply to a 
transaction if the creditor received the application for that 
transaction before July 22, 2011.



Sec. 1004.2  Definitions.

    For purposes of this part:
    Alternative mortgage transaction means a loan, credit sale, or 
account:
    (1) That is secured by an interest in a residential structure that 
contains one to four units, whether or not that structure is attached to 
real property, including an individual condominium unit, cooperative 
unit, mobile home, or trailer, if it is used as a residence;
    (2) That is made primarily for personal, family, or household 
purposes; and
    (3) In which the interest rate or finance charge may be adjusted or 
renegotiated.
    Creditor shall have the same meaning as in 12 CFR 226.2.
    Housing creditor means:
    (1) A depository institution, as defined in section 501(a)(2) of the 
Depository Institutions Deregulation and Monetary Control Act of 1980;
    (2) A lender approved by the Secretary of Housing and Urban 
Development for participation in any mortgage insurance program under 
the National Housing Act;
    (3) Any person who regularly makes loans, credit sales, or advances 
on an account secured by an interest in a residential structure that 
contains one to four units, whether or not the structure is attached to 
real property, including an individual condominium unit, cooperative 
unit, mobile home, or trailer, if it is used as a residence; and
    (4) Any transferee of a party listed in paragraph (c)(1), (2), or 
(3) of this section.
    State means any State of the United States of America, the District 
of Columbia, Puerto Rico, the Virgin Islands, the Northern Mariana 
Islands, American Samoa, Guam, and any other territory or possession of 
the United States.
    State law means a State constitution, statute, or regulation or any 
provision thereof.



Sec. 1004.3  Preemption of State law.

    Pursuant to 12 U.S.C. 3803, a State-chartered or -licensed housing 
creditor may make, purchase, and enforce alternative mortgage 
transactions in accordance with Sec. 1004.4(a) through (c) of this part 
(as applicable), notwithstanding any provision of State law that 
restricts the ability of the housing creditor to adjust or renegotiate 
an interest rate or finance charge with respect to the transaction or to 
change the amount of interest or finance charges included in a regular 
periodic payment as a result of such an adjustment or renegotiation.



Sec. 1004.4  Requirements for alternative mortgage transactions.

    (a) Mortgages with adjustable rates or finance charges and home 
equity lines of credit. A creditor that makes an alternative mortgage 
transaction with an adjustable rate or finance charge may only increase 
the interest rate or finance charge as follows:

[[Page 167]]

    (1) If the transaction is subject to 12 CFR 226.5b, the creditor 
must comply with 12 CFR 226.5b(f)(1).
    (2) For all other transactions, the creditor must use either:
    (i) An index to which changes in the interest rate are tied that is 
readily available to and verifiable by the borrower and beyond the 
control of the creditor; or
    (ii) A formula or schedule identifying the amount that the interest 
rate or finance charge may increase and the times at which, or 
circumstances under which, a change may be made.
    (b) Renegotiable rates for renewable balloon-payment mortgages. A 
creditor that makes an alternative mortgage transaction with payments 
based on an amortization period and a large final payment due after a 
shorter term may negotiate an increase or decrease in the interest rate 
when the transaction is renewed only if the creditor makes a written 
commitment to renew the transaction at specified intervals throughout 
the amortization period. However, the creditor is not required to renew 
the transaction if:
    (1) Any action or inaction by the consumer materially and adversely 
affects the creditor's security for the transaction or any right of the 
creditor in such security;
    (2) There is a material failure by the consumer to meet the 
repayment terms of the transaction;
    (3) There is fraud or a willful or knowing material 
misrepresentation by the consumer in connection with the transaction; or
    (4) Federal law dealing with credit extended by a depository 
institution to its executive officers specifically requires that as a 
condition of the extension the credit shall become due and payable on 
demand, provided that the creditor includes such a provision in the 
initial agreement.
    (c) Requirements for high-cost and higher-priced mortgage loans. (1) 
If an alternative mortgage transaction is subject to 12 CFR 226.32, the 
creditor must comply with 12 CFR 226.32 and 12 CFR 226.34.
    (2) If an alternative mortgage transaction is subject to 12 CFR 
226.35, the creditor must comply with 12 CFR 226.35.
    (d) Other applicable law. Notwithstanding paragraphs (a) through (c) 
of this section, a housing creditor that is not making an alternative 
mortgage transaction pursuant to Sec. 1004.3 of this part may make that 
transaction consistent with applicable State or Federal law other than 
this section.
    (e) Reductions in interest rate or finance charge. Nothing in this 
section prohibits a creditor from decreasing the interest rate or 
finance charge on an alternative mortgage transaction.



    Sec. Appendix A to Part 1004--Official Commentary on Regulation D

               Sec. 1004.1 Authority, Purpose, and Scope

                               1(c) Scope.

    1. Application received before July 22, 2011. This Part does not 
apply to a transaction if the creditor received the application for that 
transaction before July 22, 2011, even if the transaction was 
consummated or completed on or after July 22, 2011. Whether 12 U.S.C. 
3803(c) preempts State law with respect to such a transaction depends on 
whether: (1) The transaction was an alternative mortgage transaction as 
defined by the version of 12 U.S.C. 3802(1) in effect at the time of 
application; and (2) the State housing creditor complied with applicable 
federal regulations issued by the Office of the Comptroller of the 
Currency, the National Credit Union Administration, the Office of Thrift 
Supervision, or the Federal Home Loan Bank Board in effect at the time 
of application.
    2. Subsequent modifications and other actions. If applicable 
regulations under 12 U.S.C. 3803(c) (including this Part) preempted 
State law with respect to an alternative mortgage transaction at the 
time the application was received, the following actions with respect to 
that transaction are entitled to the same degree of preemption under 
such regulations:
    i. The subsequent consummation, completion, purchase, or enforcement 
of the transaction by a housing creditor.
    ii. The subsequent modification, renewal, or extension of the 
transaction. However, if such a transaction is satisfied and replaced by 
another transaction, the second transaction must independently meet the 
requirements for preemption in effect at the time the application for 
the second transaction was received.

                        Sec. 1004.2 Definitions

                  2(a) Alternative Mortgage Transaction

    1. Alternative mortgage transaction. For purposes of this Part, an 
alternative mortgage transaction that meets the definition in Sec. 
1004.2(a) includes any consumer credit

[[Page 168]]

transaction that is secured by a mortgage, deed of trust, or other 
equivalent consensual security interest in a dwelling or in residential 
real property that includes a dwelling. The dwelling need not be the 
primary dwelling of the consumer. Home equity lines of credit and 
subordinate lien mortgages are alternative mortgage transactions for 
purposes of this Part to the extent they meet the definition in Sec. 
1004.2(a).
    2. Examples of alternative mortgage transactions. Examples of 
alternative mortgage transactions include:
    i. Transactions in which the interest rate changes in accordance 
with fluctuations in an index.
    ii. Transactions in which the interest rate or finance charge may be 
increased or decreased after a specified period of time or under 
specified circumstances.
    iii. Balloon transactions in which payments are based on an 
amortization schedule and a large final payment is due after a shorter 
term, where the creditor makes a commitment to renew the transaction at 
specified intervals throughout the amortization period, but the interest 
rate may be renegotiated at renewal. For example, a fixed-rate mortgage 
loan with a 30-year amortization period but a balloon payment due five 
years after consummation is an alternative mortgage transaction under 
Sec. 1004.2(a) if the creditor commits to renew the mortgage at five-
year intervals for the entire 30-year amortization period.
    iv. Transactions in which the creditor and the consumer agree to 
share some or all of the appreciation in the value of the property 
(shared equity/shared appreciation).
    However, this Part preempts State law only to the extent provided in 
Sec. 1004.3 and only to the extent that the requirements of Sec. 
1004.4(a) through (c) (as applicable) are met.
    3. Examples of transactions that are not alternative mortgage 
transactions. The following are examples of transactions that are not 
alternative mortgage transactions:
    i. Transactions with a fixed interest rate where one or more of the 
regular periodic payments may be applied solely to accrued interest and 
not to loan principal (an interest-only feature).
    ii. Balloon transactions with a fixed interest rate where payments 
are based on an amortization schedule and a large final payment is due 
after a shorter term, where the creditor does not make a commitment to 
renew the transaction at specified intervals throughout the amortization 
period.
    iii. Transactions with a fixed interest rate where one or more of 
the regular periodic payments may result in an increase in the principal 
balance (a negative amortization feature).

                              2(b) Creditor

    1. Creditor. As defined in 12 CFR 226.2, ``creditor'' includes 
federally and State-chartered banks, thrifts, and credit unions, as well 
as non-depository institutions, such as State-licensed lenders. The 
Official Staff Commentary to 12 CFR 226.2 contains additional guidance 
on the definition of the term ``creditor.'' See 12 CFR 226.2, Supp. I.

                  Sec. 1004.3 Preemption of State Law

    1. Scope of State laws. Regardless of whether a State law applies 
solely to alternative mortgage transactions or applies to both 
alternative mortgage transactions and other mortgage or consumer credit 
transactions, that law is preempted by Sec. 1004.3 only to the extent 
that it restricts the ability of a State-chartered or -licensed housing 
creditor to adjust or renegotiate an interest rate or finance charge 
with respect to an alternative mortgage transaction or to change the 
amount of interest or finance charges included in a regular periodic 
payment as a result of such an adjustment or renegotiation.
    2. Examples of State laws that are preempted. The following are 
examples of State laws that are preempted by Sec. 1004.3:
    i. Restrictions on the adjustment or renegotiation of an interest 
rate or finance charge, including restrictions on the circumstances 
under which a rate or charge may be adjusted, the method by which a rate 
or charge may be adjusted, and the amount of the adjustment to the rate 
or charge. For example, if a provision of State law prohibits creditors 
from increasing an adjustable rate more than two percentage points or 
from increasing an adjustable rate more than once during a year, that 
provision is preempted by Sec. 1004.3 with respect to alternative 
mortgage transactions that comply with Sec. 1004.4(a) through (c), as 
applicable. Similarly, if a provision of State law prohibits housing 
creditors from renewing balloon transactions that meet the definition of 
an alternative mortgage transaction in Sec. 1004.2(a) on different 
terms, that provision is preempted by Sec. 1004.3 only to the extent 
that it restricts a state housing creditor's ability to adjust or 
renegotiate the interest rate or finance charge at renewal. See also 
comment 1004.3-3.i.
    ii. Restrictions on the ability of a housing creditor to change the 
amount of interest or finance charges included in regular periodic 
payments as a result of the adjustment or renegotiation of an interest 
rate or finance charge. For example, if a provision of State law 
prohibits housing creditors from increasing payments or limits the 
amount of such increases with respect to both alternative mortgage 
transactions and other mortgage or consumer credit transactions, that 
provision is preempted by Sec. 1004.3 to the extent that it restricts a 
housing creditor's ability

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to adjust payments as a result of the adjustment or renegotiation of an 
interest rate on an alternative mortgage transaction. Other restrictions 
on changes to payments are not preempted, including restrictions on 
transactions in which one or more of the regular periodic payments may 
result in an increase in the principal balance (a negative amortization 
feature) or may be applied solely to accrued interest and not to loan 
principal (an interest-only feature).
    iii. Restrictions on the creditor and the consumer sharing some or 
all of the appreciation in the value of the property (shared equity/
shared appreciation).
    iv. Underwriting requirements that address the adjustment or 
renegotiation of interest rates or finance charges. For example, if a 
provision of State law requires housing creditors to underwrite based on 
the maximum contractual rate, that provision is preempted by Sec. 
1004.3 with respect to alternative mortgage transactions, regardless of 
whether the provision applies solely to alternative mortgage 
transactions or to both alternative mortgage transactions and other 
mortgage or consumer credit transactions.
    3. Examples of State laws that are not preempted. The following are 
examples of State laws that are not preempted by Sec. 1004.3 regardless 
of whether the provision applies solely to alternative mortgage 
transactions or to both alternative mortgage transactions and other 
mortgage or consumer credit transactions:
    i. Restrictions on prepayment penalties or late charges (including 
an increase in an interest rate or finance charge as a result of a late 
payment).
    ii. Restrictions on transactions in which one or more of the regular 
periodic payments may result in an increase in the principal balance (a 
negative amortization feature) or may be applied solely to accrued 
interest and not to loan principal (an interest-only feature).
    iii. Requirements that disclosures be provided.

     Sec. 1004.4 Requirements for Alternative Mortgage Transactions

4(a) Mortgages With Adjustable or Renegotiable Rates or Finance Charges 
                     and Home Equity Lines of Credit

    1. Index values. A creditor may use any measure of index values that 
meets the requirements in Sec. 1004.4(a)(2)(i). For example, the index 
may be either single values as of a specific date or an average of 
values calculated over a specified period.
    2. Index beyond creditor's control. A creditor may increase an 
adjustable interest rate pursuant to Sec. 1004.4(a)(2)(i) only if the 
increase is based on an index that is beyond the creditor's control. For 
purposes of Sec. 1004.4(a)(2)(i), an index is not beyond the creditor's 
control if the index is the creditor's own prime rate or cost of funds. 
A creditor is permitted, however, to use a published prime rate, such as 
the prime rate published in the Wall Street Journal, even if the 
creditor's own prime rate is one of several rates used to establish the 
published rate.
    3. Publicly available. For purposes of Sec. 1004.4(a)(2)(i), the 
index must be available to the public. 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 alternative mortgage transaction.

    4(c) Requirements for High-Cost and Higher-Priced Mortgage Loans

    1. Prepayment penalties. If applicable, creditors must comply with 
12 CFR 226.32, including 12 CFR 226.32(d)(6) and (d)(7) which provide 
limitations on prepayment penalties. Similarly, if applicable, creditors 
must comply with 12 CFR 226.35, including 12 CFR 226.35(b)(2), which 
also provides limitations on prepayment penalties. However, under Sec. 
1004.3, State laws regarding prepayment penalties are not preempted. See 
comment 1004.3-3.i. Accordingly, creditors must also comply with any 
State laws regarding prepayment penalties unless an independent basis 
for preemption exists, such as because the State law is inconsistent 
with the requirements of Regulation Z, 12 CFR Part 226. See 12 CFR 
226.28.

                        4(d) Other Applicable Law

    1. Other applicable law. Section 1004.4(d) permits state housing 
creditors that do not seek preemption under Sec. 1004.3 and federal 
housing creditors to make alternative mortgage transactions consistent 
with applicable State or federal law other than Sec. 1004.4(a) through 
(c). However, Sec. 1004.4(d) does not exempt those housing creditors 
from complying with the provisions of federal law that are incorporated 
by reference in Sec. 1004.4 and are otherwise applicable to the 
creditor. Specifically, nothing in Sec. 1004.4(d) exempts a housing 
creditor from complying with 12 CFR 226.5b, 226.32, 226.34, or 226.35.



PART 1005_ELECTRONIC FUND TRANSFERS (REGULATION E)--Table of Contents



Sec.
1005.1 Authority and purpose.
1005.2 Definitions.
1005.3 Coverage.
1005.4 General disclosure requirements; jointly offered services.
1005.5 Issuance of access devices.
1005.6 Liability of consumer for unauthorized transfers.
1005.7 Initial disclosures.

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1005.8 Change in terms notice; error resolution notice.
1005.9 Receipts at electronic terminals; periodic statements.
1005.10 Preauthorized transfers.
1005.11 Procedures for resolving errors.
1005.12 Relation to other laws.
1005.13 Administrative enforcement; record retention.
1005.14 Electronic fund transfer service provider not holding consumer's 
          account.
1005.15 Electronic fund transfer of government benefits.
1005.16 Disclosures at automated teller machines.
1005.17 Requirements for overdraft services.
1005.18 Requirements for financial institutions offering payroll card 
          accounts.
1005.20 Requirements for gift cards and gift certificates.

Appendix A to Part 1005--Model Disclosure Clauses and Forms
Appendix B to Part 1005 [Reserved]
Appendix C to Part 1005--Issuance of Official Interpretations
Supplement I to Part 1005--Official Interpretations

    Authority: 12 U.S.C. 5512, 5581; 15 U.S.C. 1693b.

    Source: 76 FR 81023, Dec. 27, 2011, unless otherwise noted.



Sec. 1005.1  Authority and purpose.

    (a) Authority. The regulation in this part, known as Regulation E, 
is issued by the Bureau of Consumer Financial Protection (Bureau) 
pursuant to the Electronic Fund Transfer Act (15 U.S.C. 1693 et seq.). 
The information-collection requirements have been approved by the Office 
of Management and Budget under 44 U.S.C. 3501 et seq. and have been 
assigned OMB No. 3170-0014.
    (b) Purpose. This part carries out the purposes of the Electronic 
Fund Transfer Act, which establishes the basic rights, liabilities, and 
responsibilities of consumers who use electronic fund transfer services 
and of financial institutions that offer these services. The primary 
objective of the Act and this part is the protection of individual 
consumers engaging in electronic fund transfers.



Sec. 1005.2  Definitions.

    For purposes of this part, the following definitions apply:
    (a)(1) ``Access device'' means a card, code, or other means of 
access to a consumer's account, or any combination thereof, that may be 
used by the consumer to initiate electronic fund transfers.
    (2) An access device becomes an ``accepted access device'' when the 
consumer:
    (i) Requests and receives, or signs, or uses (or authorizes another 
to use) the access device to transfer money between accounts or to 
obtain money, property, or services;
    (ii) Requests validation of an access device issued on an 
unsolicited basis; or
    (iii) Receives an access device in renewal of, or in substitution 
for, an accepted access device from either the financial institution 
that initially issued the device or a successor.
    (b)(1) ``Account'' means a demand deposit (checking), savings, or 
other consumer asset account (other than an occasional or incidental 
credit balance in a credit plan) held directly or indirectly by a 
financial institution and established primarily for personal, family, or 
household purposes.
    (2) The term includes a ``payroll card account'' which is an account 
that is directly or indirectly established through an employer and to 
which electronic fund transfers of the consumer's wages, salary, or 
other employee compensation (such as commissions), are made on a 
recurring basis, whether the account is operated or managed by the 
employer, a third-party payroll processor, a depository institution or 
any other person. For rules governing payroll card accounts, see Sec. 
1005.18.
    (3) The term does not include an account held by a financial 
institution under a bona fide trust agreement.
    (c) ``Act'' means the Electronic Fund Transfer Act (Title IX of the 
Consumer Credit Protection Act, 15 U.S.C. 1693 et seq.).
    (d) ``Business day'' means any day on which the offices of the 
consumer's financial institution are open to the public for carrying on 
substantially all business functions.
    (e) ``Consumer'' means a natural person.
    (f) ``Credit'' means the right granted by a financial institution to 
a consumer to defer payment of debt, incur debt and defer its payment, 
or purchase

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property or services and defer payment therefor.
    (g) ``Electronic fund transfer'' is defined in Sec. 1005.3.
    (h) ``Electronic terminal'' means an electronic device, other than a 
telephone operated by a consumer, through which a consumer may initiate 
an electronic fund transfer. The term includes, but is not limited to, 
point-of-sale terminals, automated teller machines (ATMs), and cash 
dispensing machines.
    (i) ``Financial institution'' means a bank, savings association, 
credit union, or any other person that directly or indirectly holds an 
account belonging to a consumer, or that issues an access device and 
agrees with a consumer to provide electronic fund transfer services, 
other than a person excluded from coverage of this part by section 1029 
of the Consumer Financial Protection Act of 2010, Title X of the Dodd-
Frank Wall Street Reform and Consumer Protection Act, Public Law 111-
203, 124 Stat. 1376.
    (j) ``Person'' means a natural person or an organization, including 
a corporation, government agency, estate, trust, partnership, 
proprietorship, cooperative, or association.
    (k) ``Preauthorized electronic fund transfer'' means an electronic 
fund transfer authorized in advance to recur at substantially regular 
intervals.
    (l) ``State'' means any state, territory, or possession of the 
United States; the District of Columbia; the Commonwealth of Puerto 
Rico; or any political subdivision of the thereof in this paragraph (l).
    (m) ``Unauthorized electronic fund transfer'' means an electronic 
fund transfer from a consumer's account initiated by a person other than 
the consumer without actual authority to initiate the transfer and from 
which the consumer receives no benefit. The term does not include an 
electronic fund transfer initiated:
    (1) By a person who was furnished the access device to the 
consumer's account by the consumer, unless the consumer has notified the 
financial institution that transfers by that person are no longer 
authorized;
    (2) With fraudulent intent by the consumer or any person acting in 
concert with the consumer; or
    (3) By the financial institution or its employee.



Sec. 1005.3  Coverage.

    (a) General. This part applies to any electronic fund transfer that 
authorizes a financial institution to debit or credit a consumer's 
account. Generally, this part applies to financial institutions. For 
purposes of Sec. Sec. 1005.3(b)(2) and (3), 1005.10(b), (d), and (e), 
1005.13, and 1005.20 this part applies to any person, other than a 
person excluded from coverage of this part by section 1029 of the 
Consumer Financial Protection Act of 2010, Title X of the Dodd-Frank 
Wall Street Reform and Consumer Protection Act, Public Law 111-203, 124 
Stat. 1376.
    (b) Electronic fund transfer--(1) Definition. The term ``electronic 
fund transfer'' means any transfer of funds that is initiated through an 
electronic terminal, telephone, computer, or magnetic tape for the 
purpose of ordering, instructing, or authorizing a financial institution 
to debit or credit a consumer's account. The term includes, but is not 
limited to:
    (i) Point-of-sale transfers;
    (ii) Automated teller machine transfers;
    (iii) Direct deposits or withdrawals of funds;
    (iv) Transfers initiated by telephone; and
    (v) Transfers resulting from debit card transactions, whether or not 
initiated through an electronic terminal.
    (2) Electronic fund transfer using information from a check. (i) 
This part applies where a check, draft, or similar paper instrument is 
used as a source of information to initiate a one-time electronic fund 
transfer from a consumer's account. The consumer must authorize the 
transfer.
    (ii) The person initiating an electronic fund transfer using the 
consumer's check as a source of information for the transfer must 
provide a notice that the transaction will or may be processed as an 
electronic fund transfer, and obtain a consumer's authorization for each 
transfer. A consumer authorizes a one-time electronic

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fund transfer (in providing a check to a merchant or other payee for the 
MICR encoding, that is, the routing number of the financial institution, 
the consumer's account number and the serial number) when the consumer 
receives notice and goes forward with the underlying transaction. For 
point-of-sale transfers, the notice must be posted in a prominent and 
conspicuous location, and a copy thereof, or a substantially similar 
notice, must be provided to the consumer at the time of the transaction.
    (iii) A person may provide notices that are substantially similar to 
those set forth in appendix A-6 to comply with the requirements of this 
paragraph (b)(2).
    (3) Collection of returned item fees via electronic fund transfer --
(i) General. The person initiating an electronic fund transfer to 
collect a fee for the return of an electronic fund transfer or a check 
that is unpaid, including due to insufficient or uncollected funds in 
the consumer's account, must obtain the consumer's authorization for 
each transfer. A consumer authorizes a one-time electronic fund transfer 
from his or her account to pay the fee for the returned item or transfer 
if the person collecting the fee provides notice to the consumer stating 
that the person may electronically collect the fee, and the consumer 
goes forward with the underlying transaction. The notice must state that 
the fee will be collected by means of an electronic fund transfer from 
the consumer's account if the payment is returned unpaid and must 
disclose the dollar amount of the fee. If the fee may vary due to the 
amount of the transaction or due to other factors, then, except as 
otherwise provided in paragraph (b)(3)(ii) of this section, the person 
collecting the fee may disclose, in place of the dollar amount of the 
fee, an explanation of how the fee will be determined.
    (ii) Point-of-sale transactions. If a fee for an electronic fund 
transfer or check returned unpaid may be collected electronically in 
connection with a point-of-sale transaction, the person initiating an 
electronic fund transfer to collect the fee must post the notice 
described in paragraph (b)(3)(i) of this section in a prominent and 
conspicuous location. The person also must either provide the consumer 
with a copy of the posted notice (or a substantially similar notice) at 
the time of the transaction, or mail the copy (or a substantially 
similar notice) to the consumer's address as soon as reasonably 
practicable after the person initiates the electronic fund transfer to 
collect the fee. If the amount of the fee may vary due to the amount of 
the transaction or due to other factors, the posted notice may explain 
how the fee will be determined, but the notice provided to the consumer 
must state the dollar amount of the fee if the amount can be calculated 
at the time the notice is provided or mailed to the consumer.
    (c) Exclusions from coverage. The term ``electronic fund transfer'' 
does not include:
    (1) Checks. Any transfer of funds originated by check, draft, or 
similar paper instrument; or any payment made by check, draft, or 
similar paper instrument at an electronic terminal.
    (2) Check guarantee or authorization. Any transfer of funds that 
guarantees payment or authorizes acceptance of a check, draft, or 
similar paper instrument but that does not directly result in a debit or 
credit to a consumer's account.
    (3) Wire or other similar transfers. Any transfer of funds through 
Fedwire or through a similar wire transfer system that is used primarily 
for transfers between financial institutions or between businesses.
    (4) Securities and commodities transfers. Any transfer of funds the 
primary purpose of which is the purchase or sale of a security or 
commodity, if the security or commodity is:
    (i) Regulated by the Securities and Exchange Commission or the 
Commodity Futures Trading Commission;
    (ii) Purchased or sold through a broker-dealer regulated by the 
Securities and Exchange Commission or through a futures commission 
merchant regulated by the Commodity Futures Trading Commission; or
    (iii) Held in book-entry form by a Federal Reserve Bank or Federal 
agency.
    (5) Automatic transfers by account-holding institution. Any transfer 
of funds under an agreement between a

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consumer and a financial institution which provides that the institution 
will initiate individual transfers without a specific request from the 
consumer:
    (i) Between a consumer's accounts within the financial institution;
    (ii) From a consumer's account to an account of a member of the 
consumer's family held in the same financial institution; or
    (iii) Between a consumer's account and an account of the financial 
institution, except that these transfers remain subject to Sec. 
1005.10(e) regarding compulsory use and sections 916 and 917 of the Act 
regarding civil and criminal liability.
    (6) Telephone-initiated transfers. Any transfer of funds that:
    (i) Is initiated by a telephone communication between a consumer and 
a financial institution making the transfer; and
    (ii) Does not take place under a telephone bill-payment or other 
written plan in which periodic or recurring transfers are contemplated.
    (7) Small institutions. Any preauthorized transfer to or from an 
account if the assets of the account-holding financial institution were 
$100 million or less on the preceding December 31. If assets of the 
account-holding institution subsequently exceed $100 million, the 
institution's exemption for preauthorized transfers terminates one year 
from the end of the calendar year in which the assets exceed $100 
million. Preauthorized transfers exempt under this paragraph (c)(7) 
remain subject to Sec. 1005.10(e) regarding compulsory use and sections 
916 and 917 of the Act regarding civil and criminal liability.



Sec. 1005.4  General disclosure requirements; jointly offered services.

    (a)(1) Form of disclosures. Disclosures required under this part 
shall be clear and readily understandable, in writing, and in a form the 
consumer may keep, except as otherwise provided in this part. The 
disclosures required by this part may be provided to the consumer in 
electronic form, subject to compliance with the consumer-consent and 
other applicable provisions of the Electronic Signatures in Global and 
National Commerce Act (E-Sign Act) (15 U.S.C. 7001 et seq.). A financial 
institution may use commonly accepted or readily understandable 
abbreviations in complying with the disclosure requirements of this 
part.
    (2) Foreign language disclosures. Disclosures required under this 
part may be made in a language other than English, provided that the 
disclosures are made available in English upon the consumer's request.
    (b) Additional information; disclosures required by other laws. A 
financial institution may include additional information and may combine 
disclosures required by other laws (such as the Truth in Lending Act (15 
U.S.C. 1601 et seq.) or the Truth in Savings Act (12 U.S.C. 4301 et 
seq.) with the disclosures required by this part.
    (c) Multiple accounts and account holders--(1) Multiple accounts. A 
financial institution may combine the required disclosures into a single 
statement for a consumer who holds more than one account at the 
institution.
    (2) Multiple account holders. For joint accounts held by two or more 
consumers, a financial institution need provide only one set of the 
required disclosures and may provide them to any of the account holders.
    (d) Services offered jointly. Financial institutions that provide 
electronic fund transfer services jointly may contract among themselves 
to comply with the requirements that this part imposes on any or all of 
them. An institution need make only the disclosures required by 
Sec. Sec. 1005.7 and 1005.8 that are within its knowledge and within 
the purview of its relationship with the consumer for whom it holds an 
account.



Sec. 1005.5  Issuance of access devices.

    (a) Solicited issuance. Except as provided in paragraph (b) of this 
section, a financial institution may issue an access device to a 
consumer only:
    (1) In response to an oral or written request for the device; or
    (2) As a renewal of, or in substitution for, an accepted access 
device whether issued by the institution or a successor.
    (b) Unsolicited issuance. A financial institution may distribute an 
access

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device to a consumer on an unsolicited basis if the access device is:
    (1) Not validated, meaning that the institution has not yet 
performed all the procedures that would enable a consumer to initiate an 
electronic fund transfer using the access device;
    (2) Accompanied by a clear explanation that the access device is not 
validated and how the consumer may dispose of it if validation is not 
desired;
    (3) Accompanied by the disclosures required by Sec. 1005.7, of the 
consumer's rights and liabilities that will apply if the access device 
is validated; and
    (4) Validated only in response to the consumer's oral or written 
request for validation, after the institution has verified the 
consumer's identity by a reasonable means.



Sec. 1005.6  Liability of consumer for unauthorized transfers.

    (a) Conditions for liability. A consumer may be held liable, within 
the limitations described in paragraph (b) of this section, for an 
unauthorized electronic fund transfer involving the consumer's account 
only if the financial institution has provided the disclosures required 
by Sec. 1005.7(b)(1), (2), and (3). If the unauthorized transfer 
involved an access device, it must be an accepted access device and the 
financial institution must have provided a means to identify the 
consumer to whom it was issued.
    (b) Limitations on amount of liability. A consumer's liability for 
an unauthorized electronic fund transfer or a series of related 
unauthorized transfers shall be determined as follows:
    (1) Timely notice given. If the consumer notifies the financial 
institution within two business days after learning of the loss or theft 
of the access device, the consumer's liability shall not exceed the 
lesser of $50 or the amount of unauthorized transfers that occur before 
notice to the financial institution.
    (2) Timely notice not given. If the consumer fails to notify the 
financial institution within two business days after learning of the 
loss or theft of the access device, the consumer's liability shall not 
exceed the lesser of $500 or the sum of:
    (i) $50 or the amount of unauthorized transfers that occur within 
the two business days, whichever is less; and
    (ii) The amount of unauthorized transfers that occur after the close 
of two business days and before notice to the institution, provided the 
institution establishes that these transfers would not have occurred had 
the consumer notified the institution within that two-day period.
    (3) Periodic statement; timely notice not given. A consumer must 
report an unauthorized electronic fund transfer that appears on a 
periodic statement within 60 days of the financial institution's 
transmittal of the statement to avoid liability for subsequent 
transfers. If the consumer fails to do so, the consumer's liability 
shall not exceed the amount of the unauthorized transfers that occur 
after the close of the 60 days and before notice to the institution, and 
that the institution establishes would not have occurred had the 
consumer notified the institution within the 60-day period. When an 
access device is involved in the unauthorized transfer, the consumer may 
be liable for other amounts set forth in paragraphs (b)(1) or (b)(2) of 
this section, as applicable.
    (4) Extension of time limits. If the consumer's delay in notifying 
the financial institution was due to extenuating circumstances, the 
institution shall extend the times specified above to a reasonable 
period.
    (5) Notice to financial institution. (i) Notice to a financial 
institution is given when a consumer takes steps reasonably necessary to 
provide the institution with the pertinent information, whether or not a 
particular employee or agent of the institution actually receives the 
information.
    (ii) The consumer may notify the institution in person, by 
telephone, or in writing.
    (iii) Written notice is considered given at the time the consumer 
mails the notice or delivers it for transmission to the institution by 
any other usual means. Notice may be considered constructively given 
when the institution becomes aware of circumstances leading to the 
reasonable belief that an unauthorized transfer to or from the

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consumer's account has been or may be made.
    (6) Liability under state law or agreement. If state law or an 
agreement between the consumer and the financial institution imposes 
less liability than is provided by this section, the consumer's 
liability shall not exceed the amount imposed under the state law or 
agreement.



Sec. 1005.7  Initial disclosures.

    (a) Timing of disclosures. A financial institution shall make the 
disclosures required by this section at the time a consumer contracts 
for an electronic fund transfer service or before the first electronic 
fund transfer is made involving the consumer's account.
    (b) Content of disclosures. A financial institution shall provide 
the following disclosures, as applicable:
    (1) Liability of consumer. A summary of the consumer's liability, 
under Sec. 1005.6 or under state or other applicable law or agreement, 
for unauthorized electronic fund transfers.
    (2) Telephone number and address. The telephone number and address 
of the person or office to be notified when the consumer believes that 
an unauthorized electronic fund transfer has been or may be made.
    (3) Business days. The financial institution's business days.
    (4) Types of transfers; limitations. The type of electronic fund 
transfers that the consumer may make and any limitations on the 
frequency and dollar amount of transfers. Details of the limitations 
need not be disclosed if confidentiality is essential to maintain the 
security of the electronic fund transfer system.
    (5) Fees. Any fees imposed by the financial institution for 
electronic fund transfers or for the right to make transfers.
    (6) Documentation. A summary of the consumer's right to receipts and 
periodic statements, as provided in Sec. 1005.9 of this part, and 
notices regarding preauthorized transfers as provided in Sec. 
1005.10(a) and (d).
    (7) Stop payment. A summary of the consumer's right to stop payment 
of a preauthorized electronic fund transfer and the procedure for 
placing a stop-payment order, as provided in Sec. 1005.10(c).
    (8) Liability of institution. A summary of the financial 
institution's liability to the consumer under section 910 of the Act for 
failure to make or to stop certain transfers.
    (9) Confidentiality. The circumstances under which, in the ordinary 
course of business, the financial institution may provide information 
concerning the consumer's account to third parties.
    (10) Error resolution. A notice that is substantially similar to 
Model Form A-3 as set out in appendix A of this part concerning error 
resolution.
    (11) ATM fees. A notice that a fee may be imposed by an automated 
teller machine operator as defined in Sec. 1005.16(a)(1), when the 
consumer initiates an electronic fund transfer or makes a balance 
inquiry, and by any network used to complete the transaction.
    (c) Addition of electronic fund transfer services. If an electronic 
fund transfer service is added to a consumer's account and is subject to 
terms and conditions different from those described in the initial 
disclosures, disclosures for the new service are required.



Sec. 1005.8  Change in terms notice; error resolution notice.

    (a) Change in terms notice--(1) Prior notice required. A financial 
institution shall mail or deliver a written notice to the consumer, at 
least 21 days before the effective date, of any change in a term or 
condition required to be disclosed under Sec. 1005.7(b) of this part if 
the change would result in:
    (i) Increased fees for the consumer;
    (ii) Increased liability for the consumer;
    (iii) Fewer types of available electronic fund transfers; or
    (iv) Stricter limitations on the frequency or dollar amount of 
transfers.
    (2) Prior notice exception. A financial institution need not give 
prior notice if an immediate change in terms or conditions is necessary 
to maintain or restore the security of an account or an electronic fund 
transfer system. If the institution makes such a change permanent and 
disclosure would not jeopardize the security of the account or system, 
the institution shall notify the

[[Page 176]]

consumer in writing on or with the next regularly scheduled periodic 
statement or within 30 days of making the change permanent.
    (b) Error resolution notice. For accounts to or from which 
electronic fund transfers can be made, a financial institution shall 
mail or deliver to the consumer, at least once each calendar year, an 
error resolution notice substantially similar to the model form set 
forth in appendix A of this part (Model Form A-3). Alternatively, an 
institution may include an abbreviated notice substantially similar to 
the model form error resolution notice set forth in appendix A of this 
part (Model Form A-3), on or with each periodic statement required by 
Sec. 1005.9(b).



Sec. 1005.9  Receipts at electronic terminals; periodic statements.

    (a) Receipts at electronic terminals--General. Except as provided in 
paragraph (e) of this section, a financial institution shall make a 
receipt available to a consumer at the time the consumer initiates an 
electronic fund transfer at an electronic terminal. The receipt shall 
set forth the following information, as applicable:
    (1) Amount. The amount of the transfer. A transaction fee may be 
included in this amount, provided the amount of the fee is disclosed on 
the receipt and displayed on or at the terminal.
    (2) Date. The date the consumer initiates the transfer.
    (3) Type. The type of transfer and the type of the consumer's 
account(s) to or from which funds are transferred. The type of account 
may be omitted if the access device used is able to access only one 
account at that terminal.
    (4) Identification. A number or code that identifies the consumer's 
account or accounts, or the access device used to initiate the transfer. 
The number or code need not exceed four digits or letters to comply with 
the requirements of this paragraph (a)(4).
    (5) Terminal location. The location of the terminal where the 
transfer is initiated, or an identification such as a code or terminal 
number. Except in limited circumstances where all terminals are located 
in the same city or state, if the location is disclosed, it shall 
include the city and state or foreign country and one of the following:
    (i) The street address; or
    (ii) A generally accepted name for the specific location; or
    (iii) The name of the owner or operator of the terminal if other 
than the account-holding institution.
    (6) Third party transfer. The name of any third party to or from 
whom funds are transferred.
    (b) Periodic statements. For an account to or from which electronic 
fund transfers can be made, a financial institution shall send a 
periodic statement for each monthly cycle in which an electronic fund 
transfer has occurred; and shall send a periodic statement at least 
quarterly if no transfer has occurred. The statement shall set forth the 
following information, as applicable:
    (1) Transaction information. For each electronic fund transfer 
occurring during the cycle:
    (i) The amount of the transfer;
    (ii) The date the transfer was credited or debited to the consumer's 
account;
    (iii) The type of transfer and type of account to or from which 
funds were transferred;
    (iv) For a transfer initiated by the consumer at an electronic 
terminal (except for a deposit of cash or a check, draft, or similar 
paper instrument), the terminal location described in paragraph (a)(5) 
of this section; and
    (v) The name of any third party to or from whom funds were 
transferred.
    (2) Account number. The number of the account.
    (3) Fees. The amount of any fees assessed against the account during 
the statement period for electronic fund transfers, the right to make 
transfers, or account maintenance.
    (4) Account balances. The balance in the account at the beginning 
and at the close of the statement period.
    (5) Address and telephone number for inquiries. The address and 
telephone number to be used for inquiries or notice of errors, preceded 
by ``Direct inquiries to'' or similar language. The address and 
telephone number provided on an error resolution notice under Sec. 
1005.8(b) given on or with the statement satisfies this requirement.

[[Page 177]]

    (6) Telephone number for preauthorized transfers. A telephone number 
the consumer may call to ascertain whether preauthorized transfers to 
the consumer's account have occurred, if the financial institution uses 
the telephone-notice option under Sec. 1005.10(a)(1)(iii).
    (c) Exceptions to the periodic statement requirement for certain 
accounts--(1) Preauthorized transfers to accounts. For accounts that may 
be accessed only by preauthorized transfers to the account the following 
rules apply:
    (i) Passbook accounts. For passbook accounts, the financial 
institution need not provide a periodic statement if the institution 
updates the passbook upon presentation or enters on a separate document 
the amount and date of each electronic fund transfer since the passbook 
was last presented.
    (ii) Other accounts. For accounts other than passbook accounts, the 
financial institution must send a periodic statement at least quarterly.
    (2) Intra-institutional transfers. For an electronic fund transfer 
initiated by the consumer between two accounts of the consumer in the 
same institution, documenting the transfer on a periodic statement for 
one of the two accounts satisfies the periodic statement requirement.
    (3) Relationship between paragraphs (c)(1) and (2) of this section. 
An account that is accessed by preauthorized transfers to the account 
described in paragraph (c)(1) of this section and by intra-institutional 
transfers described in paragraph (c)(2) of this section, but by no other 
type of electronic fund transfers, qualifies for the exceptions provided 
by paragraph (c)(1) of this section.
    (d) Documentation for foreign-initiated transfers. The failure by a 
financial institution to provide a terminal receipt for an electronic 
fund transfer or to document the transfer on a periodic statement does 
not violate this part if:
    (1) The transfer is not initiated within a state; and
    (2) The financial institution treats an inquiry for clarification or 
documentation as a notice of error in accordance with Sec. 1005.11.
    (e) Exception for receipts in small-value transfers. A financial 
institution is not subject to the requirement to make available a 
receipt under paragraph (a) of this section if the amount of the 
transfer is $15 or less.



Sec. 1005.10  Preauthorized transfers.

    (a) Preauthorized transfers to consumer's account--(1) Notice by 
financial institution. When a person initiates preauthorized electronic 
fund transfers to a consumer's account at least once every 60 days, the 
account-holding financial institution shall provide notice to the 
consumer by:
    (i) Positive notice. Providing oral or written notice of the 
transfer within two business days after the transfer occurs; or
    (ii) Negative notice. Providing oral or written notice, within two 
business days after the date on which the transfer was scheduled to 
occur, that the transfer did not occur; or
    (iii) Readily-available telephone line. Providing a readily 
available telephone line that the consumer may call to determine whether 
the transfer occurred and disclosing the telephone number on the initial 
disclosure of account terms and on each periodic statement.
    (2) Notice by payor. A financial institution need not provide notice 
of a transfer if the payor gives the consumer positive notice that the 
transfer has been initiated.
    (3) Crediting. A financial institution that receives a preauthorized 
transfer of the type described in paragraph (a)(1) of this section shall 
credit the amount of the transfer as of the date the funds for the 
transfer are received.
    (b) Written authorization for preauthorized transfers from 
consumer's account. Preauthorized electronic fund transfers from a 
consumer's account may be authorized only by a writing signed or 
similarly authenticated by the consumer. The person that obtains the 
authorization shall provide a copy to the consumer.
    (c) Consumer's right to stop payment--(1) Notice. A consumer may 
stop payment of a preauthorized electronic fund transfer from the 
consumer's account by notifying the financial institution orally or in 
writing at least three business days before the scheduled date of the 
transfer.

[[Page 178]]

    (2) Written confirmation. The financial institution may require the 
consumer to give written confirmation of a stop-payment order within 14 
days of an oral notification. An institution that requires written 
confirmation shall inform the consumer of the requirement and provide 
the address where confirmation must be sent when the consumer gives the 
oral notification. An oral stop-payment order ceases to be binding after 
14 days if the consumer fails to provide the required written 
confirmation.
    (d) Notice of transfers varying in amount--(1) Notice. When a 
preauthorized electronic fund transfer from the consumer's account will 
vary in amount from the previous transfer under the same authorization 
or from the preauthorized amount, the designated payee or the financial 
institution shall send the consumer written notice of the amount and 
date of the transfer at least 10 days before the scheduled date of 
transfer.
    (2) Range. The designated payee or the institution shall inform the 
consumer of the right to receive notice of all varying transfers, but 
may give the consumer the option of receiving notice only when a 
transfer falls outside a specified range of amounts or only when a 
transfer differs from the most recent transfer by more than an agreed-
upon amount.
    (e) Compulsory use--(1) Credit. No financial institution or other 
person may condition an extension of credit to a consumer on the 
consumer's repayment by preauthorized electronic fund transfers, except 
for credit extended under an overdraft credit plan or extended to 
maintain a specified minimum balance in the consumer's account.
    (2) Employment or government benefit. No financial institution or 
other person may require a consumer to establish an account for receipt 
of electronic fund transfers with a particular institution as a 
condition of employment or receipt of a government benefit.



Sec. 1005.11  Procedures for resolving errors.

    (a) Definition of error--(1) Types of transfers or inquiries 
covered. The term ``error'' means:
    (i) An unauthorized electronic fund transfer;
    (ii) An incorrect electronic fund transfer to or from the consumer's 
account;
    (iii) The omission of an electronic fund transfer from a periodic 
statement;
    (iv) A computational or bookkeeping error made by the financial 
institution relating to an electronic fund transfer;
    (v) The consumer's receipt of an incorrect amount of money from an 
electronic terminal;
    (vi) An electronic fund transfer not identified in accordance with 
Sec. 1005.9 or Sec. 1005.10(a); or
    (vii) The consumer's request for documentation required by Sec. 
1005.9 or Sec. 1005.10(a) or for additional information or 
clarification concerning an electronic fund transfer, including a 
request the consumer makes to determine whether an error exists under 
paragraphs (a)(1)(i) through (vi) of this section.
    (2) Types of inquiries not covered. The term ``error'' does not 
include:
    (i) A routine inquiry about the consumer's account balance;
    (ii) A request for information for tax or other recordkeeping 
purposes; or
    (iii) A request for duplicate copies of documentation.
    (b) Notice of error from consumer--(1) Timing; contents. A financial 
institution shall comply with the requirements of this section with 
respect to any oral or written notice of error from the consumer that:
    (i) Is received by the institution no later than 60 days after the 
institution sends the periodic statement or provides the passbook 
documentation, required by Sec. 1005.9, on which the alleged error is 
first reflected;
    (ii) Enables the institution to identify the consumer's name and 
account number; and
    (iii) Indicates why the consumer believes an error exists and 
includes to the extent possible the type, date, and amount of the error, 
except for requests described in paragraph (a)(1)(vii) of this section.
    (2) Written confirmation. A financial institution may require the 
consumer to give written confirmation of an error within 10 business 
days of an oral

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notice. An institution that requires written confirmation shall inform 
the consumer of the requirement and provide the address where 
confirmation must be sent when the consumer gives the oral notification.
    (3) Request for documentation or clarifications. When a notice of 
error is based on documentation or clarification that the consumer 
requested under paragraph (a)(1)(vii) of this section, the consumer's 
notice of error is timely if received by the financial institution no 
later than 60 days after the institution sends the information 
requested.
    (c) Time limits and extent of investigation--(1) Ten-day period. A 
financial institution shall investigate promptly and, except as 
otherwise provided in this paragraph (c), shall determine whether an 
error occurred within 10 business days of receiving a notice of error. 
The institution shall report the results to the consumer within three 
business days after completing its investigation. The institution shall 
correct the error within one business day after determining that an 
error occurred.
    (2) Forty-five day period. If the financial institution is unable to 
complete its investigation within 10 business days, the institution may 
take up to 45 days from receipt of a notice of error to investigate and 
determine whether an error occurred, provided the institution does the 
following:
    (i) Provisionally credits the consumer's account in the amount of 
the alleged error (including interest where applicable) within 10 
business days of receiving the error notice. If the financial 
institution has a reasonable basis for believing that an unauthorized 
electronic fund transfer has occurred and the institution has satisfied 
the requirements of Sec. 1005.6(a), the institution may withhold a 
maximum of $50 from the amount credited. An institution need not 
provisionally credit the consumer's account if:
    (A) The institution requires but does not receive written 
confirmation within 10 business days of an oral notice of error; or
    (B) The alleged error involves an account that is subject to 
Regulation T of the Board of Governors of the Federal Reserve System 
(Securities Credit by Brokers and Dealers, 12 CFR part 220);
    (ii) Informs the consumer, within two business days after the 
provisional crediting, of the amount and date of the provisional 
crediting and gives the consumer full use of the funds during the 
investigation;
    (iii) Corrects the error, if any, within one business day after 
determining that an error occurred; and
    (iv) Reports the results to the consumer within three business days 
after completing its investigation (including, if applicable, notice 
that a provisional credit has been made final).
    (3) Extension of time periods. The time periods in paragraphs (c)(1) 
and (c)(2) of this section are extended as follows:
    (i) The applicable time is 20 business days in place of 10 business 
days under paragraphs (c)(1) and (2) of this section if the notice of 
error involves an electronic fund transfer to or from the account within 
30 days after the first deposit to the account was made.
    (ii) The applicable time is 90 days in place of 45 days under 
paragraph (c)(2) of this section, for completing an investigation, if a 
notice of error involves an electronic fund transfer that:
    (A) Was not initiated within a state;
    (B) Resulted from a point-of-sale debit card transaction; or
    (C) Occurred within 30 days after the first deposit to the account 
was made.
    (4) Investigation. With the exception of transfers covered by Sec. 
1005.14 of this part, a financial institution's review of its own 
records regarding an alleged error satisfies the requirements of this 
section if:
    (i) The alleged error concerns a transfer to or from a third party; 
and
    (ii) There is no agreement between the institution and the third 
party for the type of electronic fund transfer involved.
    (d) Procedures if financial institution determines no error or 
different error occurred. In addition to following the procedures 
specified in paragraph (c) of this section, the financial institution 
shall follow the procedures set forth in this paragraph (d) if it 
determines that no error occurred or that an error occurred in a manner 
or amount different from that described by the consumer:

[[Page 180]]

    (1) Written explanation. The institution's report of the results of 
its investigation shall include a written explanation of the 
institution's findings and shall note the consumer's right to request 
the documents that the institution relied on in making its 
determination. Upon request, the institution shall promptly provide 
copies of the documents.
    (2) Debiting provisional credit. Upon debiting a provisionally 
credited amount, the financial institution shall:
    (i) Notify the consumer of the date and amount of the debiting;
    (ii) Notify the consumer that the institution will honor checks, 
drafts, or similar instruments payable to third parties and 
preauthorized transfers from the consumer's account (without charge to 
the consumer as a result of an overdraft) for five business days after 
the notification. The institution shall honor items as specified in the 
notice, but need honor only items that it would have paid if the 
provisionally credited funds had not been debited.
    (e) Reassertion of error. A financial institution that has fully 
complied with the error resolution requirements has no further 
responsibilities under this section should the consumer later reassert 
the same error, except in the case of an error asserted by the consumer 
following receipt of information provided under paragraph (a)(1)(vii) of 
this section.



Sec. 1005.12  Relation to other laws.

    (a) Relation to Truth in Lending. (1) The Electronic Fund Transfer 
Act and this part govern:
    (i) The addition to an accepted credit card, as defined in 
Regulation Z (12 CFR 1026.12, comment 12-2), of the capability to 
initiate electronic fund transfers;
    (ii) The issuance of an access device that permits credit extensions 
(under a preexisting agreement between a consumer and a financial 
institution) only when the consumer's account is overdrawn or to 
maintain a specified minimum balance in the consumer's account, or under 
an overdraft service, as defined in Sec. 1005.17(a) of this part;
    (iii) The addition of an overdraft service, as defined in Sec. 
1005.17(a), to an accepted access device; and
    (iv) A consumer's liability for an unauthorized electronic fund 
transfer and the investigation of errors involving an extension of 
credit that occurs under an agreement between the consumer and a 
financial institution to extend credit when the consumer's account is 
overdrawn or to maintain a specified minimum balance in the consumer's 
account, or under an overdraft service, as defined in Sec. 1005.17(a).
    (2) The Truth in Lending Act and Regulation Z (12 CFR part 1026), 
which prohibit the unsolicited issuance of credit cards, govern:
    (i) The addition of a credit feature to an accepted access device; 
and
    (ii) Except as provided in paragraph (a)(1)(ii) of this section, the 
issuance of a credit card that is also an access device.
    (b) Preemption of inconsistent state laws--(1) Inconsistent 
requirements. The Bureau shall determine, upon its own motion or upon 
the request of a state, financial institution, or other interested 
party, whether the Act and this part preempt state law relating to 
electronic fund transfers, or dormancy, inactivity, or service fees, or 
expiration dates in the case of gift certificates, store gift cards, or 
general-use prepaid cards.
    (2) Standards for determination. State law is inconsistent with the 
requirements of the Act and this part if state law:
    (i) Requires or permits a practice or act prohibited by the Federal 
law;
    (ii) Provides for consumer liability for unauthorized electronic 
fund transfers that exceeds the limits imposed by the Federal law;
    (iii) Allows longer time periods than the Federal law for 
investigating and correcting alleged errors, or does not require the 
financial institution to credit the consumer's account during an error 
investigation in accordance with Sec. 1005.11(c)(2)(i) of this part; or
    (iv) Requires initial disclosures, periodic statements, or receipts 
that are different in content from those required by the Federal law 
except to the extent that the disclosures relate to consumer rights 
granted by the state law and not by the Federal law.
    (c) State exemptions--(1) General rule. Any state may apply for an 
exemption

[[Page 181]]

from the requirements of the Act or this part for any class of 
electronic fund transfers within the state. The Bureau shall grant an 
exemption if it determines that:
    (i) Under state law the class of electronic fund transfers is 
subject to requirements substantially similar to those imposed by the 
Federal law; and
    (ii) There is adequate provision for state enforcement.
    (2) Exception. To assure that the Federal and state courts continue 
to have concurrent jurisdiction, and to aid in implementing the Act:
    (i) No exemption shall extend to the civil liability provisions of 
section 916 of the Act; and
    (ii) When the Bureau grants an exemption, the state law requirements 
shall constitute the requirements of the Federal law for purposes of 
section 916 of the Act, except for state law requirements not imposed by 
the Federal law.



Sec. 1005.13  Administrative enforcement; record retention.

    (a) Enforcement by Federal agencies. Compliance with this part is 
enforced in accordance with section 918 of the Act.
    (b) Record retention. (1) Any person subject to the Act and this 
part shall retain evidence of compliance with the requirements imposed 
by the Act and this part for a period of not less than two years from 
the date disclosures are required to be made or action is required to be 
taken.
    (2) Any person subject to the Act and this part having actual notice 
that it is the subject of an investigation or an enforcement proceeding 
by its enforcement agency, or having been served with notice of an 
action filed under sections 910, 916, or 917(a) of the Act, shall retain 
the records that pertain to the investigation, action, or proceeding 
until final disposition of the matter unless an earlier time is allowed 
by court or agency order.



Sec. 1005.14  Electronic fund transfer service provider not holding
consumer's account.

    (a) Provider of electronic fund transfer service. A person that 
provides an electronic fund transfer service to a consumer but that does 
not hold the consumer's account is subject to all requirements of this 
part if the person:
    (1) Issues a debit card (or other access device) that the consumer 
can use to access the consumer's account held by a financial 
institution; and
    (2) Has no agreement with the account-holding institution regarding 
such access.
    (b) Compliance by service provider. In addition to the requirements 
generally applicable under this part, the service provider shall comply 
with the following special rules:
    (1) Disclosures and documentation. The service provider shall give 
the disclosures and documentation required by Sec. Sec. 1005.7, 1005.8, 
and 1005.9 of this part that are within the purview of its relationship 
with the consumer. The service provider need not furnish the periodic 
statement required by Sec. 1005.9(b) if the following conditions are 
met:
    (i) The debit card (or other access device) issued to the consumer 
bears the service provider's name and an address or telephone number for 
making inquiries or giving notice of error;
    (ii) The consumer receives a notice concerning use of the debit card 
that is substantially similar to the notice contained in appendix A of 
this part;
    (iii) The consumer receives, on or with the receipts required by 
Sec. 1005.9(a), the address and telephone number to be used for an 
inquiry, to give notice of an error, or to report the loss or theft of 
the debit card;
    (iv) The service provider transmits to the account-holding 
institution the information specified in Sec. 1005.9(b)(1), in the 
format prescribed by the automated clearinghouse (ACH) system used to 
clear the fund transfers;
    (v) The service provider extends the time period for notice of loss 
or theft of a debit card, set forth in Sec. 1005.6(b)(1) and (2), from 
two business days to four business days after the consumer learns of the 
loss or theft; and extends the time periods for reporting unauthorized 
transfers or errors, set forth in Sec. Sec. 1005.6(b)(3) and 
1005.11(b)(1)(i), from 60 days to 90 days following the transmittal of a 
periodic statement by the account-holding institution.
    (2) Error resolution. (i) The service provider shall extend by a 
reasonable

[[Page 182]]

time the period in which notice of an error must be received, specified 
in Sec. 1005.11(b)(1)(i), if a delay resulted from an initial attempt 
by the consumer to notify the account-holding institution.
    (ii) The service provider shall disclose to the consumer the date on 
which it initiates a transfer to effect a provisional credit in 
accordance with Sec. 1005.11(c)(2)(ii).
    (iii) If the service provider determines an error occurred, it shall 
transfer funds to or from the consumer's account, in the appropriate 
amount and within the applicable time period, in accordance with Sec. 
1005.11(c)(2)(i).
    (iv) If funds were provisionally credited and the service provider 
determines no error occurred, it may reverse the credit. The service 
provider shall notify the account-holding institution of the period 
during which the account-holding institution must honor debits to the 
account in accordance with Sec. 1005.11(d)(2)(ii). If an overdraft 
results, the service provider shall promptly reimburse the account-
holding institution in the amount of the overdraft.
    (c) Compliance by account-holding institution. The account-holding 
institution need not comply with the requirements of the Act and this 
part with respect to electronic fund transfers initiated through the 
service provider except as follows:
    (1) Documentation. The account-holding institution shall provide a 
periodic statement that describes each electronic fund transfer 
initiated by the consumer with the access device issued by the service 
provider. The account-holding institution has no liability for the 
failure to comply with this requirement if the service provider did not 
provide the necessary information; and
    (2) Error resolution. Upon request, the account-holding institution 
shall provide information or copies of documents needed by the service 
provider to investigate errors or to furnish copies of documents to the 
consumer. The account-holding institution shall also honor debits to the 
account in accordance with Sec. 1005.11(d)(2)(ii).



Sec. 1005.15  Electronic fund transfer of government benefits.

    (a) Government agency subject to regulation. (1) A government agency 
is deemed to be a financial institution for purposes of the Act and this 
part if directly or indirectly it issues an access device to a consumer 
for use in initiating an electronic fund transfer of government benefits 
from an account, other than needs-tested benefits in a program 
established under state or local law or administered by a state or local 
agency. The agency shall comply with all applicable requirements of the 
Act and this part, except as provided in this section.
    (2) For purposes of this section, the term ``account'' means an 
account established by a government agency for distributing government 
benefits to a consumer electronically, such as through automated teller 
machines or point-of-sale terminals, but does not include an account for 
distributing needs-tested benefits in a program established under state 
or local law or administered by a state or local agency.
    (b) Issuance of access devices. For purposes of this section, a 
consumer is deemed to request an access device when the consumer applies 
for government benefits that the agency disburses or will disburse by 
means of an electronic fund transfer. The agency shall verify the 
identity of the consumer receiving the device by reasonable means before 
the device is activated.
    (c) Alternative to periodic statement. A government agency need not 
furnish the periodic statement required by Sec. 1005.9(b) if the agency 
makes available to the consumer:
    (1) The consumer's account balance, through a readily available 
telephone line and at a terminal (such as by providing balance 
information at a balance-inquiry terminal or providing it, routinely or 
upon request, on a terminal receipt at the time of an electronic fund 
transfer); and
    (2) A written history of the consumer's account transactions that is 
provided promptly in response to an oral or written request and that 
covers at least 60 days preceding the date of a request by the consumer.
    (d) Modified requirements. A government agency that does not furnish 
periodic statements, in accordance with paragraph (c) of this section, 
shall

[[Page 183]]

comply with the following special rules:
    (1) Initial disclosures. The agency shall modify the disclosures 
under Sec. 1005.7(b) by disclosing:
    (i) Account balance. The means by which the consumer may obtain 
information concerning the account balance, including a telephone 
number. The agency provides a notice substantially similar to the notice 
contained in paragraph A-5 in appendix A of this part.
    (ii) Written account history. A summary of the consumer's right to 
receive a written account history upon request, in place of the periodic 
statement required by Sec. 1005.7(b)(6), and the telephone number to 
call to request an account history. This disclosure may be made by 
providing a notice substantially similar to the notice contained in 
paragraph A-5 in appendix A of this part.
    (iii) Error resolution. A notice concerning error resolution that is 
substantially similar to the notice contained in paragraph A-5 in 
appendix A of this part, in place of the notice required by Sec. 
1005.7(b)(10).
    (2) Annual error resolution notice. The agency shall provide an 
annual notice concerning error resolution that is substantially similar 
to the notice contained in paragraph A-5 in appendix A, in place of the 
notice required by Sec. 1005.8(b).
    (3) Limitations on liability. For purposes of Sec. 1005.6(b)(3), 
regarding a 60-day period for reporting any unauthorized transfer that 
appears on a periodic statement, the 60-day period shall begin with 
transmittal of a written account history or other account information 
provided to the consumer under paragraph (c) of this section.
    (4) Error resolution. The agency shall comply with the requirements 
of Sec. 1005.11 of this part in response to an oral or written notice 
of an error from the consumer that is received no later than 60 days 
after the consumer obtains the written account history or other account 
information, under paragraph (c) of this section, in which the error is 
first reflected.



Sec. 1005.16  Disclosures at automated teller machines.

    (a) Definition. ``Automated teller machine operator'' means any 
person that operates an automated teller machine at which a consumer 
initiates an electronic fund transfer or a balance inquiry and that does 
not hold the account to or from which the transfer is made, or about 
which an inquiry is made.
    (b) General. An automated teller machine operator that imposes a fee 
on a consumer for initiating an electronic fund transfer or a balance 
inquiry shall:
    (1) Provide notice that a fee will be imposed for providing 
electronic fund transfer services or a balance inquiry; and
    (2) Disclose the amount of the fee.
    (c) Notice requirement. To meet the requirements of paragraph (b) of 
this section, an automated teller machine operator must comply with the 
following:
    (1) On the machine. Post in a prominent and conspicuous location on 
or at the automated teller machine a notice that:
    (i) A fee will be imposed for providing electronic fund transfer 
services or for a balance inquiry; or
    (ii) A fee may be imposed for providing electronic fund transfer 
services or for a balance inquiry, but the notice in this paragraph 
(c)(1)(ii) may be substituted for the notice in paragraph (c)(1)(i) of 
this section only if there are circumstances under which a fee will not 
be imposed for such services; and
    (2) Screen or paper notice. Provide the notice required by 
paragraphs (b)(1) and (2) of this section either by showing it on the 
screen of the automated teller machine or by providing it on paper, 
before the consumer is committed to paying a fee.
    (d) Imposition of fee. An automated teller machine operator may 
impose a fee on a consumer for initiating an electronic fund transfer or 
a balance inquiry only if
    (1) The consumer is provided the notices required under paragraph 
(c) of this section, and
    (2) The consumer elects to continue the transaction or inquiry after 
receiving such notices.

[[Page 184]]



Sec. 1005.17  Requirements for overdraft services.

    (a) Definition. For purposes of this section, the term ``overdraft 
service'' means a service under which a financial institution assesses a 
fee or charge on a consumer's account held by the institution for paying 
a transaction (including a check or other item) when the consumer has 
insufficient or unavailable funds in the account. The term ``overdraft 
service'' does not include any payment of overdrafts pursuant to:
    (1) A line of credit subject to Regulation Z (12 CFR part 1026), 
including transfers from a credit card account, home equity line of 
credit, or overdraft line of credit;
    (2) A service that transfers funds from another account held 
individually or jointly by a consumer, such as a savings account; or
    (3) A line of credit or other transaction exempt from Regulation Z 
(12 CFR part 1026) pursuant to 12 CFR 1026.3(d).
    (b) Opt-in requirement--(1) General. Except as provided under 
paragraph (c) of this section, a financial institution holding a 
consumer's account shall not assess a fee or charge on a consumer's 
account for paying an ATM or one-time debit card transaction pursuant to 
the institution's overdraft service, unless the institution:
    (i) Provides the consumer with a notice in writing, or if the 
consumer agrees, electronically, segregated from all other information, 
describing the institution's overdraft service;
    (ii) Provides a reasonable opportunity for the consumer to 
affirmatively consent, or opt in, to the service for ATM and one-time 
debit card transactions;
    (iii) Obtains the consumer's affirmative consent, or opt-in, to the 
institution's payment of ATM or one-time debit card transactions; and
    (iv) Provides the consumer with confirmation of the consumer's 
consent in writing, or if the consumer agrees, electronically, which 
includes a statement informing the consumer of the right to revoke such 
consent.
    (2) Conditioning payment of other overdrafts on consumer's 
affirmative consent. A financial institution shall not:
    (i) Condition the payment of any overdrafts for checks, ACH 
transactions, and other types of transactions on the consumer 
affirmatively consenting to the institution's payment of ATM and one-
time debit card transactions pursuant to the institution's overdraft 
service; or
    (ii) Decline to pay checks, ACH transactions, and other types of 
transactions that overdraw the consumer's account because the consumer 
has not affirmatively consented to the institution's overdraft service 
for ATM and one-time debit card transactions.
    (3) Same account terms, conditions, and features. A financial 
institution shall provide to consumers who do not affirmatively consent 
to the institution's overdraft service for ATM and one-time debit card 
transactions the same account terms, conditions, and features that it 
provides to consumers who affirmatively consent, except for the 
overdraft service for ATM and one-time debit card transactions.
    (c) Timing--(1) Existing account holders. For accounts opened prior 
to July 1, 2010, the financial institution must not assess any fees or 
charges on a consumer's account on or after August 15, 2010, for paying 
an ATM or one-time debit card transaction pursuant to the overdraft 
service, unless the institution has complied with Sec. 1005.17(b)(1) 
and obtained the consumer's affirmative consent.
    (2) New account holders. For accounts opened on or after July 1, 
2010, the financial institution must comply with Sec. 1005.17(b)(1) and 
obtain the consumer's affirmative consent before the institution 
assesses any fee or charge on the consumer's account for paying an ATM 
or one-time debit card transaction pursuant to the institution's 
overdraft service.
    (d) Content and format. The notice required by paragraph (b)(1)(i) 
of this section shall be substantially similar to Model Form A-9 set 
forth in appendix A of this part, include all applicable items in this 
paragraph, and may not contain any information not specified in or 
otherwise permitted by this paragraph.

[[Page 185]]

    (1) Overdraft service. A brief description of the financial 
institution's overdraft service and the types of transactions for which 
a fee or charge for paying an overdraft may be imposed, including ATM 
and one-time debit card transactions.
    (2) Fees imposed. The dollar amount of any fees or charges assessed 
by the financial institution for paying an ATM or one-time debit card 
transaction pursuant to the institution's overdraft service, including 
any daily or other overdraft fees. If the amount of the fee is 
determined on the basis of the number of times the consumer has 
overdrawn the account, the amount of the overdraft, or other factors, 
the institution must disclose the maximum fee that may be imposed.
    (3) Limits on fees charged. The maximum number of overdraft fees or 
charges that may be assessed per day, or, if applicable, that there is 
no limit.
    (4) Disclosure of opt-in right. An explanation of the consumer's 
right to affirmatively consent to the financial institution's payment of 
overdrafts for ATM and one-time debit card transactions pursuant to the 
institution's overdraft service, including the methods by which the 
consumer may consent to the service; and
    (5) Alternative plans for covering overdrafts. If the institution 
offers a line of credit subject to Regulation Z (12 CFR part 1026) or a 
service that transfers funds from another account of the consumer held 
at the institution to cover overdrafts, the institution must state that 
fact. An institution may, but is not required to, list additional 
alternatives for the payment of overdrafts.
    (6) Permitted modifications and additional content. If applicable, 
the institution may modify the content required by Sec. 1005.17(d) to 
indicate that the consumer has the right to opt into, or opt out of, the 
payment of overdrafts under the institution's overdraft service for 
other types of transactions, such as checks, ACH transactions, or 
automatic bill payments; to provide a means for the consumer to exercise 
this choice; and to disclose the associated returned item fee and that 
additional merchant fees may apply. The institution may also disclose 
the consumer's right to revoke consent. For notices provided to 
consumers who have opened accounts prior to July 1, 2010, the financial 
institution may describe the institution's overdraft service with 
respect to ATM and one-time debit card transactions with a statement 
such as ``After August 15, 2010, we will not authorize and pay 
overdrafts for the following types of transactions unless you ask us to 
(see below).''
    (e) Joint relationships. If two or more consumers jointly hold an 
account, the financial institution shall treat the affirmative consent 
of any of the joint consumers as affirmative consent for that account. 
Similarly, the financial institution shall treat a revocation of 
affirmative consent by any of the joint consumers as revocation of 
consent for that account.
    (f) Continuing right to opt in or to revoke the opt-in. A consumer 
may affirmatively consent to the financial institution's overdraft 
service at any time in the manner described in the notice required by 
paragraph (b)(1)(i) of this section. A consumer may also revoke consent 
at any time in the manner made available to the consumer for providing 
consent. A financial institution must implement a consumer's revocation 
of consent as soon as reasonably practicable.
    (g) Duration and revocation of opt-in. A consumer's affirmative 
consent to the institution's overdraft service is effective until 
revoked by the consumer, or unless the financial institution terminates 
the service.



Sec. 1005.18  Requirements for financial institutions offering payroll 
card accounts.

    (a) Coverage. A financial institution shall comply with all 
applicable requirements of the Act and this part with respect to payroll 
card accounts except as provided in this section.
    (b) Alternative to periodic statements. (1) A financial institution 
need not furnish periodic statements required by Sec. 1005.9(b) if the 
institution makes available to the consumer:
    (i) The consumer's account balance, through a readily available 
telephone line;
    (ii) An electronic history of the consumer's account transactions, 
such as through a Web site, that covers at least

[[Page 186]]

60 days preceding the date the consumer electronically accesses the 
account; and
    (iii) A written history of the consumer's account transactions that 
is provided promptly in response to an oral or written request and that 
covers at least 60 days preceding the date the financial institution 
receives the consumer's request.
    (2) The history of account transactions provided under paragraphs 
(b)(1)(ii) and (iii) of this section must include the information set 
forth in Sec. 1005.9(b).
    (c) Modified requirements. A financial institution that provides 
information under paragraph (b) of this section, shall comply with the 
following:
    (1) Initial disclosures. The financial institution shall modify the 
disclosures under Sec. 1005.7(b) by disclosing:
    (i) Account information. A telephone number that the consumer may 
call to obtain the account balance, the means by which the consumer can 
obtain an electronic account history, such as the address of a Web site, 
and a summary of the consumer's right to receive a written account 
history upon request (in place of the summary of the right to receive a 
periodic statement required by Sec. 1005.7(b)(6)), including a 
telephone number to call to request a history. The disclosure required 
by this paragraph (c)(1)(i) may be made by providing a notice 
substantially similar to the notice contained in paragraph A-7(a) in 
appendix A of this part.
    (ii) Error resolution. A notice concerning error resolution that is 
substantially similar to the notice contained in paragraph A-7(b) in 
appendix A of this part, in place of the notice required by Sec. 
1005.7(b)(10).
    (2) Annual error resolution notice. The financial institution shall 
provide an annual notice concerning error resolution that is 
substantially similar to the notice contained in paragraph A-7(b) in 
appendix A of this part, in place of the notice required by Sec. 
1005.8(b). Alternatively, a financial institution may include on or with 
each electronic and written history provided in accordance with Sec. 
1005.18(b)(1), a notice substantially similar to the abbreviated notice 
for periodic statements contained in paragraph A-3(b) in appendix A of 
this part, modified as necessary to reflect the error resolution 
provisions set forth in this section.
    (3) Limitations on liability. (i) For purposes of Sec. 
1005.6(b)(3), the 60-day period for reporting any unauthorized transfer 
shall begin on the earlier of:
    (A) The date the consumer electronically accesses the consumer's 
account under paragraph (b)(1)(ii) of this section, provided that the 
electronic history made available to the consumer reflects the transfer; 
or
    (B) The date the financial institution sends a written history of 
the consumer's account transactions requested by the consumer under 
paragraph (b)(1)(iii) of this section in which the unauthorized transfer 
is first reflected.
    (ii) A financial institution may comply with paragraph (c)(3)(i) of 
this section by limiting the consumer's liability for an unauthorized 
transfer as provided under Sec. 1005.6(b)(3) for any transfer reported 
by the consumer within 120 days after the transfer was credited or 
debited to the consumer's account.
    (4) Error resolution. (i) The financial institution shall comply 
with the requirements of Sec. 1005.11 in response to an oral or written 
notice of an error from the consumer that is received by the earlier of:
    (A) Sixty days after the date the consumer electronically accesses 
the consumer's account under paragraph (b)(1)(ii) of this section, 
provided that the electronic history made available to the consumer 
reflects the alleged error; or
    (B) Sixty days after the date the financial institution sends a 
written history of the consumer's account transactions requested by the 
consumer under paragraph (b)(1)(iii) of this section in which the 
alleged error is first reflected.
    (ii) In lieu of following the procedures in paragraph (c)(4)(i) of 
this section, a financial institution complies with the requirements for 
resolving errors in Sec. 1005.11 if it investigates any oral or written 
notice of an error from the consumer that is received by the institution 
within 120 days after the transfer allegedly in error was credited or 
debited to the consumer's account.

[[Page 187]]



Sec. 1005.20  Requirements for gift cards and gift certificates.

    (a) Definitions. For purposes of this section, except as excluded 
under paragraph (b), the following definitions apply:
    (1) ``Gift certificate'' means a card, code, or other device that 
is:
    (i) Issued on a prepaid basis primarily for personal, family, or 
household purposes to a consumer in a specified amount that may not be 
increased or reloaded in exchange for payment; and
    (ii) Redeemable upon presentation at a single merchant or an 
affiliated group of merchants for goods or services.
    (2) ``Store gift card'' means a card, code, or other device that is:
    (i) Issued on a prepaid basis primarily for personal, family, or 
household purposes to a consumer in a specified amount, whether or not 
that amount may be increased or reloaded, in exchange for payment; and
    (ii) Redeemable upon presentation at a single merchant or an 
affiliated group of merchants for goods or services.
    (3) ``General-use prepaid card'' means a card, code, or other device 
that is:
    (i) Issued on a prepaid basis primarily for personal, family, or 
household purposes to a consumer in a specified amount, whether or not 
that amount may be increased or reloaded, in exchange for payment; and
    (ii) Redeemable upon presentation at multiple, unaffiliated 
merchants for goods or services, or usable at automated teller machines.
    (4) ``Loyalty, award, or promotional gift card'' means a card, code, 
or other device that:
    (i) Is issued on a prepaid basis primarily for personal, family, or 
household purposes to a consumer in connection with a loyalty, award, or 
promotional program;
    (ii) Is redeemable upon presentation at one or more merchants for 
goods or services, or usable at automated teller machines; and
    (iii) Sets forth the following disclosures, as applicable:
    (A) A statement indicating that the card, code, or other device is 
issued for loyalty, award, or promotional purposes, which must be 
included on the front of the card, code, or other device;
    (B) The expiration date for the underlying funds, which must be 
included on the front of the card, code, or other device;
    (C) The amount of any fees that may be imposed in connection with 
the card, code, or other device, and the conditions under which they may 
be imposed, which must be provided on or with the card, code, or other 
device; and
    (D) A toll-free telephone number and, if one is maintained, a Web 
site, that a consumer may use to obtain fee information, which must be 
included on the card, code, or other device.
    (5) Dormancy or inactivity fee. The terms ``dormancy fee'' and 
``inactivity fee'' mean a fee for non-use of or inactivity on a gift 
certificate, store gift card, or general-use prepaid card.
    (6) Service fee. The term ``service fee'' means a periodic fee for 
holding or use of a gift certificate, store gift card, or general-use 
prepaid card. A periodic fee includes any fee that may be imposed on a 
gift certificate, store gift card, or general-use prepaid card from time 
to time for holding or using the certificate or card.
    (7) Activity. The term ``activity'' means any action that results in 
an increase or decrease of the funds underlying a certificate or card, 
other than the imposition of a fee, or an adjustment due to an error or 
a reversal of a prior transaction.
    (b) Exclusions. The terms ``gift certificate,'' ``store gift card,'' 
and ``general-use prepaid card'', as defined in paragraph (a) of this 
section, do not include any card, code, or other device that is:
    (1) Useable solely for telephone services;
    (2) Reloadable and not marketed or labeled as a gift card or gift 
certificate. For purposes of this paragraph (b)(2), the term 
``reloadable'' includes a temporary non-reloadable card issued solely in 
connection with a reloadable card, code, or other device;
    (3) A loyalty, award, or promotional gift card;
    (4) Not marketed to the general public;
    (5) Issued in paper form only; or

[[Page 188]]

    (6) Redeemable solely for admission to events or venues at a 
particular location or group of affiliated locations, or to obtain goods 
or services in conjunction with admission to such events or venues, 
either at the event or venue or at specific locations affiliated with 
and in geographic proximity to the event or venue.
    (c) Form of disclosures--(1) Clear and conspicuous. Disclosures made 
under this section must be clear and conspicuous. The disclosures may 
contain commonly accepted or readily understandable abbreviations or 
symbols.
    (2) Format. Disclosures made under this section generally must be 
provided to the consumer in written or electronic form. Except for the 
disclosures in paragraphs (c)(3) and (h)(2) of this section, written and 
electronic disclosures made under this section must be in a retainable 
form. Only disclosures provided under paragraphs (c)(3) and (h)(2) may 
be given orally.
    (3) Disclosures prior to purchase. Before a gift certificate, store 
gift card, or general-use prepaid card is purchased, a person that 
issues or sells such certificate or card must disclose to the consumer 
the information required by paragraphs (d)(2), (e)(3), and (f)(1) of 
this section. The fees and terms and conditions of expiration that are 
required to be disclosed prior to purchase may not be changed after 
purchase.
    (4) Disclosures on the certificate or card. Disclosures required by 
paragraphs (a)(4)(iii), (d)(2), (e)(3), and (f)(2) of this section must 
be made on the certificate or card, or in the case of a loyalty, award, 
or promotional gift card, on the card, code, or other device. A 
disclosure made in an accompanying terms and conditions document, on 
packaging surrounding a certificate or card, or on a sticker or other 
label affixed to the certificate or card does not constitute a 
disclosure on the certificate or card. For an electronic certificate or 
card, disclosures must be provided electronically on the certificate or 
card provided to the consumer. An issuer that provides a code or 
confirmation to a consumer orally must provide to the consumer a written 
or electronic copy of the code or confirmation promptly, and the 
applicable disclosures must be provided on the written copy of the code 
or confirmation.
    (d) Prohibition on imposition of fees or charges. No person may 
impose a dormancy, inactivity, or service fee with respect to a gift 
certificate, store gift card, or general-use prepaid card, unless:
    (1) There has been no activity with respect to the certificate or 
card, in the one-year period ending on the date on which the fee is 
imposed;
    (2) The following are stated, as applicable, clearly and 
conspicuously on the gift certificate, store gift card, or general-use 
prepaid card:
    (i) The amount of any dormancy, inactivity, or service fee that may 
be charged;
    (ii) How often such fee may be assessed; and
    (iii) That such fee may be assessed for inactivity; and
    (3) Not more than one dormancy, inactivity, or service fee is 
imposed in any given calendar month.
    (e) Prohibition on sale of gift certificates or cards with 
expiration dates. No person may sell or issue a gift certificate, store 
gift card, or general-use prepaid card with an expiration date, unless:
    (1) The person has established policies and procedures to provide 
consumers with a reasonable opportunity to purchase a certificate or 
card with at least five years remaining until the certificate or card 
expiration date;
    (2) The expiration date for the underlying funds is at least the 
later of:
    (i) Five years after the date the gift certificate was initially 
issued, or the date on which funds were last loaded to a store gift card 
or general-use prepaid card; or
    (ii) The certificate or card expiration date, if any;
    (3) The following disclosures are provided on the certificate or 
card, as applicable:
    (i) The expiration date for the underlying funds or, if the 
underlying funds do not expire, that fact;
    (ii) A toll-free telephone number and, if one is maintained, a Web 
site that a

[[Page 189]]

consumer may use to obtain a replacement certificate or card after the 
certificate or card expires if the underlying funds may be available; 
and
    (iii) Except where a non-reloadable certificate or card bears an 
expiration date that is at least seven years from the date of 
manufacture, a statement, disclosed with equal prominence and in close 
proximity to the certificate or card expiration date, that:
    (A) The certificate or card expires, but the underlying funds either 
do not expire or expire later than the certificate or card, and;
    (B) The consumer may contact the issuer for a replacement card; and
    (4) No fee or charge is imposed on the cardholder for replacing the 
gift certificate, store gift card, or general-use prepaid card or for 
providing the certificate or card holder with the remaining balance in 
some other manner prior to the funds expiration date, unless such 
certificate or card has been lost or stolen.
    (f) Additional disclosure requirements for gift certificates or 
cards. The following disclosures must be provided in connection with a 
gift certificate, store gift card, or general-use prepaid card, as 
applicable:
    (1) Fee disclosures. For each type of fee that may be imposed in 
connection with the certificate or card (other than a dormancy, 
inactivity, or service fee subject to the disclosure requirements under 
paragraph (d)(2) of this section), the following information must be 
provided on or with the certificate or card:
    (i) The type of fee;
    (ii) The amount of the fee (or an explanation of how the fee will be 
determined); and
    (iii) The conditions under which the fee may be imposed.
    (2) Telephone number for fee information. A toll-free telephone 
number and, if one is maintained, a Web site, that a consumer may use to 
obtain information about fees described in paragraphs (d)(2) and (f)(1) 
of this section must be disclosed on the certificate or card.
    (g) Compliance dates--(1) Effective date for gift certificates, 
store gift cards, and general-use prepaid cards. Except as provided in 
paragraph (h) of this section, the requirements of this section apply to 
any gift certificate, store gift card, or general-use prepaid card sold 
to a consumer on or after August 22, 2010, or provided to a consumer as 
a replacement for such certificate or card.
    (2) Effective date for loyalty, award, or promotional gift cards. 
The requirements in paragraph (a)(4)(iii) of this section apply to any 
card, code, or other device provided to a consumer in connection with a 
loyalty, award, or promotional program if the period of eligibility for 
such program began on or after August 22, 2010.
    (h) Temporary exemption--(1) Delayed mandatory compliance date. For 
any gift certificate, store gift card, or general-use prepaid card 
produced prior to April 1, 2010, the mandatory compliance date of the 
requirements of paragraphs (c)(3), (d)(2), (e)(1), (e)(3), and (f) of 
this section is January 31, 2011, provided that an issuer of such 
certificate or card:
    (i) Complies with all other provisions of this section;
    (ii) Does not impose an expiration date with respect to the funds 
underlying such certificate or card;
    (iii) At the consumer's request, replaces such certificate or card 
if it has funds remaining at no cost to the consumer; and
    (iv) Satisfies the requirements of paragraph (h)(2) of this section.
    (2) Additional disclosures. Issuers relying on the delayed effective 
date in Sec. 1005.20(h)(1) must disclose through in-store signage, 
messages during customer service calls, Web sites, and general 
advertising, that:
    (i) The underlying funds of such certificate or card do not expire;
    (ii) Consumers holding such certificate or card have a right to a 
free replacement certificate or card, which must be accompanied by the 
packaging and materials typically associated with such certificate or 
card; and
    (iii) Any dormancy, inactivity, or service fee for such certificate 
or card that might otherwise be charged will not be charged if such fees 
do not comply with section 916 of the Act.
    (3) Expiration of additional disclosure requirements. The 
disclosures in paragraph (h)(2) of this section:
    (i) Are not required to be provided on or after January 31, 2011, 
with respect

[[Page 190]]

to in-store signage and general advertising.
    (ii) Are not required to be provided on or after January 31, 2013, 
with respect to messages during customer service calls and Web sites.



    Sec. Appendix A to Part 1005--Model Disclosure Clauses and Forms

A-1--Model Clauses for Unsolicited Issuance (Sec. 1005.5(b)(2))
A-2--Model Clauses for Initial Disclosures (Sec. 1005.7(b))
A-3--Model Forms for Error Resolution Notice (Sec. Sec. 1005.7(b)(10) 
          and 1005.8(b))
A-4--Model Form for Service-Providing Institutions (Sec. 
          1005.14(b)(1)(ii))
A-5--Model Forms for Government Agencies (Sec. 1005.15(d)(1) and (2))
A-6--Model Clauses for Authorizing One-Time Electronic Fund Transfers 
          Using Information From a Check (Sec. 1005.3(b)(2))
A-7--Model Clauses for Financial Institutions Offering Payroll Card 
          Accounts (Sec. 1005.18(c))
A-8--Model Clause for Electronic Collection of Returned Item Fees (Sec. 
          1005.3(b)(3))
A-9--Model Consent Form for Overdraft Services (Sec. 1005.17)

    A-1--Model Clauses for Unsolicited Issuance (Sec. 1005.5(b)(2))

    (a) Accounts using cards. You cannot use the enclosed card to 
transfer money into or out of your account until we have validated it. 
If you do not want to use the card, please (destroy it at once by 
cutting it in half).
    [Financial institution may add validation instructions here.]
    (b) Accounts using codes. You cannot use the enclosed code to 
transfer money into or out of your account until we have validated it. 
If you do not want to use the code, please (destroy this notice at 
once).
    [Financial institution may add validation instructions here.]

      A-2--Model Clauses for Initial Disclosures (Sec. 1005.7(b))

    (a) Consumer Liability (Sec. 1005.7(b)(1)).
    (Tell us AT ONCE if you believe your [card] [code] has been lost or 
stolen, or if you believe that an electronic fund transfer has been made 
without your permission using information from your check. Telephoning 
is the best way of keeping your possible losses down. You could lose all 
the money in your account (plus your maximum overdraft line of credit). 
If you tell us within 2 business days after you learn of the loss or 
theft of your [card] [code], you can lose no more than $50 if someone 
used your [card][code] without your permission.)
    If you do NOT tell us within 2 business days after you learn of the 
loss or theft of your [card] [code], and we can prove we could have 
stopped someone from using your [card] [code] without your permission if 
you had told us, you could lose as much as $500.
    Also, if your statement shows transfers that you did not make, 
including those made by card, code or other means, tell us at once. If 
you do not tell us within 60 days after the statement was mailed to you, 
you may not get back any money you lost after the 60 days if we can 
prove that we could have stopped someone from taking the money if you 
had told us in time. If a good reason (such as a long trip or a hospital 
stay) kept you from telling us, we will extend the time periods.
    (b) Contact in event of unauthorized transfer (Sec. 1005.7(b)(2)). 
If you believe your [card] [code] has been lost or stolen, call: 
[Telephone number] or write: [Name of person or office to be notified] 
[Address].
    You should also call the number or write to the address listed above 
if you believe a transfer has been made using the information from your 
check without your permission.
    (c) Business days (Sec. 1005.7(b)(3)). For purposes of these 
disclosures, our business days are (Monday through Friday) (Monday 
through Saturday) (any day including Saturdays and Sundays). Holidays 
are (not) included.
    (d) Transfer types and limitations (Sec. 1005.7(b)(4)) (1) Account 
access. You may use your [card][code] to:
    (i) Withdraw cash from your [checking] [or] [savings] account.
    (ii) Make deposits to your [checking] [or] [savings] account.
    (iii) Transfer funds between your checking and savings accounts 
whenever you request.
    (iv) Pay for purchases at places that have agreed to accept the 
[card] [code].
    (v) Pay bills directly [by telephone] from your [checking] [or] 
[savings] account in the amounts and on the days you request.
    Some of these services may not be available at all terminals.
    (2) Electronic check conversion. You may authorize a merchant or 
other payee to make a one-time electronic payment from your checking 
account using information from your check to:
    (i) Pay for purchases.
    (ii) Pay bills.
    (3) Limitations on frequency of transfers.(i) You may make only 
[insert number, e.g., 3] cash withdrawals from our terminals each 
[insert time period, e.g., week].
    (ii) You can use your telephone bill-payment service to pay [insert 
number] bills each [insert time period] [telephone call].
    (iii) You can use our point-of-sale transfer service for [insert 
number] transactions each [insert time period].
    (iv) For security reasons, there are limits on the number of 
transfers you can make

[[Page 191]]

using our [terminals] [telephone bill-payment service] [point-of-sale 
transfer service].
    (4) Limitations on dollar amounts of transfers (i) You may withdraw 
up to [insert dollar amount] from our terminals each [insert time 
period] time you use the [card] [code].
    (ii) You may buy up to [insert dollar amount] worth of goods or 
services each [insert time period] time you use the [card] [code] in our 
point-of-sale transfer service.
    (e) Fees (Sec. 1005.7(b)(5)) (1) Per transfer charge. We will 
charge you [insert dollar amount] for each transfer you make using our 
[automated teller machines] [telephone bill-payment service] [point-of-
sale transfer service].
    (2) Fixed charge. We will charge you [insert dollar amount] each 
[insert time period] for our [automated teller machine service] 
[telephone bill-payment service] [point-of-sale transfer service].
    (3) Average or minimum balance charge. We will only charge you for 
using our [automated teller machines] [telephone bill-payment service] 
[point-of-sale transfer service] if the [average] [minimum] balance in 
your [checking account] [savings account] [accounts] falls below [insert 
dollar amount]. If it does, we will charge you [insert dollar amount] 
each [transfer] [insert time period].
    (f) Confidentiality (Sec. 1005.7(b)(9)). We will disclose 
information to third parties about your account or the transfers you 
make:
    (i) Where it is necessary for completing transfers, or
    (ii) In order to verify the existence and condition of your account 
for a third party, such as a credit bureau or merchant, or
    (iii) In order to comply with government agency or court orders, or
    (iv) If you give us your written permission.
    (g) Documentation (Sec. 1005.7(b)(6)) (1) Terminal transfers. You 
can get a receipt at the time you make any transfer to or from your 
account using one of our [automated teller machines] [or] [point-of-sale 
terminals].
    (2) Preauthorized credits. If you have arranged to have direct 
deposits made to your account at least once every 60 days from the same 
person or company, (we will let you know if the deposit is [not] made.) 
[the person or company making the deposit will tell you every time they 
send us the money] [you can call us at (insert telephone number) to find 
out whether or not the deposit has been made].
    (3) Periodic statements. You will get a [monthly] [quarterly] 
account statement (unless there are no transfers in a particular month. 
In any case you will get the statement at least quarterly).
    (4) Passbook account where the only possible electronic fund 
transfers are preauthorized credits. If you bring your passbook to us, 
we will record any electronic deposits that were made to your account 
since the last time you brought in your passbook.
    (h) Preauthorized payments (Sec. 1005.7(b) (6), (7) and (8); Sec. 
1005.10(d)) (1) Right to stop payment and procedure for doing so. If you 
have told us in advance to make regular payments out of your account, 
you can stop any of these payments. Here's how:
    Call us at [insert telephone number], or write us at [insert 
address], in time for us to receive your request 3 business days or more 
before the payment is scheduled to be made. If you call, we may also 
require you to put your request in writing and get it to us within 14 
days after you call. (We will charge you [insert amount] for each stop-
payment order you give.)
    (2) Notice of varying amounts. If these regular payments may vary in 
amount, [we] [the person you are going to pay] will tell you, 10 days 
before each payment, when it will be made and how much it will be. (You 
may choose instead to get this notice only when the payment would differ 
by more than a certain amount from the previous payment, or when the 
amount would fall outside certain limits that you set.)
    (3) Liability for failure to stop payment of preauthorized transfer. 
If you order us to stop one of these payments 3 business days or more 
before the transfer is scheduled, and we do not do so, we will be liable 
for your losses or damages.
    (i) Financial institution's liability (Sec. 1005.7(b)(8)). If we do 
not complete a transfer to or from your account on time or in the 
correct amount according to our agreement with you, we will be liable 
for your losses or damages. However, there are some exceptions. We will 
not be liable, for instance:
    (1) If, through no fault of ours, you do not have enough money in 
your account to make the transfer.
    (2) If the transfer would go over the credit limit on your overdraft 
line.
    (3) If the automated teller machine where you are making the 
transfer does not have enough cash.
    (4) If the [terminal] [system] was not working properly and you knew 
about the breakdown when you started the transfer.
    (5) If circumstances beyond our control (such as fire or flood) 
prevent the transfer, despite reasonable precautions that we have taken.
    (6) There may be other exceptions stated in our agreement with you.
    (j) ATM fees (Sec. 1005.7(b)(11)). When you use an ATM not owned by 
us, you may be charged a fee by the ATM operator [or any network used] 
(and you may be charged a fee for a balance inquiry even if you do not 
complete a fund transfer).

 A-3--Model Forms for Error Resolution Notice (Sec. Sec. 1005.7(b)(10) 
                             and 1005.8(b))

    (a) Initial and annual error resolution notice (Sec. Sec. 
1005.7(b)(10) and 1005.8(b)).

[[Page 192]]

    In Case of Errors or Questions About Your Electronic Transfers 
Telephone us at [insert telephone number] Write us at [insert address] 
[or email us at [insert email address]] as soon as you can, if you think 
your statement or receipt is wrong or if you need more information about 
a transfer listed on the statement or receipt. We must hear from you no 
later than 60 days after we sent the FIRST statement on which the 
problem or error appeared.
    (1) Tell us your name and account number (if any).
    (2) Describe the error or the transfer you are unsure about, and 
explain as clearly as you can why you believe it is an error or why you 
need more information.
    (3) Tell us the dollar amount of the suspected error.
    If you tell us orally, we may require that you send us your 
complaint or question in writing within 10 business days.
    We will determine whether an error occurred within 10 business days 
after we hear from you and will correct any error promptly. If we need 
more time, however, we may take up to 45 days to investigate your 
complaint or question. If we decide to do this, we will credit your 
account within 10 business days for the amount you think is in error, so 
that you will have the use of the money during the time it takes us to 
complete our investigation. If we ask you to put your complaint or 
question in writing and we do not receive it within 10 business days, we 
may not credit your account.
    For errors involving new accounts, point-of-sale, or foreign-
initiated transactions, we may take up to 90 days to investigate your 
complaint or question. For new accounts, we may take up to 20 business 
days to credit your account for the amount you think is in error.
    We will tell you the results within three business days after 
completing our investigation. If we decide that there was no error, we 
will send you a written explanation. You may ask for copies of the 
documents that we used in our investigation.
    (b) Error resolution notice on periodic statements (Sec. 
1005.8(b)).
    In Case of Errors or Questions About Your Electronic Transfers 
Telephone us at [insert telephone number] or Write us at [insert 
address] as soon as you can, if you think your statement or receipt is 
wrong or if you need more information about a transfer on the statement 
or receipt. We must hear from you no later than 60 days after we sent 
you the FIRST statement on which the error or problem appeared.
    (1) Tell us your name and account number (if any).
    (2) Describe the error or the transfer you are unsure about, and 
explain as clearly as you can why you believe it is an error or why you 
need more information.
    (3) Tell us the dollar amount of the suspected error.
    We will investigate your complaint and will correct any error 
promptly. If we take more than 10 business days to do this, we will 
credit your account for the amount you think is in error, so that you 
will have the use of the money during the time it takes us to complete 
our investigation.

       A-4--Model Form for Service-Providing Institutions (Sec. 
                           1005.14(b)(1)(ii))

    ALL QUESTIONS ABOUT TRANSACTIONS MADE WITH YOUR (NAME OF CARD) CARD 
MUST BE DIRECTED TO US (NAME OF SERVICE PROVIDER), AND NOT TO THE BANK 
OR OTHER FINANCIAL INSTITUTION WHERE YOU HAVE YOUR ACCOUNT. We are 
responsible for the [name of service] service and for resolving any 
errors in transactions made with your [name of card] card.
    We will not send you a periodic statement listing transactions that 
you make using your [name of card] card. The transactions will appear 
only on the statement issued by your bank or other financial 
institution. SAVE THE RECEIPTS YOU ARE GIVEN WHEN YOU USE YOUR [NAME OF 
CARD] CARD, AND CHECK THEM AGAINST THE ACCOUNT STATEMENT YOU RECEIVE 
FROM YOUR BANK OR OTHER FINANCIAL INSTITUTION. If you have any questions 
about one of these transactions, call or write us at [telephone number 
and address] [the telephone number and address indicated below].
    IF YOUR [NAME OF CARD] CARD IS LOST OR STOLEN, NOTIFY US AT ONCE by 
calling or writing to us at [telephone number and address].

 A-5--Model Forms for Government Agencies (Sec. 1005.15(d)(1) and (2))

    (a) Disclosure by government agencies of information about obtaining 
account balances and account histories (Sec. 1005.15(d)(1)(i) and 
(ii)).
    You may obtain information about the amount of benefits you have 
remaining by calling [telephone number]. That information is also 
available [on the receipt you get when you make a transfer with your 
card at (an ATM)(a POS terminal)][when you make a balance inquiry at an 
ATM][when you make a balance inquiry at specified locations].
    You also have the right to receive a written summary of transactions 
for the 60 days preceding your request by calling [telephone number]. 
[Optional: Or you may request the summary by contacting your 
caseworker.]
    (b) Disclosure of error resolution procedures for government 
agencies that do not provide periodic statements (Sec. 
1005.15(d)(1)(iii) and (d)(2)).

[[Page 193]]

    In Case of Errors or Questions About Your Electronic Transfers 
Telephone us at [telephone number] Write us at [insert address] [or 
email us at [insert email address]] as soon as you can, if you think an 
error has occurred in your [EBT][agency's name for program] account. We 
must hear from you no later than 60 days after you learn of the error. 
You will need to tell us:
     Your name and [case] [file] number.
     Why you believe there is an error, and the dollar 
amount involved.
     Approximately when the error took place.
    If you tell us orally, we may require that you send us your 
complaint or question in writing within 10 business days.
    We will determine whether an error occurred within 10 business days 
after we hear from you and will correct any error promptly. If we need 
more time, however, we may take up to 45 days to investigate your 
complaint or question. If we decide to do this, we will credit your 
account within 10 business days for the amount you think is in error, so 
that you will have the use of the money during the time it takes us to 
complete our investigation. If we ask you to put your complaint or 
question in writing and we do not receive it within 10 business days, we 
may not credit your account.
    For errors involving new accounts, point-of-sale, or foreign-
initiated transactions, we may take up to 90 days to investigate your 
complaint or question. For new accounts, we may take up to 20 business 
days to credit your account for the amount you think is in error.
    We will tell you the results within three business days after 
completing our investigation. If we decide that there was no error, we 
will send you a written explanation. You may ask for copies of the 
documents that we used in our investigation.
    If you need more information about our error resolution procedures, 
call us at [telephone number][the telephone number shown above].

 A-6--Model Clauses for Authorizing One-Time Electronic Fund Transfers 
           Using Information From a Check (Sec. 1005.3(b)(2))

    (a) Notice About Electronic Check Conversion.
    When you provide a check as payment, you authorize us either to use 
information from your check to make a one-time electronic fund transfer 
from your account or to process the payment as a check transaction.
    (b) Alternative Notice About Electronic Check Conversion (Optional).
    When you provide a check as payment, you authorize us to use 
information from your check to make a one-time electronic fund transfer 
from your account. In certain circumstances, such as for technical or 
processing reasons, we may process your payment as a check transaction.
    [Specify other circumstances (at payee's option).]
    (c) Notice For Providing Additional Information About Electronic 
Check Conversion.
    When we use information from your check to make an electronic fund 
transfer, funds may be withdrawn from your account as soon as the same 
day [you make] [we receive] your payment[, and you will not receive your 
check back from your financial institution].

  A-7--Model Clauses for Financial Institutions Offering Payroll Card 
                       Accounts (Sec. 1005.18(c))

    (a) Disclosure by financial institutions of information about 
obtaining account information for payroll card accounts. Sec. 
1005.18(c)(1).
    You may obtain information about the amount of money you have 
remaining in your payroll card account by calling [telephone number]. 
This information, along with a 60-day history of account transactions, 
is also available online at [internet address].
    You also have the right to obtain a 60-day written history of 
account transactions by calling [telephone number], or by writing us at 
[address].
    (b) Disclosure of error-resolution procedures for financial 
institutions that provide alternative means of obtaining payroll card 
account information (Sec. 1005.18(c)(1)(ii) and (c)(2)).
    In Case of Errors or Questions About Your Payroll Card Account 
Telephone us at [telephone number] or Write us at [address] [or email us 
at [email address]] as soon as you can, if you think an error has 
occurred in your payroll card account. We must allow you to report an 
error until 60 days after the earlier of the date you electronically 
access your account, if the error could be viewed in your electronic 
history, or the date we sent the FIRST written history on which the 
error appeared. You may request a written history of your transactions 
at any time by calling us at [telephone number] or writing us at 
[address]. You will need to tell us:
    Your name and [payroll card account] number.
    Why you believe there is an error, and the dollar amount involved.
    Approximately when the error took place.
    If you tell us orally, we may require that you send us your 
complaint or question in writing within 10 business days.
    We will determine whether an error occurred within 10 business days 
after we hear from you and will correct any error promptly. If we need 
more time, however, we may take up to 45 days to investigate your 
complaint or question. If we decide to do this, we will credit your 
account within 10 business days for the amount you think is in error, so 
that you will have the money during the time it takes us to complete our 
investigation. If we ask you to put your complaint or question in 
writing and we do not receive it

[[Page 194]]

within 10 business days, we may not credit your account.
    For errors involving new accounts, point-of-sale, or foreign-
initiated transactions, we may take up to 90 days to investigate your 
complaint or question. For new accounts, we may take up to 20 business 
days to credit your account for the amount you think is in error.
    We will tell you the results within three business days after 
completing our investigation. If we decide that there was no error, we 
will send you a written explanation.
    You may ask for copies of the documents that we used in our 
investigation.
    If you need more information about our error-resolution procedures, 
call us at [telephone number] [the telephone number shown above] [or 
visit [internet address]].

A-8--Model Clause for Electronic Collection of Returned Item Fees (Sec. 
                              1005.3(b)(3))

    If your payment is returned unpaid, you authorize [us/name of person 
collecting the fee electronically] to make a one-time electronic fund 
transfer from your account to collect a fee of [$--------]. [If your 
payment is returned unpaid, you authorize [us/name of person collecting 
the fee electronically] to make a one-time electronic fund transfer from 
your account to collect a fee. The fee will be determined [by]/[as 
follows]:

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[GRAPHIC] [TIFF OMITTED] TR27DE11.000


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                 Sec. Appendix B to Part 1005 [Reserved]



   Sec. Appendix C to Part 1005--Issuance of Official Interpretations

                        Official Interpretations

    Pursuant to section 916(d) of the Act, the Bureau has designated the 
Associate Director and other officials of the Division of Research, 
Markets, and Regulations as officials ``duly authorized'' to issue, at 
their discretion, official interpretations of this part. Except in 
unusual circumstances, such interpretations will not be issued 
separately but will be incorporated in an official commentary to this 
part, which will be amended periodically.

            Requests for Issuance of Official Interpretations

    A request for an official interpretation shall be in writing and 
addressed to the Bureau of Consumer Financial Protection, 1700 G Street 
NW., Washington, DC 20006. The request shall contain a complete 
statement of all relevant facts concerning the issue, including copies 
of all pertinent documents.

                        Scope of Interpretations

    No interpretations will be issued approving financial institutions' 
forms or statements. This restriction does not apply to forms or 
statements whose use is required or sanctioned by a government agency.



        Sec. Supplement I to Part 1005--Official Interpretations

                       Section 1005.2 Definitions

                           2(a) Access Device

    1. Examples. The term ``access device'' includes debit cards, 
personal identification numbers (PINs), telephone transfer and telephone 
bill payment codes, and other means that may be used by a consumer to 
initiate an electronic fund transfer (EFT) to or from a consumer 
account. The term does not include magnetic tape or other devices used 
internally by a financial institution to initiate electronic transfers.
    2. Checks used to capture information. The term ``access device'' 
does not include a check or draft used to capture the Magnetic Ink 
Character Recognition (MICR) encoding to initiate a one-time automated 
clearinghouse (ACH) debit. For example, if a consumer authorizes a one-
time ACH debit from the consumer's account using a blank, partially 
completed, or fully completed and signed check for the merchant to 
capture the routing, account, and serial numbers to initiate the debit, 
the check is not an access device. (Although the check is not an access 
device under Regulation E, the transaction is nonetheless covered by the 
regulation. See comment 3(b)(1)-1.v.)

                              2(b) Account

    1. Consumer asset account. The term ``consumer asset account'' 
includes:
    i. Club accounts, such as vacation clubs. In many cases, however, 
these accounts are exempt from the regulation under Sec. 1005.3(c)(5) 
because all electronic transfers to or from the account have been 
preauthorized by the consumer and involve another account of the 
consumer at the same institution.
    ii. A retail repurchase agreement (repo), which is a loan made to a 
financial institution by a consumer that is collateralized by government 
or government-insured securities.
    2. Certain employment-related cards not covered. The term ``payroll 
card account'' does not include a card used solely to disburse 
incentive-based payments (other than commissions which can represent the 
primary means through which a consumer is paid), such as bonuses, which 
are unlikely to be a consumer's primary source of salary or other 
compensation. The term also does not include a card used solely to make 
disbursements unrelated to compensation, such as petty cash 
reimbursements or travel per diem payments. Similarly, a payroll card 
account does not include a card that is used in isolated instances to 
which an employer typically does not make recurring payments, such as 
when providing final payments or in emergency situations when other 
payment methods are unavailable. However, all transactions involving the 
transfer of funds to or from a payroll card account are covered by the 
regulation, even if a particular transaction involves payment of a 
bonus, other incentive-based payment, or reimbursement, or the 
transaction does not represent a transfer of wages, salary, or other 
employee compensation.
    3. Examples of accounts not covered by Regulation E (12 CFR Part 
1005) include:
    i. Profit-sharing and pension accounts established under a trust 
agreement, which are exempt under Sec. 1005.2(b)(2).
    ii. Escrow accounts, such as those established to ensure payment of 
items such as real estate taxes, insurance premiums, or completion of 
repairs or improvements.
    iii. Accounts for accumulating funds to purchase U.S. savings bonds.

                            Paragraph 2(b)(2)

    1. Bona fide trust agreements. The term ``bona fide trust 
agreement'' is not defined by the Act or regulation; therefore, 
financial institutions must look to state or other applicable law for 
interpretation.
    2. Custodial agreements. An account held under a custodial agreement 
that qualifies as a trust under the Internal Revenue Code,

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such as an individual retirement account, is considered to be held under 
a trust agreement for purposes of Regulation E.

                            2(d) Business Day

    1. Duration. A business day includes the entire 24-hour period 
ending at midnight, and a notice required by the regulation is effective 
even if given outside normal business hours. The regulation does not 
require, however, that a financial institution make telephone lines 
available on a 24-hour basis.
    2. Substantially all business functions. Substantially all business 
functions include both the public and the back-office operations of the 
institution. For example, if the offices of an institution are open on 
Saturdays for handling some consumer transactions (such as deposits, 
withdrawals, and other teller transactions), but not for performing 
internal functions (such as investigating account errors), then Saturday 
is not a business day for that institution. In this case, Saturday does 
not count toward the business-day standard set by the regulation for 
reporting lost or stolen access devices, resolving errors, etc.
    3. Short hours. A financial institution may determine, at its 
election, whether an abbreviated day is a business day. For example, if 
an institution engages in substantially all business functions until 
noon on Saturdays instead of its usual 3 p.m. closing, it may consider 
Saturday a business day.
    4. Telephone line. If a financial institution makes a telephone line 
available on Sundays for reporting the loss or theft of an access 
device, but performs no other business functions, Sunday is not a 
business day under the substantially all business functions standard.

                        2(h) Electronic Terminal

    1. Point-of-sale (POS) payments initiated by telephone. Because the 
term ``electronic terminal'' excludes a telephone operated by a 
consumer, a financial institution need not provide a terminal receipt 
when:
    i. A consumer uses a debit card at a public telephone to pay for the 
call.
    ii. A consumer initiates a transfer by a means analogous in function 
to a telephone, such as by home banking equipment or a facsimile 
machine.
    2. POS terminals. A POS terminal that captures data electronically, 
for debiting or crediting to a consumer's asset account, is an 
electronic terminal for purposes of Regulation E even if no access 
device is used to initiate the transaction. See Sec. 1005.9 for receipt 
requirements.
    3. Teller-operated terminals. A terminal or other computer equipment 
operated by an employee of a financial institution is not an electronic 
terminal for purposes of the regulation. However, transfers initiated at 
such terminals by means of a consumer's access device (using the 
consumer's PIN, for example) are EFTs and are subject to other 
requirements of the regulation. If an access device is used only for 
identification purposes or for determining the account balance, the 
transfers are not EFTs for purposes of the regulation.

               2(k) Preauthorized Electronic Fund Transfer

    1. Advance authorization. A preauthorized electronic fund transfer 
under Regulation E is one authorized by the consumer in advance of a 
transfer that will take place on a recurring basis, at substantially 
regular intervals, and will require no further action by the consumer to 
initiate the transfer. In a bill-payment system, for example, if the 
consumer authorizes a financial institution to make monthly payments to 
a payee by means of EFTs, and the payments take place without further 
action by the consumer, the payments are preauthorized EFTs. In 
contrast, if the consumer must take action each month to initiate a 
payment (such as by entering instructions on a touch-tone telephone or 
home computer), the payments are not preauthorized EFTs.

               2(m) Unauthorized Electronic Fund Transfer

    1. Transfer by institution's employee. A consumer has no liability 
for erroneous or fraudulent transfers initiated by an employee of a 
financial institution.
    2. Authority. If a consumer furnishes an access device and grants 
authority to make transfers to a person (such as a family member or co-
worker) who exceeds the authority given, the consumer is fully liable 
for the transfers unless the consumer has notified the financial 
institution that transfers by that person are no longer authorized.
    3. Access device obtained through robbery or fraud. An unauthorized 
EFT includes a transfer initiated by a person who obtained the access 
device from the consumer through fraud or robbery.
    4. Forced initiation. An EFT at an ATM is an unauthorized transfer 
if the consumer has been induced by force to initiate the transfer.
    5. Reversal of direct deposits. The reversal of a direct deposit 
made in error is not an unauthorized EFT when it involves:
    i. A credit made to the wrong consumer's account;
    ii. A duplicate credit made to a consumer's account; or
    iii. A credit in the wrong amount (for example, when the amount 
credited to the consumer's account differs from the amount in the 
transmittal instructions).

[[Page 198]]

                         Section 1005.3 Coverage

                              3(a) General

    1. Accounts covered. The requirements of the regulation apply only 
to an account for which an agreement for EFT services to or from the 
account has been entered into between:
    i. The consumer and the financial institution (including an account 
for which an access device has been issued to the consumer, for 
example);
    ii. The consumer and a third party (for preauthorized debits or 
credits, for example), when the account-holding institution has received 
notice of the agreement and the fund transfers have begun.
    2. Automated clearing house (ACH) membership. The fact that 
membership in an ACH requires a financial institution to accept EFTs to 
accounts at the institution does not make every account of that 
institution subject to the regulation.
    3. Foreign applicability. Regulation E applies to all persons 
(including branches and other offices of foreign banks located in the 
United States) that offer EFT services to residents of any state, 
including resident aliens. It covers any account located in the United 
States through which EFTs are offered to a resident of a state. This is 
the case whether or not a particular transfer takes place in the United 
States and whether or not the financial institution is chartered in the 
United States or a foreign country. The regulation does not apply to a 
foreign branch of a U.S. bank unless the EFT services are offered in 
connection with an account in a state as defined in Sec. 1005.2(l).

                      3(b) Electronic Fund Transfer

                           3(b)(1) Definition

    1. Fund transfers covered. The term ``electronic fund transfer'' 
includes:
    i. A deposit made at an ATM or other electronic terminal (including 
a deposit in cash or by check) provided a specific agreement exists 
between the financial institution and the consumer for EFTs to or from 
the account to which the deposit is made.
    ii. A transfer sent via ACH. For example, social security benefits 
under the U.S. Treasury's direct-deposit program are covered, even if 
the listing of payees and payment amounts reaches the account-holding 
institution by means of a computer printout from a correspondent bank.
    iii. A preauthorized transfer credited or debited to an account in 
accordance with instructions contained on magnetic tape, even if the 
financial institution holding the account sends or receives a composite 
check.
    iv. A transfer from the consumer's account resulting from a debit-
card transaction at a merchant location, even if no electronic terminal 
is involved at the time of the transaction, if the consumer's asset 
account is subsequently debited for the amount of the transfer.
    v. A transfer via ACH where a consumer has provided a check to 
enable the merchant or other payee to capture the routing, account, and 
serial numbers to initiate the transfer, whether the check is blank, 
partially completed, or fully completed and signed; whether the check is 
presented at POS or is mailed to a merchant or other payee or lockbox 
and later converted to an EFT; or whether the check is retained by the 
consumer, the merchant or other payee, or the payee's financial 
institution.
    vi. A payment made by a bill payer under a bill-payment service 
available to a consumer via computer or other electronic means, unless 
the terms of the bill-payment service explicitly state that all 
payments, or all payments to a particular payee or payees, will be 
solely by check, draft, or similar paper instrument drawn on the 
consumer's account, and the payee or payees that will be paid in this 
manner are identified to the consumer.
    2. Fund transfers not covered. The term ``electronic fund transfer'' 
does not include:
    i. A payment that does not debit or credit a consumer asset account, 
such as a payroll allotment to a creditor to repay a credit extension 
(which is deducted from salary).
    ii. A payment made in currency by a consumer to another person at an 
electronic terminal.
    iii. A preauthorized check drawn by the financial institution on the 
consumer's account (such as an interest or other recurring payment to 
the consumer or another party), even if the check is computer-generated.
    iv. Transactions arising from the electronic collection, 
presentment, or return of checks through the check collection system, 
such as through transmission of electronic check images.

     3(b)(2) Electronic Fund Transfer Using Information From a Check

    1. Notice at POS not furnished due to inadvertent error. If the copy 
of the notice under section 1005.3(b)(2)(ii) for electronic check 
conversion (ECK) transactions is not provided to the consumer at POS 
because of a bona fide unintentional error, such as when a terminal 
printing mechanism jams, no violation results if the payee maintains 
procedures reasonably adapted to avoid such occurrences.
    2. Authorization to process a transaction as an EFT or as a check. 
In order to process a transaction as an EFT, or alternatively as a 
check, the payee must obtain the consumer's authorization to do so. A 
payee may, at its option, specify the circumstances under which a check 
may not be converted to an EFT. See model clauses in Appendix A-6.

[[Page 199]]

    3. Notice for each transfer. Generally, a notice to authorize an 
electronic check conversion transaction must be provided for each 
transaction. For example, a consumer must receive a notice that the 
transaction will be processed as an EFT for each transaction at POS or 
each time a consumer mails a check in an accounts receivable (ARC) 
transaction to pay a bill, such as a utility bill, if the payee intends 
to convert a check received as payment. Similarly, the consumer must 
receive notice if the payee intends to collect a service fee for 
insufficient or uncollected funds via an EFT for each transaction 
whether at POS or if the consumer mails a check to pay a bill. The 
notice about when funds may be debited from a consumer's account and the 
non-return of consumer checks by the consumer's financial institution 
must also be provided for each transaction. However, if in an ARC 
transaction, a payee provides a coupon book to a consumer, for example, 
for mortgage loan payments, and the payment dates and amounts are set 
out in the coupon book, the payee may provide a single notice on the 
coupon book stating all of the required disclosures under paragraph 
(b)(2) of this section in order to obtain authorization for each 
conversion of a check and any debits via EFT to the consumer's account 
to collect any service fees imposed by the payee for insufficient or 
uncollected funds in the consumer's account. The notice must be placed 
on a conspicuous location of the coupon book that a consumer can 
retain--for example, on the first page, or inside the front cover.
    4. Multiple payments/multiple consumers. If a merchant or other 
payee will use information from a consumer's check to initiate an EFT 
from the consumer's account, notice to a consumer listed on the billing 
account that a check provided as payment during a single billing cycle 
or after receiving an invoice or statement will be processed as a one-
time EFT or as a check transaction constitutes notice for all checks 
provided in payment for the billing cycle or the invoice for which 
notice has been provided, whether the check(s) is submitted by the 
consumer or someone else. The notice applies to all checks provided in 
payment for the billing cycle or invoice until the provision of notice 
on or with the next invoice or statement. Thus, if a merchant or other 
payee receives a check as payment for the consumer listed on the billing 
account after providing notice that the check will be processed as a 
one-time EFT, the authorization from that consumer constitutes 
authorization to convert any other checks provided for that invoice or 
statement. Other notices required under this paragraph (b)(2) (for 
example, to collect a service fee for insufficient or uncollected funds 
via an EFT) provided to the consumer listed on the billing account also 
constitutes notice to any other consumer who may provide a check for the 
billing cycle or invoice.
    5. Additional disclosures about ECK transactions at POS. When a 
payee initiates an EFT at POS using information from the consumer's 
check, and returns the check to the consumer at POS, the payee need not 
provide a notice to the consumer that the check will not be returned by 
the consumer's financial institution.

  3(b)(3) Collection of Returned Item Fees via Electronic Fund Transfer

    1. Fees imposed by account-holding institution. The requirement to 
obtain a consumer's authorization to collect a fee via EFT for the 
return of an EFT or check unpaid applies only to the person that intends 
to initiate an EFT to collect the returned item fee from the consumer's 
account. The authorization requirement does not apply to any fees 
assessed by the consumer's account-holding financial institution when it 
returns the unpaid underlying EFT or check or pays the amount of an 
overdraft.
    2. Accounts receivable transactions. In an ARC transaction where a 
consumer sends in a payment for amounts owed (or makes an in-person 
payment at a biller's physical location, such as when a consumer makes a 
loan payment at a bank branch or places a payment in a drop box), a 
person seeking to electronically collect a fee for items returned unpaid 
must obtain the consumer's authorization to collect the fee in this 
manner. A consumer authorizes a person to electronically collect a 
returned item fee when the consumer receives notice, typically on an 
invoice or statement, that the person may collect the fee through an EFT 
to the consumer's account, and the consumer goes forward with the 
underlying transaction by providing payment. The notice must also state 
the dollar amount of the fee. However, an explanation of how that fee 
will be determined may be provided in place of the dollar amount of the 
fee if the fee may vary due to the amount of the transaction or due to 
other factors, such as the number of days the underlying transaction is 
left outstanding. For example, if a state law permits a maximum fee of 
$30 or 10% of the underlying transaction, whichever is greater, the 
person collecting the fee may explain how the fee is determined, rather 
than state a specific dollar amount for the fee.
    3. Disclosure of dollar amount of fee for POS transactions. The 
notice provided to the consumer in connection with a POS transaction 
under Sec. 1005.3(b)(3)(ii) must state the amount of the fee for a 
returned item if the dollar amount of the fee can be calculated at the 
time the notice is provided or mailed. For example, if notice is 
provided to the consumer at the time of the transaction, if the 
applicable state law sets a maximum fee that may be collected for a 
returned item

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based on the amount of the underlying transaction (such as where the 
amount of the fee is expressed as a percentage of the underlying 
transaction), the person collecting the fee must state the actual dollar 
amount of the fee on the notice provided to the consumer. Alternatively, 
if the amount of the fee to be collected cannot be calculated at the 
time of the transaction (for example, where the amount of the fee will 
depend on the number of days a debt continues to be owed), the person 
collecting the fee may provide a description of how the fee will be 
determined on both the posted notice as well as on the notice provided 
at the time of the transaction. However, if the person collecting the 
fee elects to send the consumer notice after the person has initiated an 
EFT to collect the fee, that notice must state the amount of the fee to 
be collected.
    4. Third party providing notice. The person initiating an EFT to a 
consumer's account to electronically collect a fee for an item returned 
unpaid may obtain the authorization and provide the notices required 
under Sec. 1005.3(b)(3) through third parties, such as merchants.

                      3(c) Exclusions From Coverage

                             3(c)(1) Checks

    1. Re-presented checks. The electronic re-presentment of a returned 
check is not covered by Regulation E because the transaction originated 
by check. Regulation E does apply, however, to any fee debited via an 
EFT from a consumer's account by the payee because the check was 
returned for insufficient or uncollected funds. The person debiting the 
fee electronically must obtain the consumer's authorization.
    2. Check used to capture information for a one-time EFT. See comment 
3(b)(1)-1.v.

                3(c)(2) Check Guarantee or Authorization

    1. Memo posting. Under a check guarantee or check authorization 
service, debiting of the consumer's account occurs when the check or 
draft is presented for payment. These services are exempt from coverage, 
even when a temporary hold on the account is memo-posted electronically 
at the time of authorization.

                 3(c)(3) Wire or Other Similar Transfers

    1. Fedwire and ACH. If a financial institution makes a fund transfer 
to a consumer's account after receiving funds through Fedwire or a 
similar network, the transfer by ACH is covered by the regulation even 
though the Fedwire or network transfer is exempt.
    2. Article 4A. Financial institutions that offer telephone-initiated 
Fedwire payments are subject to the requirements of UCC section 4A-202, 
which encourages verification of Fedwire payment orders pursuant to a 
security procedure established by agreement between the consumer and the 
receiving bank. These transfers are not subject to Regulation E and the 
agreement is not considered a telephone plan if the service is offered 
separately from a telephone bill-payment or other prearranged plan 
subject to Regulation E. Regulation J of the Board of Governors of the 
Federal Reserve System (12 CFR part 210) specifies the rules applicable 
to funds handled by Federal Reserve Banks. To ensure that the rules for 
all fund transfers through Fedwire are consistent, the Board of 
Governors used its preemptive authority under UCC section 4A-107 to 
determine that subpart B of the Board's Regulation J, including the 
provisions of Article 4A, applies to all fund transfers through Fedwire, 
even if a portion of the fund transfer is governed by the EFTA. The 
portion of the fund transfer that is governed by the EFTA is not 
governed by subpart B of the Board's Regulation J.
    3. Similar fund transfer systems. Fund transfer systems that are 
similar to Fedwire include the Clearing House Interbank Payments System 
(CHIPS), Society for Worldwide Interbank Financial Telecommunication 
(SWIFT), Telex, and transfers made on the books of correspondent banks.

              3(c)(4) Securities and Commodities Transfers

    1. Coverage. The securities exemption applies to securities and 
commodities that may be sold by a registered broker-dealer or futures 
commission merchant, even when the security or commodity itself is not 
regulated by the Securities and Exchange Commission or the Commodity 
Futures Trading Commission.
    2. Example of exempt transfer. The exemption applies to a transfer 
involving a transfer initiated by a telephone order to a stockbroker to 
buy or sell securities or to exercise a margin call.
    3. Examples of nonexempt transfers. The exemption does not apply to 
a transfer involving:
    i. A debit card or other access device that accesses a securities or 
commodities account such as a money market mutual fund and that the 
consumer uses for purchasing goods or services or for obtaining cash.
    ii. A payment of interest or dividends into the consumer's account 
(for example, from a brokerage firm or from a Federal Reserve Bank for 
government securities).

       3(c)(5) Automatic Transfers by Account-Holding Institution

    1. Automatic transfers exempted. The exemption applies to:
    i. Electronic debits or credits to consumer accounts for check 
charges, stop-payment charges, non-sufficient funds (NSF) charges,

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overdraft charges, provisional credits, error adjustments, and similar 
items that are initiated automatically on the occurrence of certain 
events.
    ii. Debits to consumer accounts for group insurance available only 
through the financial institution and payable only by means of an 
aggregate payment from the institution to the insurer.
    iii. EFTs between a thrift institution and its paired commercial 
bank in the state of Rhode Island, which are deemed under state law to 
be intra-institutional.
    iv. Automatic transfers between a consumer's accounts within the 
same financial institution, even if the account holders on the two 
accounts are not identical.
    2. Automatic transfers not exempted. Transfers between accounts of 
the consumer at affiliated institutions (such as between a bank and its 
subsidiary or within a holding company) are not intra-institutional 
transfers, and thus do not qualify for the exemption.

                  3(c)(6) Telephone-Initiated Transfers

    1. Written plan or agreement. A transfer that the consumer initiates 
by telephone is covered by Regulation E if the transfer is made under a 
written plan or agreement between the consumer and the financial 
institution making the transfer. A written statement available to the 
public or to account holders that describes a service allowing a 
consumer to initiate transfers by telephone constitutes a plan; for 
example, a brochure, or material included with periodic statements. The 
following, however, do not by themselves constitute a written plan or 
agreement:
    i. A hold-harmless agreement on a signature card that protects the 
institution if the consumer requests a transfer.
    ii. A legend on a signature card, periodic statement, or passbook 
that limits the number of telephone-initiated transfers the consumer can 
make from a savings account because of reserve requirements under 
Regulation D of the Board of Governors of the Federal Reserve System (12 
CFR part 204).
    iii. An agreement permitting the consumer to approve by telephone 
the rollover of funds at the maturity of an instrument.
    2. Examples of covered transfers. When a written plan or agreement 
has been entered into, a transfer initiated by a telephone call from a 
consumer is covered even though:
    i. An employee of the financial institution completes the transfer 
manually (for example, by means of a debit memo or deposit slip).
    ii. The consumer is required to make a separate request for each 
transfer.
    iii. The consumer uses the plan infrequently.
    iv. The consumer initiates the transfer via a facsimile machine.
    v. The consumer initiates the transfer using a financial 
institution's audio-response or voice-response telephone system.

                       3(c)(7) Small Institutions

    1. Coverage. This exemption is limited to preauthorized transfers; 
institutions that offer other EFTs must comply with the applicable 
sections of the regulation as to such services. The preauthorized 
transfers remain subject to sections 913, 916, and 917 of the Act and 
Sec. 1005.10(e), and are therefore exempt from UCC Article 4A.

Section 1005.4 General Disclosure Requirements; Jointly Offered Services

                        4(a) Form of Disclosures

    1. General. Although no particular rules govern type size, number of 
pages, or the relative conspicuousness of various terms, the disclosures 
must be in a clear and readily understandable written form that the 
consumer may retain. Numbers or codes are considered readily 
understandable if explained elsewhere on the disclosure form.
    2. Foreign language disclosures. Disclosures may be made in 
languages other than English, provided they are available in English 
upon request.

                Section 1005.5 Issuance of Access Devices

    1. Coverage. The provisions of this section limit the circumstances 
under which a financial institution may issue an access device to a 
consumer. Making an additional account accessible through an existing 
access device is equivalent to issuing an access device and is subject 
to the limitations of this section.

                         5(a) Solicited Issuance

                            Paragraph 5(a)(1)

    1. Joint account. For a joint account, a financial institution may 
issue an access device to each account holder if the requesting holder 
specifically authorizes the issuance.
    2. Permissible forms of request. The request for an access device 
may be written or oral (for example, in response to a telephone 
solicitation by a card issuer).

                            Paragraph 5(a)(2)

    1. One-for-one rule. In issuing a renewal or substitute access 
device, only one renewal or substitute device may replace a previously 
issued device. For example, only one new card and PIN may replace a card 
and PIN previously issued. A financial institution may provide 
additional devices at the time it issues the renewal or substitute 
access device, however, provided the institution complies with Sec. 
1005.5(b). See comment 5(b)-5. If the replacement device or the 
additional device permits either fewer or additional types of electronic 
fund transfer services, a

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change-in-terms notice or new disclosures are required.
    2. Renewal or substitution by a successor institution. A successor 
institution is an entity that replaces the original financial 
institution (for example, following a corporate merger or acquisition) 
or that acquires accounts or assumes the operation of an EFT system.

                        5(b) Unsolicited Issuance

    1. Compliance. A financial institution may issue an unsolicited 
access device (such as the combination of a debit card and PIN) if the 
institution's ATM system has been programmed not to accept the access 
device until after the consumer requests and the institution validates 
the device. Merely instructing a consumer not to use an unsolicited 
debit card and PIN until after the institution verifies the consumer's 
identity does not comply with the regulation.
    2. PINs. A financial institution may impose no liability on a 
consumer for unauthorized transfers involving an unsolicited access 
device until the device becomes an ``accepted access device'' under the 
regulation. A card and PIN combination may be treated as an accepted 
access device once the consumer has used it to make a transfer.
    3. Functions of PIN. If an institution issues a PIN at the 
consumer's request, the issuance may constitute both a way of validating 
the debit card and the means to identify the consumer (required as a 
condition of imposing liability for unauthorized transfers).
    4. Verification of identity. To verify the consumer's identity, a 
financial institution may use any reasonable means, such as a 
photograph, fingerprint, personal visit, signature comparison, or 
personal information about the consumer. However, even if reasonable 
means were used, if an institution fails to verify correctly the 
consumer's identity and an imposter succeeds in having the device 
validated, the consumer is not liable for any unauthorized transfers 
from the account.
    5. Additional access devices in a renewal or substitution. A 
financial institution may issue more than one access device in 
connection with the renewal or substitution of a previously issued 
accepted access device, provided that any additional access device 
(beyond the device replacing the accepted access device) is not 
validated at the time it is issued, and the institution complies with 
the other requirements of Sec. 1005.5(b). The institution may, if it 
chooses, set up the validation procedure such that both the device 
replacing the previously issued device and the additional device are not 
validated at the time they are issued, and validation will apply to both 
devices. If the institution sets up the validation procedure in this 
way, the institution should provide a clear and readily understandable 
disclosure to the consumer that both devices are unvalidated and that 
validation will apply to both devices.

     Section 1005.6 Liability of Consumer for Unauthorized Transfers

                      6(a) Conditions for Liability

    1. Means of identification. A financial institution may use various 
means for identifying the consumer to whom the access device is issued, 
including but not limited to:
    i. Electronic or mechanical confirmation (such as a PIN).
    ii. Comparison of the consumer's signature, fingerprint, or 
photograph.
    2. Multiple users. When more than one access device is issued for an 
account, the financial institution may, but need not, provide a separate 
means to identify each user of the account.

                 6(b) Limitations on Amount of Liability

    1. Application of liability provisions. There are three possible 
tiers of consumer liability for unauthorized EFTs depending on the 
situation. A consumer may be liable for: (1) up to $50; (2) up to $500; 
or (3) an unlimited amount depending on when the unauthorized EFT 
occurs. More than one tier may apply to a given situation because each 
corresponds to a different (sometimes overlapping) time period or set of 
conditions.
    2. Consumer negligence. Negligence by the consumer cannot be used as 
the basis for imposing greater liability than is permissible under 
Regulation E. Thus, consumer behavior that may constitute negligence 
under state law, such as writing the PIN on a debit card or on a piece 
of paper kept with the card, does not affect the consumer's liability 
for unauthorized transfers. (However, refer to comment 2(m)-2 regarding 
termination of the authority of given by the consumer to another 
person.)
    3. Limits on liability. The extent of the consumer's liability is 
determined solely by the consumer's promptness in reporting the loss or 
theft of an access device. Similarly, no agreement between the consumer 
and an institution may impose greater liability on the consumer for an 
unauthorized transfer than the limits provided in Regulation E.

                       6(b)(1) Timely Notice Given

    1. $50 limit applies. The basic liability limit is $50. For example, 
the consumer's card is lost or stolen on Monday and the consumer learns 
of the loss or theft on Wednesday. If the consumer notifies the 
financial institution within two business days of learning of the loss 
or theft (by midnight Friday), the consumer's liability is limited to 
$50 or the amount of the unauthorized transfers that occurred before 
notification, whichever is less.

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    2. Knowledge of loss or theft of access device. The fact that a 
consumer has received a periodic statement that reflects unauthorized 
transfers may be a factor in determining whether the consumer had 
knowledge of the loss or theft, but cannot be deemed to represent 
conclusive evidence that the consumer had such knowledge.
    3. Two business day rule. The two business day period does not 
include the day the consumer learns of the loss or theft or any day that 
is not a business day. The rule is calculated based on two 24-hour 
periods, without regard to the financial institution's business hours or 
the time of day that the consumer learns of the loss or theft. For 
example, a consumer learns of the loss or theft at 6 p.m. on Friday. 
Assuming that Saturday is a business day and Sunday is not, the two 
business day period begins on Saturday and expires at 11:59 p.m. on 
Monday, not at the end of the financial institution's business day on 
Monday.

                     6(b)(2) Timely Notice Not Given

    1. $500 limit applies. The second tier of liability is $500. For 
example, the consumer's card is stolen on Monday and the consumer learns 
of the theft that same day. The consumer reports the theft on Friday. 
The $500 limit applies because the consumer failed to notify the 
financial institution within two business days of learning of the theft 
(which would have been by midnight Wednesday). How much the consumer is 
actually liable for, however, depends on when the unauthorized transfers 
take place. In this example, assume a $100 unauthorized transfer was 
made on Tuesday and a $600 unauthorized transfer on Thursday. Because 
the consumer is liable for the amount of the loss that occurs within the 
first two business days (but no more than $50), plus the amount of the 
unauthorized transfers that occurs after the first two business days and 
before the consumer gives notice, the consumer's total liability is $500 
($50 of the $100 transfer plus $450 of the $600 transfer, in this 
example). But if $600 was taken on Tuesday and $100 on Thursday, the 
consumer's maximum liability would be $150 ($50 of the $600 plus $100).

           6(b)(3) Periodic Statement; Timely Notice Not Given

    1. Unlimited liability applies. The standard of unlimited liability 
applies if unauthorized transfers appear on a periodic statement, and 
may apply in conjunction with the first two tiers of liability. If a 
periodic statement shows an unauthorized transfer made with a lost or 
stolen debit card, the consumer must notify the financial institution 
within 60 calendar days after the periodic statement was sent; 
otherwise, the consumer faces unlimited liability for all unauthorized 
transfers made after the 60-day period. The consumer's liability for 
unauthorized transfers before the statement is sent, and up to 60 days 
following, is determined based on the first two tiers of liability: up 
to $50 if the consumer notifies the financial institution within two 
business days of learning of the loss or theft of the card and up to 
$500 if the consumer notifies the institution after two business days of 
learning of the loss or theft.
    2. Transfers not involving access device. The first two tiers of 
liability do not apply to unauthorized transfers from a consumer's 
account made without an access device. If, however, the consumer fails 
to report such unauthorized transfers within 60 calendar days of the 
financial institution's transmittal of the periodic statement, the 
consumer may be liable for any transfers occurring after the close of 
the 60 days and before notice is given to the institution. For example, 
a consumer's account is electronically debited for $200 without the 
consumer's authorization and by means other than the consumer's access 
device. If the consumer notifies the institution within 60 days of the 
transmittal of the periodic statement that shows the unauthorized 
transfer, the consumer has no liability. However, if in addition to the 
$200, the consumer's account is debited for a $400 unauthorized transfer 
on the 61st day and the consumer fails to notify the institution of the 
first unauthorized transfer until the 62nd day, the consumer may be 
liable for the full $400.

                    6(b)(4) Extension of Time Limits

    1. Extenuating circumstances. Examples of circumstances that require 
extension of the notification periods under this section include the 
consumer's extended travel or hospitalization.

                 6(b)(5) Notice to Financial Institution

    1. Receipt of notice. A financial institution is considered to have 
received notice for purposes of limiting the consumer's liability if 
notice is given in a reasonable manner, even if the consumer notifies 
the institution but uses an address or telephone number other than the 
one specified by the institution.
    2. Notice by third party. Notice to a financial institution by a 
person acting on the consumer's behalf is considered valid under this 
section. For example, if a consumer is hospitalized and unable to report 
the loss or theft of an access device, notice is considered given when 
someone acting on the consumer's behalf notifies the bank of the loss or 
theft. A financial institution may require appropriate documentation 
from the person representing the consumer to establish that the person 
is acting on the consumer's behalf.
    3. Content of notice. Notice to a financial institution is 
considered given when a consumer takes reasonable steps to provide the

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institution with the pertinent account information. Even when the 
consumer is unable to provide the account number or the card number in 
reporting a lost or stolen access device or an unauthorized transfer, 
the notice effectively limits the consumer's liability if the consumer 
otherwise identifies sufficiently the account in question. For example, 
the consumer may identify the account by the name on the account and the 
type of account in question.

                   Section 1005.7 Initial Disclosures

                       7(a) Timing of Disclosures

    1. Early disclosures. Disclosures given by a financial institution 
earlier than the regulation requires (for example, when the consumer 
opens a checking account) need not be repeated when the consumer later 
enters into an agreement with a third party to initiate preauthorized 
transfers to or from the consumer's account, unless the terms and 
conditions differ from those that the institution previously disclosed. 
This interpretation also applies to any notice provided about one-time 
EFTs from a consumer's account initiated using information from the 
consumer's check. On the other hand, if an agreement for EFT services to 
be provided by an account-holding institution is directly between the 
consumer and the account-holding institution, disclosures must be given 
in close proximity to the event requiring disclosure, for example, when 
the consumer contracts for a new service.
    2. Lack of advance notice of a transfer. Where a consumer authorizes 
a third party to debit or credit the consumer's account, an account-
holding institution that has not received advance notice of the transfer 
or transfers must provide the required disclosures as soon as reasonably 
possible after the first debit or credit is made, unless the institution 
has previously given the disclosures.
    3. Addition of new accounts. If a consumer opens a new account 
permitting EFTs at a financial institution, and the consumer already has 
received Regulation E disclosures for another account at that 
institution, the institution need only disclose terms and conditions 
that differ from those previously given.
    4. Addition of service in interchange systems. If a financial 
institution joins an interchange or shared network system (which 
provides access to terminals operated by other institutions), 
disclosures are required for additional EFT services not previously 
available to consumers if the terms and conditions differ from those 
previously disclosed.
    5. Disclosures covering all EFT services offered. An institution may 
provide disclosures covering all EFT services that it offers, even if 
some consumers have not arranged to use all services.

                       7(b) Content of Disclosures

                      7(b)(1) Liability of Consumer

    1. No liability imposed by financial institution. If a financial 
institution chooses to impose zero liability for unauthorized EFTs, it 
need not provide the liability disclosures. If the institution later 
decides to impose liability, however, it must first provide the 
disclosures.
    2. Preauthorized transfers. If the only EFTs from an account are 
preauthorized transfers, liability could arise if the consumer fails to 
report unauthorized transfers reflected on a periodic statement. To 
impose such liability on the consumer, the institution must have 
disclosed the potential liability and the telephone number and address 
for reporting unauthorized transfers.
    3. Additional information. At the institution's option, the summary 
of the consumer's liability may include advice on promptly reporting 
unauthorized transfers or the loss or theft of the access device.

                  7(b)(2) Telephone Number and Address

    1. Disclosure of telephone numbers. An institution may use the same 
or different telephone numbers in the disclosures for the purpose of:
    i. Reporting the loss or theft of an access device or possible 
unauthorized transfers;
    ii. Inquiring about the receipt of a preauthorized credit;
    iii. Stopping payment of a preauthorized debit;
    iv. Giving notice of an error.
    2. Location of telephone number. The telephone number need not be 
incorporated into the text of the disclosure; for example, the 
institution may instead insert a reference to a telephone number that is 
readily available to the consumer, such as ``Call your branch office. 
The number is shown on your periodic statement.'' However, an 
institution must provide a specific telephone number and address, on or 
with the disclosure statement, for reporting a lost or stolen access 
device or a possible unauthorized transfer.

                 7(b)(4) Types of Transfers; Limitations

    1. Security limitations. Information about limitations on the 
frequency and dollar amount of transfers generally must be disclosed in 
detail, even if related to security aspects of the system. If the 
confidentiality of certain details is essential to the security of an 
account or system, these details may be withheld (but the fact that 
limitations exist must still be disclosed). For example, an institution 
limits cash ATM withdrawals to $100 per day. The institution may 
disclose that daily withdrawal limitations apply and need not disclose 
that the limitations may not always be in force (such as during periods 
when its ATMs are off-line).

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    2. Restrictions on certain deposit accounts. A limitation on account 
activity that restricts the consumer's ability to make EFTs must be 
disclosed even if the restriction also applies to transfers made by non-
electronic means. For example, Regulation D of the Board of Governors of 
the Federal Reserve System (12 CFR Part 204) restricts the number of 
payments to third parties that may be made from a money market deposit 
account; an institution that does not execute fund transfers in excess 
of those limits must disclose the restriction as a limitation on the 
frequency of EFTs.
    3. Preauthorized transfers. Financial institutions are not required 
to list preauthorized transfers among the types of transfers that a 
consumer can make.
    4. One-time EFTs initiated using information from a check. Financial 
institutions must disclose the fact that one-time EFTs initiated using 
information from a consumer's check are among the types of transfers 
that a consumer can make. See Appendix A-2.

                              7(b)(5) Fees

    1. Disclosure of EFT fees. An institution is required to disclose 
all fees for EFTs or the right to make them. Others fees (for example, 
minimum-balance fees, stop-payment fees, or account overdrafts) may, but 
need not, be disclosed. But see Regulation DD, 12 CFR Part 1030. An 
institution is not required to disclose fees for inquiries made at an 
ATM since no transfer of funds is involved.
    2. Fees also applicable to non-EFT. A per-item fee for EFTs must be 
disclosed even if the same fee is imposed on non-electronic transfers. 
If a per-item fee is imposed only under certain conditions, such as when 
the transactions in the cycle exceed a certain number, those conditions 
must be disclosed. Itemization of the various fees may be provided on 
the disclosure statement or on an accompanying document that is 
referenced in the statement.
    3. Interchange system fees. Fees paid by the account-holding 
institution to the operator of a shared or interchange ATM system need 
not be disclosed, unless they are imposed on the consumer by the 
account-holding institution. Fees for use of an ATM that are debited 
directly from the consumer's account by an institution other than the 
account-holding institution (for example, fees included in the transfer 
amount) need not be disclosed. See Sec. 1005.7(b)(11) for the general 
notice requirement regarding fees that may be imposed by ATM operators 
and by a network used to complete the transfer.

                         7(b)(9) Confidentiality

    1. Information provided to third parties. An institution must 
describe the circumstances under which any information relating to an 
account to or from which EFTs are permitted will be made available to 
third parties, not just information concerning those EFTs. The term 
``third parties'' includes affiliates such as other subsidiaries of the 
same holding company.

                        7(b)(10) Error Resolution

    1. Substantially similar. The error resolution notice must be 
substantially similar to the model form in Appendix A of part 1005. An 
institution may use different wording so long as the substance of the 
notice remains the same, may delete inapplicable provisions (for 
example, the requirement for written confirmation of an oral 
notification), and may substitute substantive state law requirements 
affording greater consumer protection than Regulation E.
    2. Extended time-period for certain transactions. To take advantage 
of the longer time periods for resolving errors under Sec. 
1005.11(c)(3) (for new accounts as defined in Regulation CC of the Board 
of Governors of the Federal Reserve System (12 CFR part 229), transfers 
initiated outside the United States, or transfers resulting from POS 
debit-card transactions), a financial institution must have disclosed 
these longer time periods. Similarly, an institution that relies on the 
exception from provisional crediting in Sec. 1005.11(c)(2) for accounts 
subject to Regulation T of the Board of Governors of the Federal Reserve 
System (12 CFR part 220) must have disclosed accordingly.

           7(c) Addition of Electronic Fund Transfer Services

    1. Addition of electronic check conversion services. One-time EFTs 
initiated using information from a consumer's check are a new type of 
transfer requiring new disclosures, as applicable. See Appendix A-2.

     Section 1005.8 Change-in-Terms Notice; Error Resolution Notice

                       8(a) Change-in-Terms Notice

    1. Form of notice. No specific form or wording is required for a 
change-in-terms notice. The notice may appear on a periodic statement, 
or may be given by sending a copy of a revised disclosure statement, 
provided attention is directed to the change (for example, in a cover 
letter referencing the changed term).
    2. Changes not requiring notice. The following changes do not 
require disclosure:
    i. Closing some of an institution's ATMs;
    ii. Cancellation of an access device.
    3. Limitations on transfers. When the initial disclosures omit 
details about limitations because secrecy is essential to the security 
of the account or system, a subsequent increase in those limitations 
need not be disclosed if secrecy is still essential. If, however, an 
institution had no limits in place

[[Page 206]]

when the initial disclosures were given and now wishes to impose limits 
for the first time, it must disclose at least the fact that limits have 
been adopted. See also Sec. 1005.7(b)(4) and the related commentary.
    4. Change in telephone number or address. When a financial 
institution changes the telephone number or address used for reporting 
possible unauthorized transfers, a change-in-terms notice is required 
only if the institution will impose liability on the consumer for 
unauthorized transfers under Sec. 1005.6. See also Sec. 1005.6(a) and 
the related commentary.

                      8(b) Error Resolution Notice

    1. Change between annual and periodic notice. If an institution 
switches from an annual to a periodic notice, or vice versa, the first 
notice under the new method must be sent no later than 12 months after 
the last notice sent under the old method.
    2. Exception for new accounts. For new accounts, disclosure of the 
longer error resolution time periods under Sec. 1005.11(c)(3) is not 
required in the annual error resolution notice or in the notice that may 
be provided with each periodic statement as an alternative to the annual 
notice.

  Section 1005.9 Receipts at Electronic Terminals; Periodic Statements

                  9(a) Receipts at Electronic Terminals

    1. Receipts furnished only on request. The regulation requires that 
a receipt be ``made available.'' A financial institution may program its 
electronic terminals to provide a receipt only to consumers who elect to 
receive one.
    2. Third party providing receipt. An account-holding institution may 
make terminal receipts available through third parties such as merchants 
or other financial institutions.
    3. Inclusion of promotional material. A financial institution may 
include promotional material on receipts if the required information is 
set forth clearly (for example, by separating it from the promotional 
material). In addition, a consumer may not be required to surrender the 
receipt or that portion containing the required disclosures in order to 
take advantage of a promotion.
    4. Transfer not completed. The receipt requirement does not apply to 
a transfer that is initiated but not completed (for example, if the ATM 
is out of currency or the consumer decides not to complete the 
transfer).
    5. Receipts not furnished due to inadvertent error. If a receipt is 
not provided to the consumer because of a bona fide unintentional error, 
such as when a terminal runs out of paper or the mechanism jams, no 
violation results if the financial institution maintains procedures 
reasonably adapted to avoid such occurrences.
    6. Multiple transfers. If the consumer makes multiple transfers at 
the same time, the financial institution may document them on a single 
or on separate receipts.

                             9(a)(1) Amount

    1. Disclosure of transaction fee. The required display of a fee 
amount on or at the terminal may be accomplished by displaying the fee 
on a sign at the terminal or on the terminal screen for a reasonable 
duration. Displaying the fee on a screen provides adequate notice, as 
long as a consumer is given the option to cancel the transaction after 
receiving notice of a fee. See Sec. 1005.16 for the notice requirements 
applicable to ATM operators that impose a fee for providing EFT 
services.
    2. Relationship between Sec. 1005.9(a)(1) and Sec. 1005.16. The 
requirements of Sec. Sec. 1005.9(a)(1) and 1005.16 are similar but not 
identical.
    i. Section 1005.9(a)(1) requires that if the amount of the transfer 
as shown on the receipt will include the fee, then the fee must be 
disclosed either on a sign on or at the terminal, or on the terminal 
screen. Section 1005.16 requires disclosure both on a sign on or at the 
terminal (in a prominent and conspicuous location) and on the terminal 
screen. Section 1005.16 permits disclosure on a paper notice as an 
alternative to the on-screen disclosure.
    ii. The disclosure of the fee on the receipt under Sec. 
1005.9(a)(1) cannot be used to comply with the alternative paper 
disclosure procedure under Sec. 1005.16, if the receipt is provided at 
the completion of the transaction because, pursuant to the statute, the 
paper notice must be provided before the consumer is committed to paying 
the fee.
    iii. Section 1005.9(a)(1) applies to any type of electronic terminal 
as defined in Regulation E (for example, to POS terminals as well as to 
ATMs), while Sec. 1005.16 applies only to ATMs.

                              9(a)(2) Date

    1. Calendar date. The receipt must disclose the calendar date on 
which the consumer uses the electronic terminal. An accounting or 
business date may be disclosed in addition if the dates are clearly 
distinguished.

                              9(a)(3) Type

    1. Identifying transfer and account. Examples identifying the type 
of transfer and the type of the consumer's account include ``withdrawal 
from checking,'' ``transfer from savings to checking,'' or ``payment 
from savings.''
    2. Exception. Identification of an account is not required when the 
consumer can access only one asset account at a particular time or 
terminal, even if the access device can normally be used to access more 
than one account. For example, the consumer may be able to access only 
one particular account at

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terminals not operated by the account-holding institution, or may be 
able to access only one particular account when the terminal is off-
line. The exception is available even if, in addition to accessing one 
asset account, the consumer also can access a credit line.
    3. Access to multiple accounts. If the consumer can use an access 
device to make transfers to or from different accounts of the same type, 
the terminal receipt must specify which account was accessed, such as 
``withdrawal from checking I'' or ``withdrawal from checking II.'' If 
only one account besides the primary checking account can be debited, 
the receipt can identify the account as ``withdrawal from other 
account.''
    4. Generic descriptions. Generic descriptions may be used for 
accounts that are similar in function, such as share draft or NOW 
accounts and checking accounts. In a shared system, for example, when a 
credit union member initiates transfers to or from a share draft account 
at a terminal owned or operated by a bank, the receipt may identify a 
withdrawal from the account as a ``withdrawal from checking.''
    5. Point-of-sale transactions. There is no prescribed terminology 
for identifying a transfer at a merchant's POS terminal. A transfer may 
be identified, for example, as a purchase, a sale of goods or services, 
or a payment to a third party. When a consumer obtains cash from a POS 
terminal in addition to purchasing goods, or obtains cash only, the 
documentation need not differentiate the transaction from one involving 
the purchase of goods.

                        9(a)(5) Terminal Location

    1. Options for identifying terminal. The institution may provide 
either:
    i. The city, state or foreign country, and the information in Sec. 
1005.9(a)(5) (i), (ii), or (iii), or
    ii. A number or a code identifying the terminal. If the institution 
chooses the second option, the code or terminal number identifying the 
terminal where the transfer is initiated may be given as part of a 
transaction code.
    2. Omission of city name. The city may be omitted if the generally 
accepted name (such as a branch name) contains the city name.
    3. Omission of a state. A state may be omitted from the location 
information on the receipt if:
    i. All the terminals owned or operated by the financial institution 
providing the statement (or by the system in which it participates) are 
located in that state, or
    ii. All transfers occur at terminals located within 50 miles of the 
financial institution's main office.
    4. Omission of a city and state. A city and state may be omitted if 
all the terminals owned or operated by the financial institution 
providing the statement (or by the system in which it participates) are 
located in the same city.

                          Paragraph 9(a)(5)(i)

    1. Street address. The address should include number and street (or 
intersection); the number (or intersecting street) may be omitted if the 
street alone uniquely identifies the terminal location.

                          Paragraph 9(a)(5)(ii)

    1. Generally accepted name. Examples of a generally accepted name 
for a specific location include a branch of the financial institution, a 
shopping center, or an airport.

                         Paragraph 9(a)(5)(iii)

    1. Name of owner or operator of terminal. Examples of an owner or 
operator of a terminal are a financial institution or a retail merchant.

                      9(a)(6) Third Party Transfer

    1. Omission of third-party name. The receipt need not disclose the 
third-party name if the name is provided by the consumer in a form that 
is not machine readable (for example, if the consumer indicates the 
payee by depositing a payment stub into the ATM). If, on the other hand, 
the consumer keys in the identity of the payee, the receipt must 
identify the payee by name or by using a code that is explained 
elsewhere on the receipt.
    2. Receipt as proof of payment. Documentation required under the 
regulation constitutes prima facie proof of a payment to another person, 
except in the case of a terminal receipt documenting a deposit.

                        9(b) Periodic Statements

    1. Periodic cycles. Periodic statements may be sent on a cycle that 
is shorter than monthly. The statements must correspond to periodic 
cycles that are reasonably equal, that is, do not vary by more than four 
days from the regular cycle. The requirement of reasonably equal cycles 
does not apply when an institution changes cycles for operational or 
other reasons, such as to establish a new statement day or date.
    2. Interim statements. Generally, a financial institution must 
provide periodic statements for each monthly cycle in which an EFT 
occurs, and at least quarterly if a transfer has not occurred. Where 
EFTs occur between regularly-scheduled cycles, interim statements must 
be provided. For example, if an institution issues quarterly statements 
at the end of March, June, September and December, and the consumer 
initiates an EFT in February, an interim statement for February must be 
provided. If an interim statement contains interest or rate information, 
the institution must comply with Regulation DD, 12 CFR 1030.6.

[[Page 208]]

    3. Inactive accounts. A financial institution need not send 
statements to consumers whose accounts are inactive as defined by the 
institution.
    4. Statement pickup. A financial institution may permit, but may not 
require, consumers to pick up their periodic statements at the financial 
institution.
    5. Periodic statements limited to EFT activity. A financial 
institution that uses a passbook as the primary means for displaying 
account activity, but also allows the account to be debited 
electronically, may provide a periodic statement requirement that 
reflects only the EFTs and other required disclosures (such as charges, 
account balances, and address and telephone number for inquiries). See 
Sec. 1005.9(c)(1)(i) for the exception applicable to preauthorized 
transfers for passbook accounts.
    6. Codes and accompanying documents. To meet the documentation 
requirements for periodic statements, a financial institution may:
    i. Include copies of terminal receipts to reflect transfers 
initiated by the consumer at electronic terminals;
    ii. Enclose posting memos, deposit slips, and other documents that, 
together with the statement, disclose all the required information;
    iii. Use codes for names of third parties or terminal locations and 
explain the information to which the codes relate on an accompanying 
document.

                     9(b)(1) Transaction Information

    1. Information obtained from others. While financial institutions 
must maintain reasonable procedures to ensure the integrity of data 
obtained from another institution, a merchant, or other third parties, 
verification of each transfer that appears on the periodic statement is 
not required.

                          Paragraph 9(b)(1)(i)

    1. Incorrect deposit amount. If a financial institution determines 
that the amount actually deposited at an ATM is different from the 
amount entered by the consumer, the institution need not immediately 
notify the consumer of the discrepancy. The periodic statement 
reflecting the deposit may show either the correct amount of the deposit 
or the amount entered by the consumer along with the institution's 
adjustment.

                         Paragraph 9(b)(1)(iii)

    1. Type of transfer. There is no prescribed terminology for 
describing a type of transfer. Placement of the amount of the transfer 
in the debit or the credit column is sufficient if other information on 
the statement, such as a terminal location or third-party name, enables 
the consumer to identify the type of transfer.

                          Paragraph 9(b)(1)(iv)

    1. Nonproprietary terminal in network. An institution need not 
reflect on the periodic statement the street addresses, identification 
codes, or terminal numbers for transfers initiated in a shared or 
interchange system at a terminal operated by an institution other than 
the account-holding institution. The statement must, however, specify 
the entity that owns or operates the terminal, plus the city and state.

                          Paragraph 9(b)(1)(v)

    1. Recurring payments by government agency. The third-party name for 
recurring payments from Federal, state, or local governments need not 
list the particular agency. For example, ``U.S. gov't'' or ``N.Y. sal'' 
will suffice.
    2. Consumer as third-party payee. If a consumer makes an electronic 
fund transfer to another consumer, the financial institution must 
identify the recipient by name (not just by an account number, for 
example).
    3. Terminal location/third party. A single entry may be used to 
identify both the terminal location and the name of the third party to 
or from whom funds are transferred. For example, if a consumer purchases 
goods from a merchant, the name of the party to whom funds are 
transferred (the merchant) and the location of the terminal where the 
transfer is initiated will be satisfied by a disclosure such as ``XYZ 
Store, Anytown, Ohio.''
    4. Account-holding institution as third party. Transfers to the 
account-holding institution (by ATM, for example) must show the 
institution as the recipient, unless other information on the statement 
(such as, ``loan payment from checking'') clearly indicates that the 
payment was to the account-holding institution.
    5. Consistency in third-party identity. The periodic statement must 
disclose a third-party name as it appeared on the receipt, whether it 
was, for example, the ``dba'' (doing business as) name of the third 
party or the parent corporation's name.
    6. Third-party identity on deposits at electronic terminal. A 
financial institution need not identify third parties whose names appear 
on checks, drafts, or similar paper instruments deposited to the 
consumer's account at an electronic terminal.

                              9(b)(3) Fees

    1. Disclosure of fees. The fees disclosed may include fees for EFTs 
and for other non-electronic services, and both fixed fees and per-item 
fees; they may be given as a total or may be itemized in part or in 
full.
    2. Fees in interchange system. An account-holding institution must 
disclose any fees it imposes on the consumer for EFTs, including fees 
for ATM transactions in an interchange

[[Page 209]]

or shared ATM system. Fees for use of an ATM imposed on the consumer by 
an institution other than the account-holding institution and included 
in the amount of the transfer by the terminal-operating institution need 
not be separately disclosed on the periodic statement.
    3. Finance charges. The requirement to disclose any fees assessed 
against the account does not include a finance charge imposed on the 
account during the statement period.

                        9(b)(4) Account Balances

    1. Opening and closing balances. The opening and closing balances 
must reflect both EFTs and other account activity.

           9(b)(5) Address and Telephone Number for Inquiries

    1. Telephone number. A single telephone number, preceded by the 
``direct inquiries to'' language, will satisfy the requirements of 
Sec. Sec. 1005.9(b)(5) and (6).

          9(b)(6) Telephone Number for Preauthorized Transfers

    1. Telephone number. See comment 9(b)(5)-1.

   9(c) Exceptions to the Periodic Statement Requirements for Certain 
                                Accounts

    1. Transfers between accounts. The regulation provides an exception 
from the periodic statement requirement for certain intra-institutional 
transfers between a consumer's accounts. The financial institution must 
still comply with the applicable periodic statement requirements for any 
other EFTs to or from the account. For example, a Regulation E statement 
must be provided quarterly for an account that also receives payroll 
deposits electronically, or for any month in which an account is also 
accessed by a withdrawal at an ATM.

               9(c)(1) Preauthorized Transfers to Accounts

    1. Accounts that may be accessed only by preauthorized transfers to 
the account. The exception for ``accounts that may be accessed only by 
preauthorized transfers to the account'' includes accounts that can be 
accessed by means other than EFTs, such as checks. If, however, an 
account may be accessed by any EFT other than preauthorized credits to 
the account, such as preauthorized debits or ATM transactions, the 
account does not qualify for the exception.
    2. Reversal of direct deposits. For direct-deposit-only accounts, a 
financial institution must send a periodic statement at least quarterly. 
A reversal of a direct deposit to correct an error does not trigger the 
monthly statement requirement when the error represented a credit to the 
wrong consumer's account, a duplicate credit, or a credit in the wrong 
amount. See also comment 2(m)-5.

           9(d) Documentation for Foreign-Initiated Transfers

    1. Foreign-initiated transfers. An institution must make a good 
faith effort to provide all required information for foreign-initiated 
transfers. For example, even if the institution is not able to provide a 
specific terminal location, it should identify the country and city in 
which the transfer was initiated.

                 Section 1005.10 Preauthorized Transfers

           10(a) Preauthorized Transfers to Consumer's Account

                10(a)(1) Notice by Financial Institution

    1. Content. No specific language is required for notice regarding 
receipt of a preauthorized transfer. Identifying the deposit is 
sufficient; however, simply providing the current account balance is 
not.
    2. Notice of credit. A financial institution may use different 
methods of notice for various types or series of preauthorized 
transfers, and the institution need not offer consumers a choice of 
notice methods.
    3. Positive notice. A periodic statement sent within two business 
days of the scheduled transfer, showing the transfer, can serve as 
notice of receipt.
    4. Negative notice. The absence of a deposit entry (on a periodic 
statement sent within two business days of the scheduled transfer date) 
will serve as negative notice.
    5. Telephone notice. If a financial institution uses the telephone 
notice option, the institution should be able in most instances to 
verify during a consumer's initial call whether a transfer was received. 
The institution must respond within two business days to any inquiry not 
answered immediately.
    6. Phone number for passbook accounts. The financial institution may 
use any reasonable means necessary to provide the telephone number to 
consumers with passbook accounts that can only be accessed by 
preauthorized credits and that do not receive periodic statements. For 
example, it may print the telephone number in the passbook, or include 
the number with the annual error resolution notice.
    7. Telephone line availability. To satisfy the readily-available 
standard, the financial institution must provide enough telephone lines 
so that consumers get a reasonably prompt response. The institution need 
only provide telephone service during normal business hours. Within its 
primary service area, an institution must provide a local or toll-free 
telephone number. It need not provide a toll-free number or accept 
collect long-distance calls from outside the area where it normally 
conducts business.

[[Page 210]]

10(b) Written Authorization for Preauthorized Transfers From Consumer's 
                                 Account

    1. Preexisting authorizations. The financial institution need not 
require a new authorization before changing from paper-based to 
electronic debiting when the existing authorization does not specify 
that debiting is to occur electronically or specifies that the debiting 
will occur by paper means. A new authorization also is not required when 
a successor institution begins collecting payments.
    2. Authorization obtained by third party. The account-holding 
financial institution does not violate the regulation when a third-party 
payee fails to obtain the authorization in writing or fails to give a 
copy to the consumer; rather, it is the third-party payee that is in 
violation of the regulation.
    3. Written authorization for preauthorized transfers. The 
requirement that preauthorized EFTs be authorized by the consumer ``only 
by a writing'' cannot be met by a payee's signing a written 
authorization on the consumer's behalf with only an oral authorization 
from the consumer.
    4. Use of a confirmation form. A financial institution or designated 
payee may comply with the requirements of this section in various ways. 
For example, a payee may provide the consumer with two copies of a 
preauthorization form, and ask the consumer to sign and return one and 
to retain the second copy.
    5. Similarly authenticated. The similarly authenticated standard 
permits signed, written authorizations to be provided electronically. 
The writing and signature requirements of this section are satisfied by 
complying with the Electronic Signatures in Global and National Commerce 
Act, 15 U.S.C. 7001 et seq., which defines electronic records and 
electronic signatures. Examples of electronic signatures include, but 
are not limited to, digital signatures and security codes. A security 
code need not originate with the account-holding institution. The 
authorization process should evidence the consumer's identity and assent 
to the authorization. The person that obtains the authorization must 
provide a copy of the terms of the authorization to the consumer either 
electronically or in paper form. Only the consumer may authorize the 
transfer and not, for example, a third-party merchant on behalf of the 
consumer.
    6. Requirements of an authorization. An authorization is valid if it 
is readily identifiable as such and the terms of the preauthorized 
transfer are clear and readily understandable.
    7. Bona fide error. Consumers sometimes authorize third-party 
payees, by telephone or online, to submit recurring charges against a 
credit card account. If the consumer indicates use of a credit card 
account when in fact a debit card is being used, the payee does not 
violate the requirement to obtain a written authorization if the failure 
to obtain written authorization was not intentional and resulted from a 
bona fide error, and if the payee maintains procedures reasonably 
adapted to avoid any such error. Procedures reasonably adapted to avoid 
error will depend upon the circumstances. Generally, requesting the 
consumer to specify whether the card to be used for the authorization is 
a debit (or check) card or a credit card is a reasonable procedure. 
Where the consumer has indicated that the card is a credit card (or that 
the card is not a debit or check card), the payee may rely on the 
consumer's statement without seeking further information about the type 
of card. If the payee believes, at the time of the authorization, that a 
credit card is involved, and later finds that the card used is a debit 
card (for example, because the consumer later brings the matter to the 
payee's attention), the payee must obtain a written and signed or (where 
appropriate) a similarly authenticated authorization as soon as 
reasonably possible, or cease debiting the consumer's account.

                 10(c) Consumer's Right to Stop Payment

    1. Stop-payment order. The financial institution must honor an oral 
stop-payment order made at least three business days before a scheduled 
debit. If the debit item is resubmitted, the institution must continue 
to honor the stop-payment order (for example, by suspending all 
subsequent payments to the payee-originator until the consumer notifies 
the institution that payments should resume).
    2. Revocation of authorization. Once a financial institution has 
been notified that the consumer's authorization is no longer valid, it 
must block all future payments for the particular debit transmitted by 
the designated payee-originator. But see comment 10(c)-3. The 
institution may not wait for the payee-originator to terminate the 
automatic debits. The institution may confirm that the consumer has 
informed the payee-originator of the revocation (for example, by 
requiring a copy of the consumer's revocation as written confirmation to 
be provided within 14 days of an oral notification). If the institution 
does not receive the required written confirmation within the 14-day 
period, it may honor subsequent debits to the account.
    3. Alternative procedure for processing a stop-payment request. If 
an institution does not have the capability to block a preauthorized 
debit from being posted to the consumer's account--as in the case of a 
preauthorized debit made through a debit card network or other system, 
for example--the institution may instead comply with the stop-payment 
requirements by using a third party to block

[[Page 211]]

the transfer(s), as long as the consumer's account is not debited for 
the payment.

               10(d) Notice of Transfers Varying in Amount

                             10(d)(1) Notice

    1. Preexisting authorizations. A financial institution holding the 
consumer's account does not violate the regulation if the designated 
payee fails to provide notice of varying amounts.

                             10(d)(2) Range

    1. Range. A financial institution or designated payee that elects to 
offer the consumer a specified range of amounts for debiting (in lieu of 
providing the notice of transfers varying in amount) must provide an 
acceptable range that could be anticipated by the consumer. For example, 
if the transfer is for payment of a gas bill, an appropriate range might 
be based on the highest bill in winter and the lowest bill in summer.
    2. Transfers to an account of the consumer held at another 
institution. A financial institution need not provide a consumer the 
option of receiving notice with each varying transfer, and may instead 
provide notice only when a debit to an account of the consumer falls 
outside a specified range or differs by more than a specified amount 
from the most recent transfer, if the funds are transferred and credited 
to an account of the consumer held at another financial institution. The 
specified range or amount, however, must be one that reasonably could be 
anticipated by the consumer, and the institution must notify the 
consumer of the range or amount at the time the consumer provides 
authorization for the preauthorized transfers. For example, if the 
transfer is for payment of interest for a fixed-rate certificate of 
deposit account, an appropriate range might be based on a month 
containing 28 days and a month containing 31 days.

                          10(e) Compulsory Use

                             10(e)(1) Credit

    1. Loan payments. Creditors may not require repayment of loans by 
electronic means on a preauthorized, recurring basis. A creditor may 
offer a program with a reduced annual percentage rate or other cost-
related incentive for an automatic repayment feature, provided the 
program with the automatic payment feature is not the only loan program 
offered by the creditor for the type of credit involved. Examples 
include:
    i. Mortgages with graduated payments in which a pledged savings 
account is automatically debited during an initial period to supplement 
the monthly payments made by the borrower.
    ii. Mortgage plans calling for preauthorized biweekly payments that 
are debited electronically to the consumer's account and produce a lower 
total finance charge.
    2. Overdraft. A financial institution may require the automatic 
repayment of an overdraft credit plan even if the overdraft extension is 
charged to an open-end account that may be accessed by the consumer in 
ways other than by overdrafts.

                10(e)(2) Employment or Government Benefit

    1. Payroll. An employer (including a financial institution) may not 
require its employees to receive their salary by direct deposit to any 
particular institution. An employer may require direct deposit of salary 
by electronic means if employees are allowed to choose the institution 
that will receive the direct deposit. Alternatively, an employer may 
give employees the choice of having their salary deposited at a 
particular institution (designated by the employer) or receiving their 
salary by another means, such as by check or cash.

             Section 1005.11 Procedures for Resolving Errors

                        11(a) Definition of Error

    1. Terminal location. With regard to deposits at an ATM, a 
consumer's request for the terminal location or other information 
triggers the error resolution procedures, but the financial institution 
need only provide the ATM location if it has captured that information.
    2. Verifying an account debit or credit. If the consumer contacts 
the financial institution to ascertain whether a payment (for example, 
in a home-banking or bill-payment program) or any other type of EFT was 
debited to the account, or whether a deposit made via ATM, preauthorized 
transfer, or any other type of EFT was credited to the account, without 
asserting an error, the error resolution procedures do not apply.
    3. Loss or theft of access device. A financial institution is 
required to comply with the error resolution procedures when a consumer 
reports the loss or theft of an access device if the consumer also 
alleges possible unauthorized use as a consequence of the loss or theft.
    4. Error asserted after account closed. The financial institution 
must comply with the error resolution procedures when a consumer 
properly asserts an error, even if the account has been closed.
    5. Request for documentation or information. A request for 
documentation or other information must be treated as an error unless it 
is clear that the consumer is requesting a duplicate copy for tax or 
other record-keeping purposes.
    6. Terminal receipts for transfers of $15 or less. The fact that an 
institution does not make a terminal receipt available for a transfer of 
$15 or less in accordance with Sec. 1005.9(e) is

[[Page 212]]

not an error for purposes of Sec. 1005.11(a)(1)(vi) or (vii).

                   11(b) Notice of Error From Consumer

                        11(b)(1) Timing; Contents

    1. Content of error notice. The notice of error is effective even if 
it does not contain the consumer's account number, so long as the 
financial institution is able to identify the account in question. For 
example, the consumer could provide a Social Security number or other 
unique means of identification.
    2. Investigation pending receipt of information. While a financial 
institution may request a written, signed statement from the consumer 
relating to a notice of error, it may not delay initiating or completing 
an investigation pending receipt of the statement.
    3. Statement held for consumer. When a consumer has arranged for 
periodic statements to be held until picked up, the statement for a 
particular cycle is deemed to have been transmitted on the date the 
financial institution first makes the statement available to the 
consumer.
    4. Failure to provide statement. When a financial institution fails 
to provide the consumer with a periodic statement, a request for a copy 
is governed by this section if the consumer gives notice within 60 days 
from the date on which the statement should have been transmitted.
    5. Discovery of error by institution. The error resolution 
procedures of this section apply when a notice of error is received from 
the consumer, and not when the financial institution itself discovers 
and corrects an error.
    6. Notice at particular phone number or address. A financial 
institution may require the consumer to give notice only at the 
telephone number or address disclosed by the institution, provided the 
institution maintains reasonable procedures to refer the consumer to the 
specified telephone number or address if the consumer attempts to give 
notice to the institution in a different manner.
    7. Effect of late notice. An institution is not required to comply 
with the requirements of this section for any notice of error from the 
consumer that is received by the institution later than 60 days from the 
date on which the periodic statement first reflecting the error is sent. 
Where the consumer's assertion of error involves an unauthorized EFT, 
however, the institution must comply with Sec. 1005.6 before it may 
impose any liability on the consumer.

                      11(b)(2) Written Confirmation

    1. Written confirmation-of-error notice. If the consumer sends a 
written confirmation of error to the wrong address, the financial 
institution must process the confirmation through normal procedures. But 
the institution need not provisionally credit the consumer's account if 
the written confirmation is delayed beyond 10 business days in getting 
to the right place because it was sent to the wrong address.

              11(c) Time Limits and Extent of Investigation

    1. Notice to consumer. Unless otherwise indicated in this section, 
the financial institution may provide the required notices to the 
consumer either orally or in writing.
    2. Written confirmation of oral notice. A financial institution must 
begin its investigation promptly upon receipt of an oral notice. It may 
not delay until it has received a written confirmation.
    3. Charges for error resolution. If a billing error occurred, 
whether as alleged or in a different amount or manner, the financial 
institution may not impose a charge related to any aspect of the error-
resolution process (including charges for documentation or 
investigation). Since the Act grants the consumer error-resolution 
rights, the institution should avoid any chilling effect on the good-
faith assertion of errors that might result if charges are assessed when 
no billing error has occurred.
    4. Correction without investigation. A financial institution may 
make, without investigation, a final correction to a consumer's account 
in the amount or manner alleged by the consumer to be in error, but must 
comply with all other applicable requirements of Sec. 1005.11.
    5. Correction notice. A financial institution may include the notice 
of correction on a periodic statement that is mailed or delivered within 
the 10-business-day or 45-calendar-day time limits and that clearly 
identifies the correction to the consumer's account. The institution 
must determine whether such a mailing will be prompt enough to satisfy 
the requirements of this section, taking into account the specific facts 
involved.
    6. Correction of an error. If the financial institution determines 
an error occurred, within either the 10-day or 45-day period, it must 
correct the error (subject to the liability provisions of Sec. Sec. 
1005.6(a) and (b)) including, where applicable, the crediting of 
interest and the refunding of any fees imposed by the institution. In a 
combined credit/EFT transaction, for example, the institution must 
refund any finance charges incurred as a result of the error. The 
institution need not refund fees that would have been imposed whether or 
not the error occurred.
    7. Extent of required investigation. A financial institution 
complies with its duty to investigate, correct, and report its 
determination regarding an error described in Sec. 1005.11(a)(1)(vii) 
by transmitting the requested information, clarification, or 
documentation within the time limits set forth in

[[Page 213]]

Sec. 1005.11(c). If the institution has provisionally credited the 
consumer's account in accordance with Sec. 1005.11(c)(2), it may debit 
the amount upon transmitting the requested information, clarification, 
or documentation.

                          Paragraph 11(c)(2)(i)

    1. Compliance with all requirements. Financial institutions exempted 
from provisionally crediting a consumer's account under Sec. Sec. 
1005.11(c)(2)(i)(A) and (B) must still comply with all other 
requirements of Sec. 1005.11.

                   11(c)(3) Extension of Time Periods

    1. POS debit card transactions. The extended deadlines for 
investigating errors resulting from POS debit card transactions apply to 
all debit card transactions, including those for cash only, at 
merchants' POS terminals, and also including mail and telephone orders. 
The deadlines do not apply to transactions at an ATM, however, even 
though the ATM may be in a merchant location.

                         11(c)(4) Investigation

    1. Third parties. When information or documentation requested by the 
consumer is in the possession of a third party with whom the financial 
institution does not have an agreement, the institution satisfies the 
error resolution requirement by so advising the consumer within the 
specified time period.
    2. Scope of investigation. When an alleged error involves a payment 
to a third party under the financial institution's telephone bill-
payment plan, a review of the institution's own records is sufficient, 
assuming no agreement exists between the institution and the third party 
concerning the bill-payment service.
    3. POS transfers. When a consumer alleges an error involving a 
transfer to a merchant via a POS terminal, the institution must verify 
the information previously transmitted when executing the transfer. For 
example, the financial institution may request a copy of the sales 
receipt to verify that the amount of the transfer correctly corresponds 
to the amount of the consumer's purchase.
    4. Agreement. An agreement that a third party will honor an access 
device is an agreement for purposes of this paragraph. A financial 
institution does not have an agreement for purposes of Sec. 
1005.11(c)(4)(ii) solely because it participates in transactions that 
occur under the Federal recurring payments programs, or that are cleared 
through an ACH or similar arrangement for the clearing and settlement of 
fund transfers generally, or because the institution agrees to be bound 
by the rules of such an arrangement.
    5. No EFT agreement. When there is no agreement between the 
institution and the third party for the type of EFT involved, the 
financial institution must review any relevant information within the 
institution's own records for the particular account to resolve the 
consumer's claim. The extent of the investigation required may vary 
depending on the facts and circumstances. However, a financial 
institution may not limit its investigation solely to the payment 
instructions where additional information within its own records 
pertaining to the particular account in question could help to resolve a 
consumer's claim. Information that may be reviewed as part of an 
investigation might include:
    i. The ACH transaction records for the transfer;
    ii. The transaction history of the particular account for a 
reasonable period of time immediately preceding the allegation of error;
    iii. Whether the check number of the transaction in question is 
notably out-of-sequence;
    iv. The location of either the transaction or the payee in question 
relative to the consumer's place of residence and habitual transaction 
area;
    v. Information relative to the account in question within the 
control of the institution's third-party service providers if the 
financial institution reasonably believes that it may have records or 
other information that could be dispositive; or
    vi. Any other information appropriate to resolve the claim.

    11(d) Procedures if Financial Institution Determines No Error or 
                        Different Error Occurred

    1. Error different from that alleged. When a financial institution 
determines that an error occurred in a manner or amount different from 
that described by the consumer, it must comply with the requirements of 
both Sec. Sec. 1005.11(c) and (d), as relevant. The institution may 
give the notice of correction and the explanation separately or in a 
combined form.

                      11(d)(1) Written Explanation

    1. Request for documentation. When a consumer requests copies of 
documents, the financial institution must provide the copies in an 
understandable form. If an institution relied on magnetic tape, it must 
convert the applicable data into readable form, for example, by printing 
it and explaining any codes.

                  11(d)(2) Debiting Provisional Credit

    1. Alternative procedure for debiting of credited funds. The 
financial institution may comply with the requirements of this section 
by notifying the consumer that the consumer's account will be debited 
five business days from the transmittal of the notification, specifying 
the calendar date on which the debiting will occur.

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    2. Fees for overdrafts. The financial institution may not impose 
fees for items it is required to honor under Sec. 1005.11. It may, 
however, impose any normal transaction or item fee that is unrelated to 
an overdraft resulting from the debiting. If the account is still 
overdrawn after five business days, the institution may impose the fees 
or finance charges to which it is entitled, if any, under an overdraft 
credit plan.

                       11(e) Reassertion of Error

    1. Withdrawal of error; right to reassert. The financial institution 
has no further error resolution responsibilities if the consumer 
voluntarily withdraws the notice alleging an error. A consumer who has 
withdrawn an allegation of error has the right to reassert the 
allegation unless the financial institution had already complied with 
all of the error resolution requirements before the allegation was 
withdrawn. The consumer must do so, however, within the original 60-day 
period.

                 Section 1005.12 Relation to Other Laws

                   12(a) Relation to Truth in Lending

    1. Determining applicable regulation. i. For transactions involving 
access devices that also function as credit cards, whether Regulation E 
or Regulation Z (12 CFR part 1026) applies depends on the nature of the 
transaction. For example, if the transaction solely involves an 
extension of credit, and does not include a debit to a checking account 
(or other consumer asset account), the liability limitations and error 
resolution requirements of Regulation Z apply. If the transaction debits 
a checking account only (with no credit extended), the provisions of 
Regulation E apply. If the transaction debits a checking account but 
also draws on an overdraft line of credit attached to the account, 
Regulation E's liability limitations apply, in addition to Sec. Sec. 
1026.13(d) and (g) of Regulation Z (which apply because of the extension 
of credit associated with the overdraft feature on the checking 
account). If a consumer's access device is also a credit card and the 
device is used to make unauthorized withdrawals from a checking account, 
but also is used to obtain unauthorized cash advances directly from a 
line of credit that is separate from the checking account, both 
Regulation E and Regulation Z apply.
    ii. The following examples illustrate these principles:
    A. A consumer has a card that can be used either as a credit card or 
a debit card. When used as a debit card, the card draws on the 
consumer's checking account. When used as a credit card, the card draws 
only on a separate line of credit. If the card is stolen and used as a 
credit card to make purchases or to get cash advances at an ATM from the 
line of credit, the liability limits and error resolution provisions of 
Regulation Z apply; Regulation E does not apply.
    B. In the same situation, if the card is stolen and is used as a 
debit card to make purchases or to get cash withdrawals at an ATM from 
the checking account, the liability limits and error resolution 
provisions of Regulation E apply; Regulation Z does not apply.
    C. In the same situation, assume the card is stolen and used both as 
a debit card and as a credit card; for example, the thief makes some 
purchases using the card as a debit card, and other purchases using the 
card as a credit card. Here, the liability limits and error resolution 
provisions of Regulation E apply to the unauthorized transactions in 
which the card was used as a debit card, and the corresponding 
provisions of Regulation Z apply to the unauthorized transactions in 
which the card was used as a credit card.
    D. Assume a somewhat different type of card, one that draws on the 
consumer's checking account and can also draw on an overdraft line of 
credit attached to the checking account. There is no separate line of 
credit, only the overdraft line, associated with the card. In this 
situation, if the card is stolen and used, the liability limits and the 
error resolution provisions of Regulation E apply. In addition, if the 
use of the card has resulted in accessing the overdraft line of credit, 
the error resolution provisions of Sec. Sec. 1026.13(d) and (g) of 
Regulation Z also apply, but not the other error resolution provisions 
of Regulation Z.
    2. Issuance rules. For access devices that also constitute credit 
cards, the issuance rules of Regulation E apply if the only credit 
feature is a preexisting credit line attached to the asset account to 
cover overdrafts (or to maintain a specified minimum balance) or an 
overdraft service, as defined in Sec. 1005.17(a). Regulation Z (12 CFR 
part 1026) rules apply if there is another type of credit feature; for 
example, one permitting direct extensions of credit that do not involve 
the asset account.
    3. Overdraft service. The addition of an overdraft service, as that 
term is defined in Sec. 1005.17(a), to an accepted access device does 
not constitute the addition of a credit feature subject to Regulation Z. 
Instead, the provisions of Regulation E apply, including the liability 
limitations (Sec. 1005.6) and the requirement to obtain consumer 
consent to the service before any fees or charges for paying an 
overdraft may be assessed on the account (Sec. 1005.17).

               12(b) Preemption of Inconsistent State Laws

    1. Specific determinations. The regulation prescribes standards for 
determining whether state laws that govern EFTs, and state laws 
regarding gift certificates, store gift cards, or general-use prepaid 
cards that govern dormancy, inactivity, or service fees, or expiration 
dates, are preempted by the Act

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and the regulation. A state law that is inconsistent may be preempted 
even if the Bureau has not issued a determination. However, nothing in 
Sec. 1005.12(b) provides a financial institution with immunity for 
violations of state law if the institution chooses not to make state 
disclosures and the Bureau later determines that the state law is not 
preempted.
    2. Preemption determination. The Bureau recognizes state law 
preemption determinations made by the Board of Governors of the Federal 
Reserve System prior to July 21, 2011, until and unless the Bureau makes 
and publishes any contrary determination. The Board of Governors 
determined that certain provisions in the state law of Michigan are 
preempted by the Federal law, effective March 30, 1981:
    i. Definition of unauthorized use. Section 5(4) is preempted to the 
extent that it relates to the section of state law governing consumer 
liability for unauthorized use of an access device.
    ii. Consumer liability for unauthorized use of an account. Section 
14 is inconsistent with Sec. 1005.6 and is less protective of the 
consumer than the Federal law. The state law places liability on the 
consumer for the unauthorized use of an account in cases involving the 
consumer's negligence. Under the Federal law, a consumer's liability for 
unauthorized use is not related to the consumer's negligence and depends 
instead on the consumer's promptness in reporting the loss or theft of 
the access device.
    iii. Error resolution. Section 15 is preempted because it is 
inconsistent with Sec. 1005.11 and is less protective of the consumer 
than the Federal law. The state law allows financial institutions up to 
70 days to resolve errors, whereas the Federal law generally requires 
errors to be resolved within 45 days.
    iv. Receipts and periodic statements. Sections 17 and 18 are 
preempted because they are inconsistent with Sec. 1005.9. The state 
provisions require a different disclosure of information than does the 
Federal law. The receipt provision is also preempted because it allows 
the consumer to be charged for receiving a receipt if a machine cannot 
furnish one at the time of a transfer.

      Section 1005.13 Administrative Enforcement; Record Retention

                         13(b) Record Retention

    1. Requirements. A financial institution need not retain records 
that it has given disclosures and documentation to each consumer; it 
need only retain evidence demonstrating that its procedures reasonably 
ensure the consumers' receipt of required disclosures and documentation.

 Section 1005.14 Electronic Fund Transfer Service Provider Not Holding 
                           Consumer's Account

 14(a) Electronic Fund Transfer Service Providers Subject to Regulation

    1. Applicability. This section applies only when a service provider 
issues an access device to a consumer for initiating transfers to or 
from the consumer's account at a financial institution and the two 
entities have no agreement regarding this EFT service. If the service 
provider does not issue an access device to the consumer for accessing 
an account held by another institution, it does not qualify for the 
treatment accorded by Sec. 1005.14. For example, this section does not 
apply to an institution that initiates preauthorized payroll deposits to 
consumer accounts on behalf of an employer. By contrast, Sec. 1005.14 
can apply to an institution that issues a code for initiating telephone 
transfers to be carried out through the ACH from a consumer's account at 
another institution. This is the case even if the consumer has accounts 
at both institutions.
    2. ACH agreements. The ACH rules generally do not constitute an 
agreement for purposes of this section. However, an ACH agreement under 
which members specifically agree to honor each other's debit cards is an 
``agreement,'' and thus this section does not apply.

      14(b) Compliance by Electronic Fund Transfer Service Provider

    1. Liability. The service provider is liable for unauthorized EFTs 
that exceed limits on the consumer's liability under Sec. 1005.6.

                 14(b)(1) Disclosures and Documentation

    1. Periodic statements from electronic fund transfer service 
provider. A service provider that meets the conditions set forth in this 
paragraph does not have to issue periodic statements. A service provider 
that does not meet the conditions need only include on periodic 
statements information about transfers initiated with the access device 
it has issued.

                        14(b)(2) Error Resolution

    1. Error resolution. When a consumer notifies the service provider 
of an error, the EFT service provider must investigate and resolve the 
error in compliance with Sec. 1005.11 as modified by Sec. 
1005.14(b)(2). If an error occurred, any fees or charges imposed as a 
result of the error, either by the service provider or by the account-
holding institution (for example, overdraft or dishonor fees) must be 
reimbursed to the consumer by the service provider.

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             14(c) Compliance by Account-Holding Institution

                         14(c)(1) Documentation

    1. Periodic statements from account-holding institution. The 
periodic statement provided by the account-holding institution need only 
contain the information required by Sec. 1005.9(b)(1).

        Section 1005.16 Disclosures at Automated Teller Machines

                              16(b) General

                           Paragraph 16(b)(1)

    1. Specific notices. An ATM operator that imposes a fee for a 
specific type of transaction--such as for a cash withdrawal, but not for 
a balance inquiry, or for some cash withdrawals, but not for others 
(such as where the card was issued by a foreign bank or by a card issuer 
that has entered into a special contractual relationship with the ATM 
operator regarding surcharges)--may provide a notice on or at the ATM 
that a fee will be imposed or a notice that a fee may be imposed for 
providing EFT services or may specify the type of EFT for which a fee is 
imposed. If, however, a fee will be imposed in all instances, the notice 
must state that a fee will be imposed.

           Section 1005.17 Requirements for Overdraft Services

                            17(a) Definition

    1. Exempt securities- and commodities-related lines of credit. The 
definition of ``overdraft service'' does not include the payment of 
transactions in a securities or commodities account pursuant to which 
credit is extended by a broker-dealer registered with the Securities and 
Exchange Commission or the Commodity Futures Trading Commission.

                        17(b) Opt-In Requirement

    1. Scope. i. Account-holding institutions. Section 1005.17(b) 
applies to ATM and one-time debit card transactions made with a debit 
card issued by or on behalf of the account-holding institution. Section 
1005.17(b) does not apply to ATM and one-time debit card transactions 
made with a debit card issued by or through a third party unless the 
debit card is issued on behalf of the account-holding institution.
    ii. Coding of transactions. A financial institution complies with 
the rule if it adapts its systems to identify debit card transactions as 
either one-time or recurring. If it does so, the financial institution 
may rely on the transaction's coding by merchants, other institutions, 
and other third parties as a one-time or a preauthorized or recurring 
debit card transaction.
    iii. One-time debit card transactions. The opt-in applies to any 
one-time debit card transaction, whether the card is used, for example, 
at a point-of-sale, in an online transaction, or in a telephone 
transaction.
    iv. Application of fee prohibition. The prohibition on assessing 
overdraft fees under Sec. 1005.17(b)(1) applies to all institutions. 
For example, the prohibition applies to an institution that has a policy 
and practice of declining to authorize and pay any ATM or one-time debit 
card transactions when the institution has a reasonable belief at the 
time of the authorization request that the consumer does not have 
sufficient funds available to cover the transaction. However, the 
institution is not required to comply with Sec. Sec. 1005.17(b)(1)(i)-
(iv), including the notice and opt-in requirements, if it does not 
assess overdraft fees for paying ATM or one-time debit card transactions 
that overdraw the consumer's account. Assume an institution does not 
provide an opt-in notice, but authorizes an ATM or one-time debit card 
transaction on the reasonable belief that the consumer has sufficient 
funds in the account to cover the transaction. If, at settlement, the 
consumer has insufficient funds in the account (for example, due to 
intervening transactions that post to the consumer's account), the 
institution is not permitted to assess an overdraft fee or charge for 
paying that transaction.
    2. No affirmative consent. A financial institution may pay 
overdrafts for ATM and one-time debit card transactions even if a 
consumer has not affirmatively consented or opted in to the 
institution's overdraft service. If the institution pays such an 
overdraft without the consumer's affirmative consent, however, it may 
not impose a fee or charge for doing so. These provisions do not limit 
the institution's ability to debit the consumer's account for the amount 
overdrawn if the institution is permitted to do so under applicable law.
    3. Overdraft transactions not required to be authorized or paid. 
Section 1005.17 does not require a financial institution to authorize or 
pay an overdraft on an ATM or one-time debit card transaction even if 
the consumer has affirmatively consented to an institution's overdraft 
service for such transactions.
    4. Reasonable opportunity to provide affirmative consent. A 
financial institution 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. A 
financial institution provides such reasonable methods, if:
    i. By mail. The institution provides a form for the consumer to fill 
out and mail to affirmatively consent to the service.

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    ii. By telephone. The institution provides a readily-available 
telephone line that consumers may call to provide affirmative consent.
    iii. By electronic means. The institution provides an electronic 
means for the consumer to affirmatively consent. For example, the 
institution could provide a form that can be accessed and processed at 
its Web site, where the consumer may click on a check box to provide 
consent and confirm that choice by clicking on a button that affirms the 
consumer's consent.
    iv. In person. The institution provides a form for the consumer to 
complete and present at a branch or office to affirmatively consent to 
the service.
    5. Implementing opt-in at account-opening. A financial institution 
may provide notice regarding the institution's overdraft service prior 
to or at account-opening. A financial institution may require a 
consumer, as a necessary step to opening an account, to choose whether 
or not to opt into the payment of ATM or one-time debit card 
transactions pursuant to the institution's overdraft service. For 
example, the institution could require the consumer, at account opening, 
to sign a signature line or check a box on a form (consistent with 
comment 17(b)-6) indicating whether or not the consumer affirmatively 
consents at account opening. If the consumer does not check any box or 
provide a signature, the institution must assume that the consumer does 
not opt in. Or, the institution could require the consumer to choose 
between an account that does not permit the payment of ATM or one-time 
debit card transactions pursuant to the institution's overdraft service 
and an account that permits the payment of such overdrafts, provided 
that the accounts comply with Sec. 1005.17(b)(2) and Sec. 
1005.17(b)(3).
    6. Affirmative consent required. A consumer's affirmative consent, 
or opt-in, to a financial institution's overdraft service must be 
obtained separately from other consents or acknowledgements obtained by 
the institution, including a consent to receive disclosures 
electronically. An institution may obtain a consumer's affirmative 
consent by providing a blank signature line or check box that the 
consumer could sign or select to affirmatively consent, provided that 
the signature line or check box is used solely for purposes of 
evidencing the consumer's choice whether or not to opt into the 
overdraft service and not for other purposes. An institution does not 
obtain a consumer's affirmative consent by including preprinted language 
about the overdraft service in an account disclosure provided with a 
signature card or contract that the consumer must sign to open the 
account and that acknowledges the consumer's acceptance of the account 
terms. Nor does an institution obtain a consumer's affirmative consent 
by providing a signature card that contains a pre-selected check box 
indicating that the consumer is requesting the service.
    7. Confirmation. A financial institution may comply with the 
requirement in Sec. 1005.17(b)(1)(iv) to provide confirmation of the 
consumer's affirmative consent by mailing or delivering to the consumer 
a copy of the consumer's completed opt-in notice, or by mailing or 
delivering a letter or notice to the consumer acknowledging that the 
consumer has elected to opt into the institution's service. The 
confirmation, which must be provided in writing, or electronically if 
the consumer agrees, must include a statement informing the consumer of 
the right to revoke the opt-in at any time. See Sec. 1005.17(d)(6), 
which permits institutions to include the revocation statement on the 
initial opt-in notice. An institution complies with the confirmation 
requirement if it has adopted reasonable procedures designed to ensure 
that overdraft fees are assessed only in connection with transactions 
paid after the confirmation has been mailed or delivered to the 
consumer.
    8. Outstanding Negative Balance. If a fee or charge is based on the 
amount of the outstanding negative balance, an institution is prohibited 
from assessing any such fee if the negative balance is solely 
attributable to an ATM or one-time debit card transaction, unless the 
consumer has opted into the institution's overdraft service for ATM or 
one-time debit card transactions. However, the rule does not prohibit an 
institution from assessing such a fee if the negative balance is 
attributable in whole or in part to a check, ACH, or other type of 
transaction not subject to the prohibition on assessing overdraft fees 
in Sec. 1005.17(b)(1).
    9. Daily or Sustained Overdraft, Negative Balance, or Similar Fee or 
Charge i. Daily or sustained overdraft, negative balance, or similar 
fees or charges. If a consumer has not opted into the institution's 
overdraft service for ATM or one-time debit card transactions, the fee 
prohibition in Sec. 1005.17(b)(1) applies to all overdraft fees or 
charges for paying those transactions, including but not limited to 
daily or sustained overdraft, negative balance, or similar fees or 
charges. Thus, where a consumer's negative balance is solely 
attributable to an ATM or one-time debit card transaction, the rule 
prohibits the assessment of such fees unless the consumer has opted in. 
However, the rule does not prohibit an institution from assessing daily 
or sustained overdraft, negative balance, or similar fees or charges if 
a negative balance is attributable in whole or in part to a check, ACH, 
or other type of transaction not subject to the fee prohibition. When 
the negative balance is attributable in part to an ATM or one-time debit 
card transaction, and in part to a check, ACH, or other type of

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transaction not subject to the fee prohibition, the date on which such a 
fee may be assessed is based on the date on which the check, ACH, or 
other type of transaction is paid into overdraft.
    ii. Examples. The following examples illustrate how an institution 
complies with the fee prohibition. For each example, assume the 
following: (a) The consumer has not opted into the payment of ATM or 
one-time debit card overdrafts; (b) these transactions are paid into 
overdraft because the amount of the transaction at settlement exceeded 
the amount authorized or the amount was not submitted for authorization; 
(c) under the account agreement, the institution may charge a per-item 
fee of $20 for each overdraft, and a one-time sustained overdraft fee of 
$20 on the fifth consecutive day the consumer's account remains 
overdrawn; (d) the institution posts ATM and debit card transactions 
before other transactions; and (e) the institution allocates deposits to 
account debits in the same order in which it posts debits.
    A. Assume that a consumer has a $50 account balance on March 1. That 
day, the institution posts a one-time debit card transaction of $60 and 
a check transaction of $40. The institution charges an overdraft fee of 
$20 for the check overdraft but cannot assess an overdraft fee for the 
debit card transaction. At the end of the day, the consumer has an 
account balance of negative $70. The consumer does not make any deposits 
to the account, and no other transactions occur between March 2 and 
March 6. Because the consumer's negative balance is attributable in part 
to the $40 check (and associated overdraft fee), the institution may 
charge a sustained overdraft fee on March 6 in connection with the 
check.
    B. Same facts as in A., except that on March 3, the consumer 
deposits $40 in the account. The institution allocates the $40 to the 
debit card transaction first, consistent with its posting order policy. 
At the end of the day on March 3, the consumer has an account balance of 
negative $30, which is attributable to the check transaction (and 
associated overdraft fee). The consumer does not make any further 
deposits to the account, and no other transactions occur between March 4 
and March 6. Because the remaining negative balance is attributable to 
the March 1 check transaction, the institution may charge a sustained 
overdraft fee on March 6 in connection with the check.
    C. Assume that a consumer has a $50 account balance on March 1. That 
day, the institution posts a one-time debit card transaction of $60. At 
the end of that day, the consumer has an account balance of negative 
$10. The institution may not assess an overdraft fee for the debit card 
transaction. On March 3, the institution pays a check transaction of 
$100 and charges an overdraft fee of $20. At the end of that day, the 
consumer has an account balance of negative $130. The consumer does not 
make any deposits to the account, and no other transactions occur 
between March 4 and March 8. Because the consumer's negative balance is 
attributable in part to the check, the institution may assess a $20 
sustained overdraft fee. However, because the check was paid on March 3, 
the institution must use March 3 as the start date for determining the 
date on which the sustained overdraft fee may be assessed. Thus, the 
institution may charge a $20 sustained overdraft fee on March 8.
    iii. Alternative approach. For a consumer who does not opt into the 
institution's overdraft service for ATM and one-time debit card 
transactions, an institution may also comply with the fee prohibition in 
Sec. 1005.17(b)(1) by not assessing daily or sustained overdraft, 
negative balance, or similar fees or charges unless a consumer's 
negative balance is attributable solely to check, ACH or other types of 
transactions not subject to the fee prohibition while that negative 
balance remains outstanding. In such case, the institution would not 
have to determine how to allocate subsequent deposits that reduce but do 
not eliminate the negative balance. For example, if a consumer has a 
negative balance of $30, of which $10 is attributable to a one-time 
debit card transaction, an institution complies with the fee prohibition 
if it does not assess a sustained overdraft fee while that negative 
balance remains outstanding.

    17(b)(2) Conditioning Payment of Other Overdrafts on Consumer's 
                           Affirmative Consent

    1. Application of the same criteria. The prohibitions on 
conditioning in Sec. 1005.17(b)(2) generally require an institution to 
apply the same criteria for deciding when to pay overdrafts for checks, 
ACH transactions, and other types of transactions, whether or not the 
consumer has affirmatively consented to the institution's overdraft 
service with respect to ATM and one-time debit card overdrafts. For 
example, if an institution's internal criteria would lead the 
institution to pay a check overdraft if the consumer had affirmatively 
consented to the institution's overdraft service for ATM and one-time 
debit card transactions, it must also apply the same criteria in a 
consistent manner in determining whether to pay the check overdraft if 
the consumer has not opted in.
    2. No requirement to pay overdrafts on checks, ACH transactions, or 
other types of transactions. The prohibition on conditioning in Sec. 
1005.17(b)(2) does not require an institution to pay overdrafts on 
checks, ACH transactions, or other types of transactions in all 
circumstances. Rather, the rule simply prohibits institutions from 
considering the consumer's decision not to opt in when deciding

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whether to pay overdrafts for checks, ACH transactions, or other types 
of transactions.

          17(b)(3) Same Account Terms, Conditions, and Features

    1. Variations in terms, conditions, or features. A financial 
institution may not vary the terms, conditions, or features of an 
account provided to a consumer who does not affirmatively consent to the 
payment of ATM or one-time debit card transactions pursuant to the 
institution's overdraft service. This includes, but is not limited to:
    i. Interest rates paid and fees assessed;
    ii. The type of ATM or debit card provided to the consumer. For 
instance, an institution may not provide consumers who do not opt in a 
PIN-only card while providing a debit card with both PIN and signature-
debit functionality to consumers who opt in;
    iii. Minimum balance requirements; or
    iv. Account features such as online bill payment services.
    2. Limited-feature bank accounts. Section 1005.17(b)(3) does not 
prohibit institutions from offering deposit account products with 
limited features, provided that a consumer is not required to open such 
an account because the consumer did not opt in. For example, Sec. 
1005.17(b)(3) does not prohibit an institution from offering a checking 
account designed to comply with state basic banking laws, or designed 
for consumers who are not eligible for a checking account because of 
their credit or checking account history, which may include features 
limiting the payment of overdrafts. However, a consumer who applies, and 
is otherwise eligible, for a full-service or other particular deposit 
account product may not be provided instead with the account with more 
limited features because the consumer has declined to opt in.

                              17(c) Timing

    1. Permitted fees or charges. Fees or charges for ATM and one-time 
debit card overdrafts may be assessed only for overdrafts paid on or 
after the date the financial institution receives the consumer's 
affirmative consent to the institution's overdraft service. See also 
comment 17(b)-7.

                        17(d) Content and Format

    1. Overdraft service. The description of the institution's overdraft 
service should indicate that the consumer has the right to affirmatively 
consent, or opt into payment of overdrafts for ATM and one-time debit 
card transactions. The description should also disclose the 
institution's policies regarding the payment of overdrafts for other 
transactions, including checks, ACH transactions, and automatic bill 
payments, provided that this content is not more prominent than the 
description of the consumer's right to opt into payment of overdrafts 
for ATM and one-time debit card transactions. As applicable, the 
institution also should indicate that it pays overdrafts at its 
discretion, and should briefly explain that if the institution does not 
authorize and pay an overdraft, it may decline the transaction.
    2. Maximum fee. If the amount of a fee may vary from transaction to 
transaction, the financial institution may indicate that the consumer 
may be assessed a fee ``up to'' the maximum fee. The financial 
institution must disclose all applicable overdraft fees, including but 
not limited to:
    i. Per item or per transaction fees;
    ii. Daily overdraft fees;
    iii. Sustained overdraft fees, where fees are assessed when the 
consumer has not repaid the amount of the overdraft after some period of 
time (for example, if an account remains overdrawn for five or more 
business days); or
    iv. Negative balance fees.
    3. Opt-in methods. The opt-in notice must include the methods by 
which the consumer may consent to the overdraft service for ATM and one-
time debit card transactions. Institutions may tailor Model Form A-9 to 
the methods offered to consumers for affirmatively consenting to the 
service. For example, an institution need not provide the tear-off 
portion of Model Form A-9 if it is only permitting consumers to opt-in 
telephonically or electronically. Institutions may, but are not 
required, to provide a signature line or check box where the consumer 
can indicate that he or she declines to opt in.
    4. Identification of consumer's account. An institution may use any 
reasonable method to identify the account for which the consumer submits 
the opt-in notice. For example, the institution may include a line for a 
printed name and an account number, as shown in Model Form A-9. Or, the 
institution may print a bar code or use other tracking information. See 
also comment 17(b)-6, which describes how an institution obtains a 
consumer's affirmative consent.
    5. Alternative plans for covering overdrafts. If the institution 
offers both a line of credit subject to Regulation Z (12 CFR part 1026) 
and a service that transfers funds from another account of the consumer 
held at the institution to cover overdrafts, the institution must state 
in its opt-in notice that both alternative plans are offered. For 
example, the notice might state ``We also offer overdraft protection 
plans, such as a link to a savings account or to an overdraft line of 
credit, which may be less expensive than our standard overdraft 
practices.'' If the institution offers one, but not the other, it must 
state in its opt-in notice the alternative plan that it offers. If the 
institution does not offer either plan, it should omit the reference to 
the alternative plans.

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        17(f) Continuing Right To Opt-In or To Revoke the Opt-In

    1. Fees or charges for overdrafts incurred prior to revocation. 
Section 1005.17(f)(1) provides that a consumer may revoke his or her 
prior consent at any time. If a consumer does so, this provision does 
not require the financial institution to waive or reverse any overdraft 
fees assessed on the consumer's account prior to the institution's 
implementation of the consumer's revocation request.

                        17(g) Duration of Opt-In

    1. Termination of overdraft service. A financial institution may, 
for example, terminate the overdraft service when the consumer makes 
excessive use of the service.

Section 1005.18 Requirements for Financial Institutions Offering Payroll 
                              Card Accounts

                             18(a) Coverage

    1. Issuance of access device. Consistent with Sec. 1005.5(a), a 
financial institution may issue an access device only in response to an 
oral or written request for the device, or as a renewal or substitute 
for an accepted access device. A consumer is deemed to request an access 
device for a payroll card account when the consumer chooses to receive 
salary or other compensation through a payroll card account.
    2. Application to employers and service providers. Typically, 
employers and third-party service providers do not meet the definition 
of a ``financial institution'' subject to the regulation because they 
neither hold payroll card accounts nor issue payroll cards and agree 
with consumers to provide EFT services in connection with payroll card 
accounts. However, to the extent an employer or a service provider 
undertakes either of these functions, it would be deemed a financial 
institution under the regulation.

                18(b) Alternative to Periodic Statements

    1. Posted transactions. A history of transactions provided under 
Sec. Sec. 1005.18(b)(1)(ii) and (iii) shall reflect transfers once they 
have been posted to the account. Thus, an institution does not need to 
include transactions that have been authorized, but that have not yet 
posted to the account.
    2. Electronic history. The electronic history required under Sec. 
1005.18(b)(1)(ii) must be provided in a form that the consumer may keep, 
as required under Sec. 1005.4(a)(1). Financial institutions may satisfy 
this requirement if they make the electronic history available in a 
format that is capable of being retained. For example, an institution 
satisfies the requirement if it provides a history at a Web site in a 
format that is capable of being printed or stored electronically using a 
web browser.

                       18(c) Modified Requirements

    1. Error resolution safe harbor provision. Institutions that choose 
to investigate notices of error provided up to 120 days from the date a 
transaction has posted to a consumer's account may still disclose the 
error resolution time period required by the regulation (as set forth in 
the Model Form in Appendix A-7). Specifically, an institution may 
disclose to payroll card account holders that the institution will 
investigate any notice of error provided within 60 days of the consumer 
electronically accessing an account or receiving a written history upon 
request that reflects the error, even if, for some or all transactions, 
the institution investigates any notice of error provided up to 120 days 
from the date that the transaction alleged to be in error has posted to 
the consumer's account. Similarly, an institution's summary of the 
consumer's liability (as required under Sec. 1005.7(b)(1)) may disclose 
that liability is based on the consumer providing notice of error within 
60 days of the consumer electronically accessing an account or receiving 
a written history reflecting the error, even if, for some or all 
transactions, the institution allows a consumer to assert a notice of 
error up to 120 days from the date of posting of the alleged error.
    2. Electronic access. A consumer is deemed to have accessed a 
payroll card account electronically when the consumer enters a user 
identification code or password or otherwise complies with a security 
procedure used by an institution to verify the consumer's identity. An 
institution is not required to determine whether a consumer has in fact 
accessed information about specific transactions to trigger the 
beginning of the 60-day periods for liability limits and error 
resolution under Sec. Sec. 1005.6 and 1005.11.
    3. Untimely notice of error. An institution that provides a 
transaction history under Sec. 1005.18(b)(1) is not required to comply 
with the requirements of Sec. 1005.11 for any notice of error from the 
consumer pertaining to a transfer that occurred more than 60 days prior 
to the earlier of the date the consumer electronically accesses the 
account or the date the financial institution sends a written history 
upon the consumer's request. (Alternatively, as provided in Sec. 
1005.18(c)(4)(ii), an institution need not comply with the requirements 
of Sec. 1005.11 with respect to any notice of error received from the 
consumer more than 120 days after the date of posting of the transfer 
allegedly in error.) Where the consumer's assertion of error involves an 
unauthorized EFT, however, the institution must comply with Sec. 1005.6 
before it may impose any liability on the consumer.

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    Section 1005.20 Requirements for Gift Cards and Gift Certificates

                            20(a) Definitions

    1. Form of card, code, or device. Section 1005.20 applies to any 
card, code, or other device that meets one of the definitions in 
Sec. Sec. 1005.20(a)(1) through (a)(3) (and is not otherwise excluded 
by Sec. 1005.20(b)), even if it is not issued in card form. Section 
1005.20 applies, for example, to an account number or bar code that can 
be used to access underlying funds. Similarly, Sec. 1005.20 applies to 
a device with a chip or other embedded mechanism that links the device 
to stored funds, such as a mobile phone or sticker containing a 
contactless chip that enables the consumer to access the stored funds. A 
card, code, or other device that meets the definition in Sec. Sec. 
1005.20(a)(1) through (a)(3) includes an electronic promise (see comment 
20(a)-2) as well as a promise that is not electronic. See, however, 
Sec. 1005.20(b)(5). In addition, Sec. 1005.20 applies if a merchant 
issues a code that entitles a consumer to redeem the code for goods or 
services, regardless of the medium in which the code is issued (see, 
however, Sec. 1005.20(b)(5)), and whether or not it may be redeemed 
electronically or in the merchant's store. Thus, for example, if a 
merchant emails a code that a consumer may redeem in a specified amount 
either online or in the merchant's store, that code is covered under 
Sec. 1005.20, unless one of the exclusions in Sec. 1005.20(b) apply.
    2. Electronic promise. The term ``electronic promise'' as used in 
EFTA sections 915(a)(2)(B), (a)(2)(C), and (a)(2)(D) means a person's 
commitment or obligation communicated or stored in electronic form made 
to a consumer to provide payment for goods or services for transactions 
initiated by the consumer. The electronic promise is itself represented 
by a card, code or other device that is issued or honored by the person, 
reflecting the person's commitment or obligation to pay. For example, if 
a merchant issues a code that can be given as a gift and that entitles 
the recipient to redeem the code in an online transaction for goods or 
services, that code represents an electronic promise by the merchant and 
is a card, code, or other device covered by Sec. 1005.20.
    3. Cards, codes, or other devices redeemable for specific goods or 
services. Certain cards, codes, or other devices may be redeemable upon 
presentation for a specific good or service, or ``experience,'' such as 
a spa treatment, hotel stay, or airline flight. In other cases, a card, 
code, or other device may entitle the consumer to a certain percentage 
off the purchase of a good or service, such as 20% off of any purchase 
in a store. Such cards, codes, or other devices generally are not 
subject to the requirements of this section because they are not issued 
to a consumer ``in a specified amount'' as required under the 
definitions of ``gift certificate,'' ``store gift card,'' or ``general-
use prepaid card.'' However, if the card, code, or other device is 
issued in a specified or denominated amount that can be applied toward 
the purchase of a specific good or service, such as a certificate or 
card redeemable for a spa treatment up to $50, the card, code, or other 
device is subject to this section, unless one of the exceptions in Sec. 
1005.20(b) apply. See, e.g., Sec. 1005.20(b)(3). Similarly, if the 
card, code, or other device states a specific monetary value, such as 
``a $50 value,'' the card, code, or other device is subject to this 
section, unless an exclusion in Sec. 1005.20(b) applies.
    4. Issued primarily for personal, family, or household purposes. 
Section 1005.20 only applies to cards, codes, or other devices that are 
sold or issued to a consumer primarily for personal, family, or 
household purposes. A card, code, or other device initially purchased by 
a business is subject to this section if the card, code, or other device 
is purchased for redistribution or resale to consumers primarily for 
personal, family, or household purposes. Moreover, the fact that a card, 
code, or other device may be primarily funded by a business, for 
example, in the case of certain rewards or incentive cards, does not 
mean the card, code, or other device is outside the scope of Sec. 
1005.20, if the card, code, or other device will be provided to a 
consumer primarily for personal, family, or household purposes. But see 
Sec. 1005.20(b)(3). Whether a card, code, or other device is issued to 
a consumer primarily for personal, family, or household purposes will 
depend on the facts and circumstances. For example, if a program manager 
purchases store gift cards directly from an issuing merchant and sells 
those cards through the program manager's retail outlets, such gift 
cards are subject to the requirements of Sec. 1005.20 because the store 
gift cards are sold to consumers primarily for personal, family, or 
household purposes. In contrast, a card, code, or other device generally 
would not be issued to consumers primarily for personal, family, or 
household purposes, and therefore would fall outside the scope of Sec. 
1005.20, if the purchaser of the card, code, or device is contractually 
prohibited from reselling or redistributing the card, code, or device to 
consumers primarily for personal, family, or household purposes, and 
reasonable policies and procedures are maintained to avoid such sale or 
distribution for such purposes. However, if an entity that has purchased 
cards, codes, or other devices for business purposes sells or 
distributes such cards, codes, or other devices to consumers primarily 
for personal, family, or household purposes, that entity does not comply 
with Sec. 1005.20 if it has not otherwise met the substantive and 
disclosure

[[Page 222]]

requirements of the rule or unless an exclusion in Sec. 1005.20(b) 
applies.
    5. Examples of cards, codes, or other devices issued for business 
purposes. Examples of cards, codes, or other devices that are issued and 
used for business purposes and therefore excluded from the definitions 
of ``gift certificate,'' ``store gift card,'' or ``general-use prepaid 
card'' include:
    i. Cards, codes, or other devices to reimburse employees for travel 
or moving expenses.
    ii. Cards, codes, or other devices for employees to use to purchase 
office supplies and other business-related items.

                        20(a)(2) Store Gift Card

    1. Relationship between ``gift certificate'' and ``store gift 
card.'' The term ``store gift card'' in Sec. 1005.20(a)(2) includes 
``gift certificate'' as defined in Sec. 1005.20(a)(1). For example, a 
numeric or alphanumeric code representing a specified dollar amount or 
value that is electronically sent to a consumer as a gift which can be 
redeemed or exchanged by the recipient to obtain goods or services may 
be both a ``gift certificate'' and a ``store gift card'' if the 
specified amount or value cannot be increased.
    2. Affiliated group of merchants. The term ``affiliated group of 
merchants'' means two or more affiliated merchants or other persons that 
are related by common ownership or common corporate control (see, e.g., 
12 CFR 227.3(b) and 12 CFR 223.2) and that share the same name, mark, or 
logo. For example, the term includes 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 themselves, by contract or otherwise, to 
redeem cards, codes, or other devices bearing the same name, mark, or 
logo (other than the mark, logo, or brand of a payment network), for the 
purchase of goods or services solely at such merchants or persons. For 
example, assume a movie theatre chain and a restaurant chain jointly 
agree to issue cards that share the same ``Flix and Food'' logo that can 
be redeemed solely towards the purchase of movie tickets or concessions 
at any of the participating movie theatres, or towards the purchase of 
food or beverages at any of the participating restaurants. For purposes 
of Sec. 1005.20, the movie theatre chain and the restaurant chain would 
be considered to be an affiliated group of merchants, and the cards are 
considered to be ``store gift cards.'' However, merchants or other 
persons are not considered to be affiliated merely because they agree to 
accept a card that bears the mark, logo, or brand of a payment network.
    3. Mall gift cards. See comment 20(a)(3)-2.

                    20(a)(3) General-Use Prepaid Card

    1. Redeemable upon presentation at multiple, unaffiliated merchants. 
A card, code, or other device is redeemable upon presentation at 
multiple, unaffiliated merchants if, for example, such merchants agree 
to honor the card, code, or device if it bears the mark, logo, or brand 
of a payment network, pursuant to the rules of the payment network.
    2. Mall gift cards. Mall gift cards that are intended to be used or 
redeemed for goods or services at participating retailers within a 
shopping mall may be considered store gift cards or general-use prepaid 
cards depending on the merchants with which the cards may be redeemed. 
For example, if a mall card may only be redeemed at merchants within the 
mall itself, the card is more likely to be redeemable at an affiliated 
group of merchants and considered a store gift card. However, certain 
mall cards also carry the brand of a payment network and can be used at 
any retailer that accepts that card brand, including retailers located 
outside of the mall. Such cards are considered general-use prepaid 
cards.

            20(a)(4) Loyalty, Award, or Promotional Gift Card

    1. Examples of loyalty, award, or promotional programs. Examples of 
loyalty, award, or promotional programs under Sec. 1005.20(a)(4) 
include, but are not limited to:
    i. Consumer retention programs operated or administered by a 
merchant or other person that provide to consumers cards or coupons 
redeemable for or towards goods or services or other monetary value as a 
reward for purchases made or for visits to the participating merchant.
    ii. Sales promotions operated or administered by a merchant or 
product manufacturer that provide coupons or discounts redeemable for or 
towards goods or services or other monetary value.
    iii. Rebate programs operated or administered by a merchant or 
product manufacturer that provide cards redeemable for or towards goods 
or services or other monetary value to consumers in connection with the 
consumer's purchase of a product or service and the consumer's 
completion of the rebate submission process.
    iv. Sweepstakes or contests that distribute cards redeemable for or 
towards goods or services or other monetary value to consumers as an 
invitation to enter into the promotion for a chance to win a prize.
    v. Referral programs that provide cards redeemable for or towards 
goods or services or other monetary value to consumers in exchange for 
referring other potential consumers to a merchant.
    vi. Incentive programs through which an employer provides cards 
redeemable for or towards goods or services or other monetary

[[Page 223]]

value to employees, for example, to recognize job performance, such as 
increased sales, or to encourage employee wellness and safety.
    vii. Charitable or community relations programs through which a 
company provides cards redeemable for or towards goods or services or 
other monetary value to a charity or community group for their 
fundraising purposes, for example, as a reward for a donation or as a 
prize in a charitable event.
    2. Issued for loyalty, award, or promotional purposes. To indicate 
that a card, code, or other device is issued for loyalty, award, or 
promotional purposes as required by Sec. 1005.20(a)(4)(iii), it is 
sufficient for the card, code, or other device to state on the front, 
for example, ``Reward'' or ``Promotional.''
    3. Reference to toll-free number and Web site. If a card, code, or 
other device issued in connection with a loyalty, award, or promotional 
program does not have any fees, the disclosure under Sec. 
1005.20(a)(4)(iii)(D) is not required on the card, code, or other 
device.

                          20(a)(6) Service Fee

    1. Service fees. Under Sec. 1005.20(a)(6), a service fee includes a 
periodic fee for holding or use of a gift certificate, store gift card, 
or general-use prepaid card. A periodic fee includes any fee that may be 
imposed on a gift certificate, store gift card, or general-use prepaid 
card from time to time for holding or using the certificate or card, 
such as a monthly maintenance fee, a transaction fee, an ATM fee, a 
reload fee, a foreign currency transaction fee, or a balance inquiry 
fee, whether or not the fee is waived for a certain period of time or is 
only imposed after a certain period of time. A service fee does not 
include a one-time fee or a fee that is unlikely to be imposed more than 
once while the underlying funds are still valid, such as an initial 
issuance fee, a cash-out fee, a supplemental card fee, or a lost or 
stolen certificate or card replacement fee.

                            20(a)(7) Activity

    1. Activity. Under Sec. 1005.20(a)(7), any action that results in 
an increase or decrease of the funds underlying a gift certificate, 
store gift card, or general-use prepaid card, other than the imposition 
of a fee, or an adjustment due to an error or a reversal of a prior 
transaction, constitutes activity for purposes of Sec. 1005.20. For 
example, the purchase and activation of a certificate or card, the use 
of the certificate or card to purchase a good or service, or the 
reloading of funds onto a store gift card or general-use prepaid card 
constitutes activity. However, the imposition of a fee, the replacement 
of an expired, lost, or stolen certificate or card, and a balance 
inquiry do not constitute activity. In addition, if a consumer attempts 
to engage in a transaction with a gift certificate, store gift card, or 
general-use prepaid card, but the transaction cannot be completed due to 
technical or other reasons, such attempt does not constitute activity. 
Furthermore, if the funds underlying a gift certificate, store gift 
card, or general-use prepaid card are adjusted because there was an 
error or the consumer has returned a previously purchased good, the 
adjustment also does not constitute activity with respect to the 
certificate or card.

                            20(b) Exclusions

    1. Application of exclusion. A card, code, or other device is 
excluded from the definition of ``gift certificate,'' ``store gift 
card,'' or ``general-use prepaid card'' if it meets any of the 
exclusions in Sec. 1005.20(b). An excluded card, code, or other device 
generally is not subject to any of the requirements of this section. 
See, however, Sec. 1005.20(a)(4)(iii), requiring certain disclosures 
for loyalty, award, or promotional gift cards.
    2. Eligibility for multiple exclusions. A card, code, or other 
device may qualify for one or more exclusions. For example, a 
corporation may give its employees a gift card that is marketed solely 
to businesses for incentive-related purposes, such as to reward job 
performance or promote employee safety. In this case, the card may 
qualify for the exclusion for loyalty, award, or promotional gift cards 
under Sec. 1005.20(b)(3), or for the exclusion for cards, codes, or 
other devices not marketed to the general public under Sec. 
1005.20(b)(4). In addition, as long as any one of the exclusions 
applies, a card, code, or other device is not covered by Sec. 1005.20, 
even if other exclusions do not apply. In the above example, the 
corporation may give its employees a type of gift card that can also be 
purchased by a consumer directly from a merchant. Under these 
circumstances, while the card does not qualify for the exclusion for 
cards, codes, or other devices not marketed to the general public under 
Sec. 1005.20(b)(4) because the card can also be obtained through retail 
channels, it is nevertheless exempt from the substantive requirements of 
Sec. 1005.20 because it is a loyalty, award, or promotional gift card. 
See, however, Sec. 1005.20(a)(4)(iii), requiring certain disclosures 
for loyalty, award, or promotional gift cards. Similarly, a person may 
market a reloadable card to teenagers for occasional expenses that 
enables parents to monitor spending. Although the card does not qualify 
for the exclusion for cards, codes, or other devices not marketed to the 
general public under Sec. 1005.20(b)(4), it may nevertheless be exempt 
from the requirements of Sec. 1005.20 under Sec. 1005.20(b)(2) if it 
is reloadable and not marketed or labeled as a gift card or gift 
certificate.

[[Page 224]]

                           Paragraph 20(b)(1)

    1. Examples of excluded products. The exclusion for products usable 
solely for telephone services applies to prepaid cards for long-distance 
telephone service, prepaid cards for wireless telephone service and 
prepaid cards for other services that function similar to telephone 
services, such as prepaid cards for voice over Internet protocol (VoIP) 
access time.

                           Paragraph 20(b)(2)

    1. Reloadable. A card, code, or other device is ``reloadable'' if 
the terms and conditions of the agreement permit funds to be added to 
the card, code, or other device after the initial purchase or issuance. 
A card, code, or other device is not ``reloadable'' merely because the 
issuer or processor is technically able to add functionality that would 
otherwise enable the card, code, or other device to be reloaded.
    2. Marketed or labeled as a gift card or gift certificate. The term 
``marketed or labeled as a gift card or gift certificate'' means 
directly or indirectly offering, advertising, or otherwise suggesting 
the potential use of a card, code or other device, as a gift for another 
person. Whether the exclusion applies generally does not depend on the 
type of entity that makes the promotional message. For example, a card 
may be marketed or labeled as a gift card or gift certificate if anyone 
(other than the purchaser of the card), including the issuer, the 
retailer, the program manager that may distribute the card, or the 
payment network on which a card is used, promotes the use of the card as 
a gift card or gift certificate. A card, code, or other device, 
including a general-purpose reloadable card, is marketed or labeled as a 
gift card or gift certificate even if it is only occasionally marketed 
as a gift card or gift certificate. For example, a network-branded 
general purpose reloadable card would be marketed or labeled as a gift 
card or gift certificate if the issuer principally advertises the card 
as a less costly alternative to a bank account but promotes the card in 
a television, radio, newspaper, or Internet advertisement, or on signage 
as ``the perfect gift'' during the holiday season. However, the mere 
mention of the availability of gift cards or gift certificates in an 
advertisement or on a sign that also indicates the availability of other 
excluded prepaid cards does not by itself cause the excluded prepaid 
cards to be marketed as a gift card or a gift certificate. For example, 
the posting of a sign in a store that refers to the availability of gift 
cards does not by itself constitute the marketing of otherwise excluded 
prepaid cards that may also be sold in the store as gift cards or gift 
certificates, provided that a consumer acting reasonably under the 
circumstances would not be led to believe that the sign applies to all 
prepaid cards sold in the store. See, however, comment 20(b)(2)-4.ii.
    3. Examples of marketed or labeled as a gift card or gift 
certificate. i. Examples of marketed or labeled as a gift card or gift 
certificate include:
    A. Using the word ``gift'' or ``present'' on a card, certificate, or 
accompanying material, including documentation, packaging and 
promotional displays.
    B. Representing or suggesting that a certificate or card can be 
given to another person, for example, as a ``token of appreciation'' or 
a ``stocking stuffer,'' or displaying a congratulatory message on the 
card, certificate or accompanying material.
    C. Incorporating gift-giving or celebratory imagery or motifs, such 
as a bow, ribbon, wrapped present, candle, or congratulatory message, on 
a card, certificate, accompanying documentation, or promotional 
material.
    ii. The term does not include:
    A. Representing that a card or certificate can be used as a 
substitute for a checking, savings, or deposit account.
    B. Representing that a card or certificate can be used to pay for a 
consumer's health-related expenses--for example, a card tied to a health 
savings account.
    C. Representing that a card or certificate can be used as a 
substitute for traveler's checks or cash.
    D. Representing that a card or certificate can be used as a 
budgetary tool, for example, by teenagers, or to cover emergency 
expenses.
    4. Reasonable policies and procedures to avoid marketing as a gift 
card. The exclusion for a card, code, or other device that is reloadable 
and not marketed or labeled as a gift card or gift certificate in Sec. 
1005.20(b)(2) applies if a reloadable card, code, or other device is not 
marketed or labeled as a gift card or gift certificate and if persons 
subject to the rule, including issuers, program managers, and retailers, 
maintain policies and procedures reasonably designed to avoid such 
marketing. Such policies and procedures may include contractual 
provisions prohibiting a reloadable card, code, or other device from 
being marketed or labeled as a gift card or gift certificate, 
merchandising guidelines or plans regarding how the product must be 
displayed in a retail outlet, and controls to regularly monitor or 
otherwise verify that the card, code or other device is not being 
marketed as a gift card. Whether a reloadable card, code, or other 
device has been marketed as a gift card or gift certificate will depend 
on the facts and circumstances, including whether a reasonable consumer 
would be led to believe that the card, code, or other device is a gift 
card or gift certificate. The following examples illustrate the 
application of Sec. 1005.20(b)(2):

[[Page 225]]

    i. An issuer or program manager of prepaid cards agrees to sell 
general-purpose reloadable cards through a retailer. The contract 
between the issuer or program manager and the retailer establishes the 
terms and conditions under which the cards may be sold and marketed at 
the retailer. The terms and conditions prohibit the general-purpose 
reloadable cards from being marketed as a gift card or gift certificate, 
and require policies and procedures to regularly monitor or otherwise 
verify that the cards are not being marketed as such. The issuer or 
program manager sets up one promotional display at the retailer for gift 
cards and another physically separated display for excluded products 
under Sec. 1005.20(b), including general-purpose reloadable cards and 
wireless telephone cards, such that a reasonable consumer would not 
believe that the excluded cards are gift cards. The exclusion in Sec. 
1005.20(b)(2) applies because policies and procedures reasonably 
designed to avoid the marketing of the general-purpose reloadable cards 
as gift cards or gift certificates are maintained, even if a retail 
clerk inadvertently stocks or a consumer inadvertently places a general-
purpose reloadable card on the gift card display.
    ii. Same facts as in i., except that the issuer or program manager 
sets up a single promotional display at the retailer on which a variety 
of prepaid cards are sold, including store gift cards and general-
purpose reloadable cards. A sign stating ``Gift Cards'' appears 
prominently at the top of the display. The exclusion in Sec. 
1005.20(b)(2) does not apply with respect to the general-purpose 
reloadable cards because policies and procedures reasonably designed to 
avoid the marketing of excluded cards as gift cards or gift certificates 
are not maintained.
    iii. Same facts as in i., except that the issuer or program manager 
sets up a single promotional multi-sided display at the retailer on 
which a variety of prepaid card products, including store gift cards and 
general-purpose reloadable cards are sold. Gift cards are segregated 
from excluded cards, with gift cards on one side of the display and 
excluded cards on a different side of a display. Signs of equal 
prominence at the top of each side of the display clearly differentiate 
between gift cards and the other types of prepaid cards that are 
available for sale. The retailer does not use any more conspicuous 
signage suggesting the general availability of gift cards, such as a 
large sign stating ``Gift Cards'' at the top of the display or located 
near the display. The exclusion in Sec. 1005.20(b)(2) applies because 
policies and procedures reasonably designed to avoid the marketing of 
the general-purpose reloadable cards as gift cards or gift certificates 
are maintained, even if a retail clerk inadvertently stocks or a 
consumer inadvertently places a general-purpose reloadable card on the 
gift card display.
    iv. Same facts as in i., except that the retailer sells a variety of 
prepaid card products, including store gift cards and general-purpose 
reloadable cards, arranged side-by-side in the same checkout lane. The 
retailer does not affirmatively indicate or represent that gift cards 
are available, such as by displaying any signage or other indicia at the 
checkout lane suggesting the general availability of gift cards. The 
exclusion in Sec. 1005.20(b)(2) applies because policies and procedures 
reasonably designed to avoid marketing the general-purpose reloadable 
cards as gift cards or gift certificates are maintained.
    5. Online sales of prepaid cards. Some Web sites may prominently 
advertise or promote the availability of gift cards or gift certificates 
in a manner that suggests to a consumer that the Web site exclusively 
sells gift cards or gift certificates. For example, a Web site may 
display a banner advertisement or a graphic on the home page that 
prominently states ``Gift Cards,'' ``Gift Giving,'' or similar language 
without mention of other available products, or use a web address that 
includes only a reference to gift cards or gift certificates in the 
address. In such a case, a consumer acting reasonably under the 
circumstances could be led to believe that all prepaid products sold on 
the Web site are gift cards or gift certificates. Under these facts, the 
Web site has marketed all such products, including general-purpose 
reloadable cards, as gift cards or gift certificates, and the exclusion 
in Sec. 1005.20(b)(2) does not apply.
    6. Temporary non-reloadable cards issued in connection with a 
general-purpose reloadable card. Certain general-purpose reloadable 
cards that are typically marketed as an account substitute initially may 
be sold or issued in the form of a temporary non-reloadable card. After 
the card is purchased, the cardholder is typically required to call the 
issuer to register the card and to provide identifying information in 
order to obtain a reloadable replacement card. In most cases, the 
temporary non-reloadable card can be used for purchases until the 
replacement reloadable card arrives and is activated by the cardholder. 
Because the temporary non-reloadable card may only be obtained in 
connection with the general-purpose reloadable card, the exclusion in 
Sec. 1005.20(b)(2) applies so long as the card is not marketed as a 
gift card or gift certificate.

                           Paragraph 20(b)(4)

    1. Marketed to the general public. A card, code, or other device is 
marketed to the general public if the potential use of the card, code, 
or other device is directly or indirectly offered, advertised, or 
otherwise promoted to the general public. A card, code, or other device 
may be marketed to the general public

[[Page 226]]

through any advertising medium, including television, radio, newspaper, 
the Internet, or signage. However, the posting of a company policy that 
funds may be disbursed by prepaid card (such as a sign posted at a cash 
register or customer service center stating that store credit will be 
issued by prepaid card) does not constitute the marketing of a card, 
code, or other device to the general public. In addition, the method of 
distribution by itself is not dispositive in determining whether a card, 
code, or other device is marketed to the general public. Factors that 
may be considered in determining whether the exclusion applies to a 
particular card, code, or other device include the means or channel 
through which the card, code, or device may be obtained by a consumer, 
the subset of consumers that are eligible to obtain the card, code, or 
device, and whether the availability of the card, code, or device is 
advertised or otherwise promoted in the marketplace.
    2. Examples. The following examples illustrate the application of 
the exclusion in Sec. 1005.20(b)(4):
    i. A merchant sells its gift cards at a discount to a business which 
may give them to employees or loyal consumers as incentives or rewards. 
In determining whether the gift card falls within the exclusion in Sec. 
1005.20(b)(4), the merchant must consider whether the card is of a type 
that is advertised or made available to consumers generally or can be 
obtained elsewhere. If the card can also be purchased through retail 
channels, the exclusion in Sec. 1005.20(b)(4) does not apply, even if 
the consumer obtained the card from the business as an incentive or 
reward. See, however, Sec. 1005.20(b)(3).
    ii. A national retail chain decides to market its gift cards only to 
members of its frequent buyer program. Similarly, a bank may decide to 
sell gift cards only to its customers. If a member of the general public 
may become a member of the program or a customer of the bank, the card 
does not fall within the exclusion in Sec. 1005.20(b)(4) because the 
general public has the ability to obtain the cards. See, however, Sec. 
1005.20(b)(3).
    iii. A card issuer advertises a reloadable card to teenagers and 
their parents promoting the card for use by teenagers for occasional 
expenses, schoolbooks and emergencies and by parents to monitor 
spending. Because the card is marketed to and may be sold to any member 
of the general public, the exclusion in Sec. 1005.20(b)(4) does not 
apply. See, however, Sec. 1005.20(b)(2).
    iv. An insurance company settles a policyholder's claim and 
distributes the insurance proceeds to the consumer by means of a prepaid 
card. Because the prepaid card is simply the means for providing the 
insurance proceeds to the consumer and the availability of the card is 
not advertised to the general public, the exclusion in Sec. 
1005.20(b)(4) applies.
    v. A merchant provides store credit to a consumer following a 
merchandise return by issuing a prepaid card that clearly indicates that 
the card contains funds for store credit. Because the prepaid card is 
issued for the stated purpose of providing store credit to the consumer 
and the ability to receive refunds by a prepaid card is not advertised 
to the general public, the exclusion in Sec. 1005.20(b)(4) applies.
    vi. A tax preparation company elects to distribute tax refunds to 
its clients by issuing prepaid cards, but does not advertise or 
otherwise promote the ability to receive proceeds in this manner. 
Because the prepaid card is simply the mechanism for providing the tax 
refund to the consumer, and the tax preparer does not advertise the 
ability to obtain tax refunds by a prepaid card, the exclusion in Sec. 
1005.20(b)(4) applies. However, if the tax preparer promotes the ability 
to receive tax refund proceeds through a prepaid card as a way to obtain 
``faster'' access to the proceeds, the exclusion in Sec. 1005.20(b)(4) 
does not apply.

                           Paragraph 20(b)(5)

    1. Exclusion explained. To qualify for the exclusion in Sec. 
1005.20(b)(5), the sole means of issuing the card, code, or other device 
must be in a paper form. Thus, the exclusion generally applies to 
certificates issued in paper form where solely the paper itself may be 
used to purchase goods or services. A card, code or other device is not 
issued solely in paper form simply because it may be reproduced or 
printed on paper. For example, a bar code, card or certificate number, 
or certificate or coupon electronically provided to a consumer and 
redeemable for goods and services is not issued in paper form, even if 
it may be reproduced or otherwise printed on paper by the consumer. In 
this circumstance, although the consumer might hold a paper facsimile of 
the card, code, or other device, the exclusion does not apply because 
the information necessary to redeem the value was initially issued in 
electronic form. A paper certificate is within the exclusion regardless 
of whether it may be redeemed electronically. For example, a paper 
certificate or receipt that bears a bar code, code, or account number 
falls within the exclusion in Sec. 1005.20(b)(5) if the bar code, code, 
or account number is not issued in any form other than on the paper. In 
addition, the exclusion in Sec. 1005.20(b)(5) continues to apply in 
circumstances where an issuer replaces a gift certificate that was 
initially issued in paper form with a card or electronic code (for 
example, to replace a lost paper certificate).
    2. Examples. The following examples illustrate the application of 
the exclusion in Sec. 1005.20(b)(5):
    i. A merchant issues a paper gift certificate that entitles the 
bearer to a specified dollar amount that can be applied towards a

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future meal. The merchant fills in the certificate with the name of the 
certificate holder and the amount of the certificate. The certificate 
falls within the exclusion in Sec. 1005.20(b)(5) because it is issued 
in paper form only.
    ii. A merchant allows a consumer to prepay for a good or service, 
such as a car wash or time at a parking meter, and issues a paper 
receipt bearing a numerical or bar code that the consumer may redeem to 
obtain the good or service. The exclusion in Sec. 1005.20(b)(5) applies 
because the code is issued in paper form only.
    iii. A merchant issues a paper certificate or receipt bearing a bar 
code or certificate number that can later be scanned or entered into the 
merchant's system and redeemed by the certificate or receipt holder 
towards the purchase of goods or services. The bar code or certificate 
number is not issued by the merchant in any form other than paper. The 
exclusion in Sec. 1005.20(b)(5) applies because the bar code or 
certificate number is issued in paper form only.
    iv. An online merchant electronically provides a bar code, card or 
certificate number, or certificate or coupon to a consumer that the 
consumer may print on a home printer and later redeem towards the 
purchase of goods or services. The exclusion in Sec. 1005.20(b)(5) does 
not apply because the bar code or card or certificate number was issued 
to the consumer in electronic form, even though it can be reproduced or 
otherwise printed on paper by the consumer.

                           Paragraph 20(b)(6)

    1. Exclusion explained. The exclusion for cards, codes, or other 
devices that are redeemable solely for admission to events or venues at 
a particular location or group of affiliated locations generally applies 
to cards, codes, or other devices that are not redeemed for a specified 
monetary value, but rather solely for admission or entry to an event or 
venue. The exclusion also covers a card, code, or other device that is 
usable to purchase goods or services in addition to entry into the event 
or the venue, either at the event or venue or at an affiliated location 
or location in geographic proximity to the event or venue.
    2. Examples. The following examples illustrate the application of 
the exclusion in Sec. 1005.20(b)(6):
    i. A consumer purchases a prepaid card that entitles the holder to a 
ticket for entry to an amusement park. The prepaid card may only be used 
for entry to the park. The card qualifies for the exclusion in Sec. 
1005.20(b)(6) because it is redeemable for admission or entry and for 
goods or services in conjunction with that admission. In addition, if 
the prepaid card does not have a monetary value, and therefore is not 
``issued in a specified amount,'' the card does not meet the definitions 
of ``gift certificate,'' ``store gift card,'' or ``general-use prepaid 
card'' in Sec. 1005.20(a). See comment 20(a)-3.
    ii. Same facts as in i., except that the gift card also entitles the 
holder of the gift card to a dollar amount that can be applied towards 
the purchase of food and beverages or goods or services at the park or 
at nearby affiliated locations. The card qualifies for the exclusion in 
Sec. 1005.20(b)(6) because it is redeemable for admission or entry and 
for goods or services in conjunction with that admission.
    iii. A consumer purchases a $25 gift card that the holder of the 
gift card can use to make purchases at a merchant, or, alternatively, 
can apply towards the cost of admission to the merchant's affiliated 
amusement park. The card is not eligible for the exclusion in Sec. 
1005.20(b)(6) because it is not redeemable solely for the admission or 
ticket itself (or for goods and services purchased in conjunction with 
such admission). The card meets the definition of ``store gift card'' 
and is therefore subject to Sec. 1005.20, unless a different exclusion 
applies.

                        20(c) Form of Disclosures

                     20(c)(1) Clear and Conspicuous

    1. Clear and conspicuous standard. All disclosures required by this 
section must be clear and conspicuous. Disclosures are clear and 
conspicuous for purposes of this section if they are readily 
understandable and, in the case of written and electronic disclosures, 
the location and type size are readily noticeable to consumers. 
Disclosures need not be located on the front of the certificate or card, 
except where otherwise required, to be considered clear and conspicuous. 
Disclosures are clear and conspicuous for the purposes of this section 
if they are in a print that contrasts with and is otherwise not 
obstructed by the background on which they are printed. For example, 
disclosures on a card or computer screen are not likely to be 
conspicuous if obscured by a logo printed in the background. Similarly, 
disclosures on the back of a card that are printed on top of 
indentations from embossed type on the front of the card are not likely 
to be conspicuous if the indentations obstruct the readability of the 
disclosures. To the extent permitted, oral disclosures meet the standard 
when they are given at a volume and speed sufficient for a consumer to 
hear and comprehend them.
    2. Abbreviations and symbols. Disclosures may contain commonly 
accepted or readily understandable abbreviations or symbols, such as 
``mo.'' for month or a ``/'' to indicate ``per.'' Under the clear and 
conspicuous standard, it is sufficient to state, for example, that a 
particular fee is charged ``$2.50/mo. after 12 mos.''

[[Page 228]]

                             20(c)(2) Format

    1. Electronic disclosures. Disclosures provided electronically 
pursuant to this section are not subject to compliance with the consumer 
consent and other applicable provisions of the Electronic Signatures in 
Global and National Commerce Act (E-Sign Act) (15 U.S.C. 7001 et seq.). 
Electronic disclosures must be in a retainable form. For example, a 
person may satisfy the requirement if it provides an online disclosure 
in a format that is capable of being printed. Electronic disclosures may 
not be provided through a hyperlink or in another manner by which the 
purchaser can bypass the disclosure. A person is not required to confirm 
that the consumer has read the electronic disclosures.

                  20(c)(3) Disclosure Prior to Purchase

    1. Method of purchase. The disclosures required by this paragraph 
must be provided before a certificate or card is purchased regardless of 
whether the certificate or card is purchased in person, online, by 
telephone, or by other means.
    2. Electronic disclosures. Section 1005.20(c)(3) provides that the 
disclosures required by this section must be provided to the consumer 
prior to purchase. For certificates or cards purchased electronically, 
disclosures made to the consumer after a consumer has initiated an 
online purchase of a certificate or card, but prior to completing the 
purchase of the certificate or card, would satisfy the prior-to-purchase 
requirement. However, electronic disclosures made available on a 
person's Web site that may or may not be accessed by the consumer are 
not provided to the consumer and therefore would not satisfy the prior-
to-purchase requirement.
    3. Non-physical certificates and cards. If no physical certificate 
or card is issued, the disclosures must be provided to the consumer 
before the certificate or card is purchased. For example, where a gift 
certificate or card is a code that is provided by telephone, the 
required disclosures may be provided orally prior to purchase. See also 
Sec. 1005.20(c)(2).

             20(c)(4) Disclosures on the Certificate or Card

    1. Non-physical certificates and cards. If no physical certificate 
or card is issued, the disclosures required by this paragraph must be 
disclosed on the code, confirmation, or other written or electronic 
document provided to the consumer. For example, where a gift certificate 
or card is a code or confirmation that is provided to a consumer online 
or sent to a consumer's email address, the required disclosures may be 
provided electronically on the same document as the code or 
confirmation.
    2. No disclosures on a certificate or card. Disclosures required by 
Sec. 1005.20(c)(4) need not be made on a certificate or card if it is 
accompanied by a certificate or card that complies with this section. 
For example, a person may issue or sell a supplemental gift card that is 
smaller than a standard size and that does not bear the applicable 
disclosures if it is accompanied by a fully compliant certificate or 
card. See also comment 20(c)(2)-2.

           20(d) Prohibition on Imposition of Fees or Charges

    1. One-year period. Section 1005.20(d) provides that a person may 
impose a dormancy, inactivity, or service fee only if there has been no 
activity with respect to a certificate or card for one year. The 
following examples illustrate this rule:
    i. A certificate or card is purchased on January 15 of year one. If 
there has been no activity on the certificate or card since the 
certificate or card was purchased, a dormancy, inactivity, or service 
fee may be imposed on the certificate or card on January 15 of year two.
    ii. Same facts as i., and a fee was imposed on January 15 of year 
two. Because no more than one dormancy, inactivity, or service fee may 
be imposed in any given calendar month, the earliest date that another 
dormancy, inactivity, or service fee may be imposed, assuming there 
continues to be no activity on the certificate or card, is February 1 of 
year two. A dormancy, inactivity, or service fee is permitted to be 
imposed on February 1 of year two because there has been no activity on 
the certificate or card for the preceding year (February 1 of year one 
through January 31 of year two), and February is a new calendar month. 
The imposition of a fee on January 15 of year two is not activity for 
purposes of Sec. 1005.20(d). See comment 20(a)(7)-1.
    iii. Same facts as i., and a fee was imposed on January 15 of year 
two. On January 31 of year two, the consumer uses the card to make a 
purchase. Another dormancy, inactivity, or service fee could not be 
imposed until January 31 of year three, assuming there has been no 
activity on the certificate or card since January 31 of year two.
    2. Relationship between Sec. Sec. 1005.20(d)(2) and (c)(3). 
Sections 1005.20(d)(2) and (c)(3) contain similar, but not identical, 
disclosure requirements. Section 1005.20(d)(2) requires the disclosure 
of dormancy, inactivity, and service fees on a certificate or card. 
Section 1005.20(c)(3) requires that vendor person that issues or sells 
such certificate or card disclose to a consumer any dormancy, 
inactivity, and service fees associated with the certificate or card 
before such certificate or card may be purchased. Depending on the 
context, a single disclosure that meets the clear and conspicuous 
requirements of both Sec. Sec. 1005.20(d)(2) and (c)(3) may be used to 
disclose a dormancy, inactivity, or service fee. For example, if the 
disclosures on a certificate or card, required by Sec. 1005.20(d)(2), 
are visible to the consumer without having to

[[Page 229]]

remove packaging or other materials sold with the certificate or card, 
for a purchase made in person, the disclosures also meet the 
requirements of Sec. 1005.20(c)(3). Otherwise, a dormancy, inactivity, 
or service fee may need to be disclosed multiple times to satisfy the 
requirements of Sec. Sec. 1005.20(d)(2) and (c)(3). For example, if the 
disclosures on a certificate or card, required by Sec. 1005.20(d)(2), 
are obstructed by packaging sold with the certificate or card, for a 
purchase made in person, they also must be disclosed on the packaging 
sold with the certificate or card to meet the requirements of Sec. 
1005.20(c)(3).
    3. Relationship between Sec. Sec. 1005.20(d)(2), (e)(3), and 
(f)(2). In addition to any disclosures required under Sec. 
1005.20(d)(2), any applicable disclosures under Sec. Sec. 1005.20(e)(3) 
and (f)(2) of this section must also be provided on the certificate or 
card.
    4. One fee per month. Under Sec. 1005.20(d)(3), no more than one 
dormancy, inactivity, or service fee may be imposed in any given 
calendar month. For example, if a dormancy fee is imposed on January 1, 
following a year of inactivity, and a consumer makes a balance inquiry 
on January 15, a balance inquiry fee may not be imposed at that time 
because a dormancy fee was already imposed earlier that month and a 
balance inquiry fee is a type of service fee. If, however, the dormancy 
fee could be imposed on January 1, following a year of inactivity, and 
the consumer makes a balance inquiry on the same date, the person 
assessing the fees may choose whether to impose the dormancy fee or the 
balance inquiry fee on January 1. The restriction in Sec. 1005.20(d)(3) 
does not apply to any fee that is not a dormancy, inactivity, or service 
fee. For example, assume a service fee is imposed on a general-use 
prepaid card on January 1, following a year of inactivity. If a consumer 
cashes out the remaining funds by check on January 15, a cash-out fee, 
to the extent such cash-out fee is permitted under Sec. 1005.20(e)(4), 
may be imposed at that time because a cash-out fee is not a dormancy, 
inactivity, or service fee.
    5. Accumulation of fees. Section 1005.20(d) prohibits the 
accumulation of dormancy, inactivity, or service fees for previous 
periods into a single fee because such a practice would circumvent the 
limitation in Sec. 1005.20(d)(3) that only one fee may be charged per 
month. For example, if a consumer purchases and activates a store gift 
card on January 1 but never uses the card, a monthly maintenance fee of 
$2.00 a month may not be accumulated such that a fee of $24 is imposed 
on January 1 the following year.

20(e) Prohibition on Sale of Gift Certificates or Cards With Expiration 
                                  Dates

    1. Reasonable opportunity. Under Sec. 1005.20(e)(1), no person may 
sell or issue a gift certificate, store gift card, or general-use 
prepaid card with an expiration date, unless there are policies and 
procedures in place to provide consumers with a reasonable opportunity 
to purchase a certificate or card with at least five years remaining 
until the certificate or card expiration date. Consumers are deemed to 
have a reasonable opportunity to purchase a certificate or card with at 
least five years remaining until the certificate or card expiration date 
if:
    i. There are policies and procedures established to prevent the sale 
of a certificate or card unless the certificate or card expiration date 
is at least five years after the date the certificate or card was sold 
or initially issued to a consumer; or
    ii. A certificate or card is available to consumers to purchase five 
years and six months before the certificate or card expiration date.
    2. Applicability to replacement certificates or cards. Section 
1005.20(e)(1) applies solely to the purchase of a certificate or card. 
Therefore, Sec. 1005.20(e)(1) does not apply to the replacement of such 
certificates or cards. Certificates or cards issued as a replacement may 
bear a certificate or card expiration date of less than five years from 
the date of issuance of the replacement certificate or card. If the 
certificate or card expiration date for a replacement certificate or 
card is later than the date set forth in Sec. 1005.20(e)(2)(i), then 
pursuant to Sec. 1005.20(e)(2), the expiration date for the underlying 
funds at the time the replacement certificate or card is issued must be 
no earlier than the expiration date for the replacement certificate or 
card. For purposes of Sec. 1005.20(e)(2), funds are not considered to 
be loaded to a store gift card or general-use prepaid card solely 
because a replacement card has been issued or activated for use.
    3. Disclosure of funds expiration--date not required. Section 
1005.20(e)(3)(i) does not require disclosure of the precise date the 
funds will expire. It is sufficient to disclose, for example, ``Funds 
expire 5 years from the date funds last loaded to the card.''; ``Funds 
can be used 5 years from the date money was last added to the card.''; 
or ``Funds do not expire.''
    4. Disclosure not required if no expiration date. If the certificate 
or card and underlying funds do not expire, the disclosure required by 
Sec. 1005.20(e)(3)(i) need not be stated on the certificate or card. If 
the certificate or card and underlying funds expire at the same time, 
only one expiration date need be disclosed on the certificate or card.
    5. Reference to toll-free telephone number and Web site. If a 
certificate or card does not expire, or if the underlying funds are not 
available after the certificate or card expires, the disclosure required 
by Sec. 1005.20(e)(3)(ii) need not be stated on the certificate or 
card. See, however, Sec. 1005.20(f)(2).

[[Page 230]]

    6. Relationship to Sec. 226.20(f)(2). The same toll-free telephone 
number and Web site may be used to comply with Sec. Sec. 
226.20(e)(3)(ii) and (f)(2). Neither a toll-free number nor a Web site 
must be maintained or disclosed if no fees are imposed in connection 
with a certificate or card, and the certificate or card and the 
underlying funds do not expire.
    7. Distinguishing between certificate or card expiration and funds 
expiration. If applicable, a disclosure must be made on the certificate 
or card that notifies a consumer that the certificate or card expires, 
but the funds either do not expire or expire later than the certificate 
or card, and that the consumer may contact the issuer for a replacement 
card. The disclosure must be made with equal prominence and in close 
proximity to the certificate or card expiration date. The close 
proximity requirement does not apply to oral disclosures. In the case of 
a certificate or card, close proximity means that the disclosure must be 
on the same side as the certificate or card expiration date. For 
example, if the disclosure is the same type size and is located 
immediately next to or directly above or below the certificate or card 
expiration date, without any intervening text or graphical displays, the 
disclosures would be deemed to be equally prominent and in close 
proximity. The disclosure need not be embossed on the certificate or 
card to be deemed equally prominent, even if the expiration date is 
embossed on the certificate or card. The disclosure may state on the 
front of the card, for example, ``Funds expire after card. Call for 
replacement card.'' or ``Funds do not expire. Call for new card after 
09/2016.'' Disclosures made pursuant to Sec. 1005.20(e)(3)(iii)(A) may 
also fulfill the requirements of Sec. 1005.20(e)(3)(i). For example, 
making a disclosure that ``Funds do not expire'' to comply with Sec. 
1005.20(e)(3)(iii)(A) also fulfills the requirements of Sec. 
1005.20(e)(3)(i).
    8. Expiration date safe harbor. A non-reloadable certificate or card 
that bears an expiration date that is at least seven years from the date 
of manufacture need not state the disclosure required by Sec. 
1005.20(e)(3)(iii). However, Sec. 1005.20(e)(1) still prohibits the 
sale or issuance of such certificate or card unless there are policies 
and procedures in place to provide a consumer with a reasonable 
opportunity to purchase the certificate or card with at least five years 
remaining until the certificate or card expiration date. In addition, 
under Sec. 1005.20(e)(2), the funds may not expire before the 
certificate or card expiration date, even if the expiration date of the 
certificate or card bears an expiration date that is more than five 
years from the date of purchase. For purposes of this safe harbor, the 
date of manufacture is the date on which the certificate or card 
expiration date is printed on the certificate or card.
    9. Relationship between Sec. Sec. 1005.20(d)(2), (e)(3), and 
(f)(2). In addition to any disclosures required to be made under Sec. 
1005.20(e)(3), any applicable disclosures under Sec. Sec. 1005.20(d)(2) 
and (f)(2) must also be provided on the certificate or card.
    10. Replacement or remaining balance of an expired certificate or 
card. When a certificate or card expires, but the underlying funds have 
not expired, an issuer, at its option in accordance with applicable 
state law, may provide either a replacement certificate or card or 
otherwise provide the certificate or card holder, for example, by check, 
with the remaining balance on the certificate or card. In either case, 
the issuer may not charge a fee for the service.
    11. Replacement of a lost or stolen certificate or card not 
required. Section 1005.20(e)(4) does not require the replacement of a 
certificate or card that has been lost or stolen.
    12. Date of issuance or loading. For purposes of Sec. 
1005.20(e)(2)(i), a certificate or card is not issued or loaded with 
funds until the certificate or card is activated for use.
    13. Application of expiration date provisions after redemption of 
certificate or card. The requirement that funds underlying a certificate 
or card must not expire for at least five years from the date of 
issuance or date of last load ceases to apply once the certificate or 
card has been fully redeemed, even if the underlying funds are not used 
to contemporaneously purchase a specific good or service. For example, 
some certificates or cards can be used to purchase music, media, or 
virtual goods. Once redeemed by a consumer, the entire balance on the 
certificate or card is debited from the certificate or card and credited 
or transferred to another ``account'' established by the merchant of 
such goods or services. The consumer can then make purchases of songs, 
media, or virtual goods from the merchant using that ``account'' either 
at the time the value is transferred from the certificate or card or at 
a later time. Under these circumstances, once the card has been fully 
redeemed and the ``account'' credited with the amount of the underlying 
funds, the five-year minimum expiration term no longer applies to the 
underlying funds. However, if the consumer only partially redeems the 
value of the certificate or card, the five-year minimum expiration term 
requirement continues to apply to the funds remaining on the certificate 
or card.

 20(f) Additional Disclosure Requirements for Gift Certificates or Cards

    1. Reference to toll-free telephone number and Web site. If a 
certificate or card does not have any fees, the disclosure under Sec. 
1005.20(f)(2) is not required on the certificate or card. See, however, 
Sec. 1005.20(e)(3)(ii).
    2. Relationship to Sec. 226.20(e)(3)(ii). The same toll-free 
telephone number and Web site may be used to comply with Sec. Sec. 
226.20(e)(3)(ii) and

[[Page 231]]

(f)(2). Neither a toll-free number nor a Web site must be maintained or 
disclosed if no fees are imposed in connection with a certificate or 
card, and both the certificate or card and underlying funds do not 
expire.
    3. Relationship between Sec. Sec. 1005.20(d)(2), (e)(3), and 
(f)(2). In addition to any disclosures required pursuant to Sec. 
1005.20(f)(2), any applicable disclosures under Sec. Sec. 1005.20(d)(2) 
and (e)(3) must also be provided on the certificate or card.

                         20(g) Compliance Dates

    1. Period of eligibility for loyalty, award, or promotional 
programs. For purposes of Sec. 1005.20(g)(2), the period of eligibility 
is the time period during which a consumer must engage in a certain 
action or actions to meet the terms of eligibility for a loyalty, award, 
or promotional program and obtain the card, code, or other device. Under 
Sec. 1005.20(g)(2), a gift card issued pursuant to a loyalty, award, or 
promotional program that began prior to August 22, 2010 need not state 
the disclosures in Sec. 1005.20(a)(4)(iii) regardless of whether the 
consumer became eligible to receive the gift card prior to August 22, 
2010, or after that date. For example, a product manufacturer may 
provide a $20 rebate card to a consumer if the consumer purchases a 
particular product and submits a fully completed entry between January 
1, 2010 and December 31, 2010. Similarly, a merchant may provide a $20 
gift card to a consumer if the consumer makes $200 worth of qualifying 
purchases between June 1, 2010 and October 30, 2010. Under both 
examples, gift cards provided pursuant to these loyalty, award, or 
promotional programs need not state the disclosures in Sec. 
1005.20(a)(4)(iii) to qualify for the exclusion in Sec. 1005.20(b)(3) 
for loyalty, award, or promotional gift cards because the period of 
eligibility for each program began prior to August 22, 2010.

                        20(h) Temporary Exemption

                     20(h)(1) Delayed Effective Date

    1. Application to certificates or cards produced prior to April 1, 
2010. Certificates or cards produced prior to April 1, 2010 may be sold 
to a consumer on or after August 22, 2010 without satisfying the 
requirements of Sec. Sec. 1005.20(c)(3), (d)(2), (e)(1), (e)(3), and 
(f) through January 30, 2011, provided that issuers of such certificates 
or cards comply with the additional substantive and disclosure 
requirements of Sec. Sec. 1005.20(h)(1)(i) through (iv). Issuers of 
certificates or cards produced prior to April 1, 2010 need not satisfy 
these additional requirements if the certificates or cards fully comply 
with the rule (Sec. Sec. 1005.20(a) through (f)). For example, the in-
store signage and other disclosures required by Sec. 1005.20(h)(2) do 
not apply to gift cards produced prior to April 1, 2010 that do not have 
fees and do not expire, and which otherwise comply with the rule.
    2. Expiration of temporary exemption. Certificates or cards produced 
prior to April 1, 2010 that do not fully comply with Sec. Sec. 
1005.20(a) through (f) may not be issued or sold to consumers on or 
after January 31, 2011.

                     20(h)(2) Additional Disclosures

    1. Disclosures through third parties. Issuers may make the 
disclosures required by Sec. 1005.20(h)(2) through a third party, such 
as a retailer or merchant. For example, an issuer may have a merchant 
install in-store signage with the disclosures required by Sec. 
1005.20(h)(2) on the issuer's behalf.
    2. General advertising disclosures. Section 1005.20(h)(2) does not 
impose an obligation on the issuer to advertise gift certificates, store 
gift cards, or general-use prepaid cards.

             Appendix A--Model Disclosure Clauses and Forms

    1. Review of forms. The Bureau will not review or approve disclosure 
forms or statements for financial institutions. However, the Bureau has 
issued model clauses for institutions to use in designing their 
disclosures. If an institution uses these clauses accurately to reflect 
its service, the institution is protected from liability for failure to 
make disclosures in proper form.
    2. Use of forms. The appendix contains model disclosure clauses for 
optional use by financial institutions to facilitate compliance with the 
disclosure requirements of sections 1005.5(b)(2) and (b)(3), 1005.6(a), 
1005.7, 1005.8(b), 1005.14(b)(1)(ii), 1005.15(d)(1) and (d)(2), and 
1005.18(c)(1) and (c)(2). The use of appropriate clauses in making 
disclosures will protect a financial institution from liability under 
sections 916 and 917 of the Act provided the clauses accurately reflect 
the institution's EFT services.
    3. Altering the clauses. Financial institutions may use clauses of 
their own design in conjunction with the Bureau's model clauses. The 
inapplicable words or portions of phrases in parentheses should be 
deleted. The catchlines are not part of the clauses and need not be 
used. Financial institutions may make alterations, substitutions, or 
additions in the clauses to reflect the services offered, such as 
technical changes (including the substitution of a trade name for the 
word ``card,'' deletion of inapplicable services, or substitution of 
lesser liability limits). Several of the model clauses include 
references to a telephone number and address. Where two or more of these 
clauses are used in a disclosure, the telephone number and address may 
be referenced and need not be repeated.T

[[Page 232]]



PART 1006_FAIR DEBT COLLECTION PRACTICES ACT (REGULATION F)--Table of
Contents



   Subpart A_Procedures for State Application for Exemption From the 
                          Provisions of the Act

Sec.
1006.1 Purpose and definitions.
1006.2 Application.
1006.3 Supporting documents.
1006.4 Criteria for determination.
1006.5 Public notice of filing.
1006.6 Exemption from requirements.
1006.7 Adverse determination.
1006.8 Revocation of exemption.

Subpart B [Reserved]

    Authority: 12 U.S.C. 5512, 5581; 15 U.S.C. 1692o.

    Source: 76 FR 78124, Dec. 16, 2011, unless otherwise noted.



   Subpart A_Procedures for State Application for Exemption From the 
                          Provisions of the Act



Sec. 1006.1  Purpose and definitions.

    (a) Purpose. This part, known as Regulation F, is issued by the 
Bureau of Consumer Financial Protection (Bureau). This subpart 
establishes procedures and criteria whereby states may apply to the 
Bureau for exemption of a class of debt collection practices within the 
applying state from the provisions of the Fair Debt Collection Practices 
Act (the Act) as provided in section 817 of the Act, 15 U.S.C. 1692o.
    (b) Definitions. For purposes of this subpart:
    Class of debt collection practices includes one or more such classes 
of debt collection practices.
    State law includes any regulations that implement state law and 
formal interpretations thereof by a court of competent jurisdiction or 
duly authorized agency of that state.



Sec. 1006.2  Application.

    Any state may apply to the Bureau pursuant to the terms of this part 
for a determination that, under the laws of that state, any class of 
debt collection practices within that state is subject to requirements 
that are substantially similar to, or provide greater protection for 
consumers than, those imposed under sections 803 through 812 of the Act, 
and that there is adequate provision for state enforcement of such 
requirements. The application shall be in writing, addressed to the 
Bureau, signed by the Governor, Attorney General or state official 
having primary enforcement or responsibility under the state law which 
is applicable to the class of debt collection practices, and shall be 
supported by the documents specified in this subpart.



Sec. 1006.3  Supporting documents.

    The application shall be accompanied by the following, which may be 
submitted in paper or electronic form:
    (a) A copy of the full text of the state law that is claimed to 
contain requirements substantially similar to those imposed under 
sections 803 through 812 of the Act, or to provide greater protection to 
consumers than sections 803 through 812 of the Act, regarding the class 
of debt collection practices within that state.
    (b) A comparison of each provision of sections 803 through 812 of 
the Act with the corresponding provision of the state law, together with 
reasons supporting the claim that the corresponding provisions of the 
state law are substantially similar to or provide greater protection to 
consumers than provisions of sections 803 through 812 of the Act and an 
explanation as to why any differences between the state and Federal law 
are not inconsistent with the provisions of sections 803 through 812 of 
the Act and do not result in a diminution in the protection otherwise 
afforded consumers; and a statement that no other state laws (including 
administrative or judicial interpretations) are related to, or would 
have an effect upon, the state law that is being considered by the 
Bureau in making its determination.
    (c) A copy of the full text of the state law that provides for 
enforcement of the state law referred to in paragraph (a) of this 
section.
    (d) A comparison of the provisions of the state law that provides 
for enforcement with the provisions of section 814 of the Act, together 
with reasons supporting the claim that such state law

[[Page 233]]

provides for administrative enforcement of the state law referred to in 
paragraph (a) of this section that is substantially similar to, or more 
extensive than, the enforcement provided under section 814 of the Act.
    (e) A statement identifying the office designated or to be 
designated to administer the state law referred to in paragraph (a) of 
this section, together with complete information regarding the fiscal 
arrangements for administrative enforcement (including the amount of 
funds available or to be provided), the number and qualifications of 
personnel engaged or to be engaged in enforcement, and a description of 
the procedures under which such state law is to be administratively 
enforced. The statement should also include reasons to support the claim 
that there is adequate provision for enforcement of such state law.



Sec. 1006.4  Criteria for determination.

    The Bureau will consider the criteria set forth below, and any other 
relevant information, in determining whether the law of a state is 
substantially similar to, or provides greater protection to consumers 
than, the provisions of sections 803 through 812 of the Act regarding 
the class of debt collection practices within that state, and whether 
there is adequate provision for state enforcement of such law. In making 
that determination, the Bureau primarily will consider each provision of 
the state law in comparison with each corresponding provision in 
sections 803 through 812 of the Act, and not the state law as a whole in 
comparison with the Act as a whole.
    (a)(1) In order for provisions of state law to be substantially 
similar to, or provide greater protection to consumers than the 
provisions of sections 803 through 812 of the Act, the provisions of 
state law at least shall provide that:
    (i) Definitions and rules of construction, as applicable, import the 
same meaning and have the same application as those prescribed by 
sections 803 through 812 of the Act.
    (ii) Debt collectors provide all of the applicable notifications 
required by the provisions of sections 803 through 812 of the Act, with 
the content and in the terminology, form, and time periods prescribed by 
this part pursuant to sections 803 through 812; however, required 
references to state law may be substituted for the references to Federal 
law required in this part. Notification requirements under state law in 
additional circumstances or with additional detail that do not frustrate 
any of the purposes of the Act may be determined by the Bureau to be 
consistent with sections 803 through 812 of the Act;
    (iii) Debt collectors take all affirmative actions and abide by 
obligations substantially similar to, or more extensive than, those 
prescribed by sections 803 through 812 of the Act under substantially 
similar or more stringent conditions and within the same or more 
stringent time periods as are prescribed in sections 803 through 812 of 
the Act;
    (iv) Debt collectors abide by the same or more stringent 
prohibitions as are prescribed by sections 803 through 812 of the Act;
    (v) Obligations or responsibilities imposed on consumers are no more 
costly, lengthy, or burdensome relative to consumers exercising any of 
the rights or gaining the benefits of the protections provided in the 
state law than corresponding obligations or responsibilities imposed on 
consumers in sections 803 through 812 of the Act.
    (vi) Consumers' rights and protections are substantially similar to, 
or more favorable than, those provided by sections 803 through 812 of 
the Act under conditions or within time periods that are substantially 
similar to, or more favorable to consumers than, those prescribed by 
sections 803 through 812 of the Act.
    (2) Paragraph (a)(1) of this section is not to be construed as 
indicating that the Bureau would consider adversely any additional 
requirements of state law that are not inconsistent with the purpose of 
the Act or the requirements imposed under sections 803 through 812 of 
the Act.
    (b) In determining whether provisions for enforcement of the state 
law referred to in Sec. 1006.3(a) of this part are adequate, 
consideration will be given to the extent to which, under state law, 
provision is made for administrative

[[Page 234]]

enforcement, including necessary facilities, personnel, and funding.



Sec. 1006.5  Public notice of filing.

    In connection with any application that has been filed in accordance 
with the requirements of Sec. Sec. 1006.2 and 1006.3 of this part and 
following initial review of the application, a notice of such filing 
shall be published by the Bureau in the Federal Register, and a copy of 
such application shall be made available for examination by interested 
persons during business hours at the Bureau of Consumer Financial 
Protection, 1700 G Street NW., Washington, DC 20006. A period of time 
shall be allowed from the date of such publication for interested 
parties to submit written comments to the Bureau regarding that 
application.



Sec. 1006.6  Exemption from requirements.

    If the Bureau determines on the basis of the information before it 
that, under the law of a state, a class of debt collection practices is 
subject to requirements substantially similar to, or that provide 
greater protection to consumers than, those imposed under sections 803 
through 812 and section 814 of the Act, and that there is adequate 
provision for state enforcement, the Bureau will exempt the class of 
debt collection practices in that state from the requirements of 
sections 803 through 812 and section 814 of the Act in the following 
manner and subject to the following conditions:
    (a) Notice of the exemption shall be published in the Federal 
Register, and the Bureau shall furnish a copy of such notice to the 
state official who made application for such exemption, to each Federal 
authority responsible for administrative enforcement of the requirements 
of sections 803 through 812 of the Act, and to the Attorney General of 
the United States. Any exemption granted shall be effective 90 days 
after the date of publication of such notice in the Federal Register.
    (b) The appropriate official of any state that receives an exemption 
shall inform the Bureau in writing within 30 days of any change in the 
state laws referred to in Sec. 1006.3(a) and (c) of this part. The 
report of any such change shall contain copies of the full text of that 
change, together with statements setting forth the information and 
opinions regarding that change that are specified in Sec. 1006.3(b) and 
(d). The appropriate official of any state that has received such an 
exemption also shall file with the Bureau from time to time such reports 
as the Bureau may require.
    (c) The Bureau shall inform the appropriate official of any state 
that receives such an exemption of any subsequent amendments of the Act 
or this part that might necessitate the amendment of state law for the 
exemption to continue.
    (d) No exemption shall extend to the civil liability provisions of 
section 813 of the Act. After an exemption is granted, the requirements 
of the applicable state law shall constitute the requirements of 
sections 803 through 812 of the Act, except to the extent such state law 
imposes requirements not imposed by the Act or this part.



Sec. 1006.7  Adverse determination.

    (a) If, after publication of a notice in the Federal Register as 
provided under Sec. 1006.5 of this part, the Bureau finds on the basis 
of the information before it that it cannot make a favorable 
determination in connection with the application, the Bureau shall 
notify the appropriate state official of the facts upon which such 
findings are based and shall afford that state authority a reasonable 
opportunity to demonstrate or achieve compliance.
    (b) If, after having afforded the state authority such opportunity 
to demonstrate or achieve compliance, the Bureau finds on the basis of 
the information before it that it still cannot make a favorable 
determination in connection with the application, the Bureau shall 
publish in the Federal Register a notice of its determination regarding 
the application and shall furnish a copy of such notice to the state 
official who made application for such exemption.



Sec. 1006.8  Revocation of exemption.

    (a) The Bureau reserves the right to revoke any exemption granted 
under the provisions of this part, if at any time it determines that the 
state law does not, in fact, impose requirements

[[Page 235]]

that are substantially similar to, or that provide greater protection to 
applicants than, those imposed under sections 803 through 812 of the Act 
or that there is not, in fact, adequate provision for state enforcement.
    (b) Before revoking any such exemption, the Bureau shall notify the 
appropriate state official of the facts or conduct that, in the Bureau's 
opinion, warrant such revocation, and shall afford that state such 
opportunity as the Bureau deems appropriate in the circumstances to 
demonstrate or achieve compliance.
    (c) If, after having been afforded the opportunity to demonstrate or 
achieve compliance, the Bureau determines that the state has not done 
so, notice of the Bureau's intention to revoke such exemption shall be 
published in the Federal Register. A period of time shall be allowed 
from the date of such publication for interested persons to submit 
written comments to the Bureau regarding the intention to revoke.
    (d) If such exemption is revoked, notice of such revocation shall be 
published by the Bureau in the Federal Register, and a copy of such 
notice shall be furnished to the appropriate state official, to the 
Federal authorities responsible for enforcement of the requirements of 
the Act, and to the Attorney General of the United States. The 
revocation shall become effective, and the class of debt collection 
practices affected within that state shall become subject to the 
requirements of sections 803 through 812 of the Act, 90 days after the 
date of publication of the notice in the Federal Register.

Subpart B [Reserved]



PART 1007_S.A.F.E. MORTGAGE LICENSING ACT_FEDERAL REGISTRATION OF 
RESIDENTIAL MORTGAGE LOAN ORIGINATORS (REGULATION G)--Table of Contents



Sec.
1007.101 Authority, purpose, and scope of this part.
1007.102 Definitions applicable to this part.
1007.103 Registration of mortgage loan originators.
1007.104 Policies and procedures.
1007.105 Use of unique identifier.

Appendix A to Part 1007--Examples of Mortgage Loan Originator Activities

    Authority: 12 U.S.C. 5101-5116; 15 U.S.C. 1604(a), 1639b; Pub. L. 
111-203, 124 Stat. 1376.

    Source: 76 FR 78487, Dec. 19, 2011, unless otherwise noted.



Sec. 1007.101  Authority, purpose, and scope.

    (a) Authority. This part, known as Regulation G, is issued by the 
Bureau of Consumer Financial Protection pursuant to the Secure and Fair 
Enforcement for Mortgage Licensing Act of 2008, title V of the Housing 
and Economic Recovery Act of 2008 (S.A.F.E. Act) (Pub. L. 110-289, 122 
Stat. 2654, 12 U.S.C. 5101 et seq.), 12 U.S.C. 5512, 5581, 15 U.S.C. 
1604(a), 1639b.
    (b) Purpose. This part implements the S.A.F.E. Act's Federal 
registration requirement for mortgage loan originators. The S.A.F.E. Act 
provides that the objectives of this registration include aggregating 
and improving the flow of information to and between regulators; 
providing increased accountability and tracking of mortgage loan 
originators; enhancing consumer protections; supporting anti-fraud 
measures; and providing consumers with easily accessible information at 
no charge regarding the employment history of, and publicly adjudicated 
disciplinary and enforcement actions against, mortgage loan originators.
    (c) Scope--(1) In general. This part applies to:
    (i) National banks, Federal branches and agencies of foreign banks, 
their operating subsidiaries (collectively referred to in this part as 
national banks), and their employees who act as mortgage loan 
originators;
    (ii) Member banks of the Federal Reserve System; their respective 
subsidiaries that are not functionally regulated within the meaning of 
section 5(c)(5) of the Bank Holding Company Act, as amended (12 U.S.C. 
1844(c)(5)); branches and agencies of foreign banks; commercial lending 
companies owned or controlled by foreign banks (collectively referred to 
in this part as member banks); and their employees who act as mortgage 
loan originators;
    (iii) Insured state nonmember banks (including state-licensed 
insured

[[Page 236]]

branches of foreign banks), their subsidiaries (except brokers, dealers, 
persons providing insurance, investment companies, and investment 
advisers) (collectively referred to in this part as insured state 
nonmember banks), and employees of such banks or subsidiaries who act as 
mortgage loan originators;
    (iv) Savings associations, their operating subsidiaries 
(collectively referred to in this part as savings associations), and 
their employees who act as mortgage loan originators;
    (v) Farm Credit System lending institutions that actually originate 
residential mortgage loans pursuant to sections 1.9(3), 1.11 or 2.4(a) 
and (b) of the Farm Credit Act of 1971 (collectively referred to in this 
part as Farm Credit System institutions), and their employees who act as 
mortgage loan originators; and
    (vi) Any federally insured credit union and its employees, including 
volunteers, who act as mortgage loan originators. This part also applies 
to non-federally insured credit unions and their employees, including 
volunteers, who act as mortgage loan originators, subject to the 
conditions in paragraph (c)(3) of this section.
    (2) De minimis exception. (i) This part and the requirements of 12 
U.S.C. 5103(a)(1)(A) and (2) of the S.A.F.E. Act do not apply to any 
employee of a national bank, member bank, insured state nonmember bank, 
savings association, Farm Credit System institution, or credit union who 
has never been registered or licensed through the Registry as a mortgage 
loan originator if during the past 12 months the employee acted as a 
mortgage loan originator for 5 or fewer residential mortgage loans.
    (ii) Prior to engaging in mortgage loan origination activity that 
exceeds the exception limit in paragraph (c)(2)(i) of this section, an 
employee must register with the Registry pursuant to this part.
    (iii) Evasion. National banks, member banks, insured state nonmember 
banks, savings associations, Farm Credit System institutions, and credit 
unions are prohibited from engaging in any act or practice to evade the 
limits of the de minimis exception set forth in paragraph (c)(2)(i) of 
this section.
    (3) For non-federally insured credit unions. A non-federally insured 
credit union in a state identified on the National Credit Union 
Administration's Web site (NCUA.gov) as one where the appropriate state 
supervisory authority has executed a Memorandum of Understanding (MOU) 
with the National Credit Union Administration may register under this 
rule provided that any Nationwide Mortgage Licensing System and Registry 
listing of the non-federally insured credit union and its employees 
contains a clear and conspicuous statement that the non-federally 
insured credit union is not insured by the National Credit Union Share 
Insurance Fund, and the state supervisory authority where the non-
federally insured credit union is located maintains an agreement with 
the National Credit Union Administration for this registration process 
and oversight. If the state supervisory authority where the non-
federally insured credit union is located fails to maintain such an 
agreement, the non-federally insured credit union and its employees in 
that state may not register or maintain registration under the Federal 
system. They instead must use the appropriate state licensing and 
registration system, or if the state does not have such a system, the 
licensing and registration system established by the Bureau for mortgage 
loan originators and their employees.



Sec. 1007.102  Definitions applicable to this part.

    For purposes of this part, the following definitions apply:
    Administrative or clerical tasks means the receipt, collection, and 
distribution of information common for the processing or underwriting of 
a loan in the residential mortgage industry and communication with a 
consumer to obtain information necessary for the processing or 
underwriting of a residential mortgage loan.
    Annual renewal period means November 1 through December 31 of each 
year.
    Bureau means the Bureau of Consumer Financial Protection.

[[Page 237]]

    Covered financial institution means any national bank, member bank, 
insured state nonmember bank, savings association, Farm Credit System 
institution, or federally insured credit union as any such term is 
defined in Sec. 1007.101(c)(1). Covered financial institution also 
includes a non-federally insured credit union that registers subject to 
the conditions of Sec. 1007.101(c)(3).
    Mortgage loan originator means
    (1) An individual who:
    (i) Takes a residential mortgage loan application; and
    (ii) Offers or negotiates terms of a residential mortgage loan for 
compensation or gain.
    (2)(i) The term mortgage loan originator does not include:
    (A) An individual who performs purely administrative or clerical 
tasks on behalf of an individual who is described as a mortgage loan 
originator in this section;
    (B) An individual who only performs real estate brokerage activities 
(as defined in 12 U.S.C. 5102(4)(D)) and is licensed or registered as a 
real estate broker in accordance with applicable state law, unless the 
individual is compensated by a lender, a mortgage broker, or other 
mortgage loan originator or by any agent of such lender, mortgage 
broker, or other mortgage loan originator, and meets the definition of 
mortgage loan originator in this section; or
    (C) An individual or entity solely involved in extensions of credit 
related to timeshare plans, as that term is defined in 11 U.S.C. 
101(53D).
    (ii) Examples of activities that would, and would not, result in an 
employee meeting the definition of mortgage loan originator are provided 
in appendix A to this part.
    Nationwide Mortgage Licensing System and Registry or Registry means 
the system developed and maintained by the Conference of State Bank 
Supervisors and the American Association of Residential Mortgage 
Regulators for the state licensing and registration of state-licensed 
mortgage loan originators and the registration of mortgage loan 
originators pursuant to 12 U.S.C. 5107.
    Registered mortgage loan originator or registrant means any 
individual who:
    (1) Meets the definition of mortgage loan originator and is an 
employee of a covered financial institution; and
    (2) Is registered pursuant to this part with, and maintains a unique 
identifier through, the Registry.
    Residential mortgage loan means any loan primarily for personal, 
family, or household use that is secured by a mortgage, deed of trust, 
or other equivalent consensual security interest on a dwelling (as 
defined in section 103(v) of the Truth in Lending Act, 15 U.S.C. 
1602(v)) or residential real estate upon which is constructed or 
intended to be constructed a dwelling, and includes refinancings, 
reverse mortgages, home equity lines of credit and other first and 
additional lien loans that meet the qualifications listed in this 
definition. This definition does not amend or supersede 12 CFR 
613.3030(c) with respect to Farm Credit System institutions.
    Unique identifier means a number or other identifier that:
    (1) Permanently identifies a registered mortgage loan originator;
    (2) Is assigned by protocols established by the Nationwide Mortgage 
Licensing System and Registry and the Bureau to facilitate:
    (i) Electronic tracking of mortgage loan originators; and
    (ii) Uniform identification of, and public access to, the employment 
history of and the publicly adjudicated disciplinary and enforcement 
actions against mortgage loan originators; and
    (3) Must not be used for purposes other than those set forth under 
the S.A.F.E. Act.



Sec. 1007.103  Registration of mortgage loan originators.

    (a) Registration requirement--(1) Employee registration. Each 
employee of a covered financial institution who acts as a mortgage loan 
originator must register with the Registry, obtain a unique identifier, 
and maintain this registration in accordance with the requirements of 
this part. Any such employee who is not in compliance with the 
registration and unique identifier requirements set forth in this part 
is in violation of the S.A.F.E. Act and this part.

[[Page 238]]

    (2) Covered financial institution requirement--(i) In general. A 
covered financial institution that employs one or more individuals who 
act as a residential mortgage loan originator must require each such 
employee to register with the Registry, maintain this registration, and 
obtain a unique identifier in accordance with the requirements of this 
part.
    (ii) Prohibition. A covered financial institution must not permit an 
employee who is subject to the registration requirements of this part to 
act as a mortgage loan originator for the covered financial institution 
unless such employee is registered with the Registry pursuant to this 
part.
    (3) [Reserved]
    (4) Employees previously registered or licensed through the 
Registry--(i) In general. If an employee of a covered financial 
institution was registered or licensed through, and obtained a unique 
identifier from, the Registry and has maintained this registration or 
license before the employee becomes subject to this part at the current 
covered financial institution, then the registration requirements of the 
S.A.F.E. Act and this part are deemed to be met, provided that:
    (A) The employment information in paragraphs (d)(1)(i)(C) and 
(d)(1)(ii) of this section is updated and the requirements of paragraph 
(d)(2) of this section are met;
    (B) New fingerprints of the employee are submitted to the Registry 
for a background check, as required by paragraph (d)(1)(ix) of this 
section, unless the employee has fingerprints on file with the Registry 
that are less than 3 years old;
    (C) The covered financial institution information required in 
paragraphs (e)(1)(i) (to the extent the covered financial institution 
has not previously met these requirements) and (e)(2)(i) of this section 
is submitted to the Registry; and
    (D) The registration is maintained pursuant to paragraphs (b) and 
(e)(1)(ii) of this section, as of the date that the employee becomes 
subject to this part.
    (ii) Rule for certain acquisitions, mergers, or reorganizations. 
When registered or licensed mortgage loan originators become covered 
financial institution employees as a result of an acquisition, 
consolidation, merger, or reorganization, only the requirements of 
paragraphs (a)(4)(i)(A), (C), and (D) of this section must be met, and 
these requirements must be met within 60 days from the effective date of 
the acquisition, merger, or reorganization.
    (b) Maintaining registration. (1) A mortgage loan originator who is 
registered with the Registry pursuant to paragraph (a) of this section 
must:
    (i) Except as provided in paragraph (b)(3) of this section, renew 
the registration during the annual renewal period, confirming the 
responses set forth in paragraphs (d)(1)(i) through (viii) of this 
section remain accurate and complete, and updating this information, as 
appropriate; and
    (ii) Update the registration within 30 days of any of the following 
events:
    (A) A change in the name of the registrant;
    (B) The registrant ceases to be an employee of the covered financial 
institution; or
    (C) The information required under paragraphs (d)(1)(iii) through 
(viii) of this section becomes inaccurate, incomplete, or out-of-date.
    (2) A registered mortgage loan originator must maintain his or her 
registration, unless the individual is no longer engaged in the activity 
of a mortgage loan originator.
    (3) The annual registration renewal requirement set forth in 
paragraph (b)(1) of this section does not apply to a registered mortgage 
loan originator who has completed his or her registration with the 
Registry pursuant to paragraph (a)(1) of this section less than 6 months 
prior to the end of the annual renewal period.
    (c) Effective dates--(1) Registration. A registration pursuant to 
paragraph (a)(1) of this section is effective on the date the Registry 
transmits notification to the registrant that the registrant is 
registered.
    (2) Renewals or updates. A renewal or update pursuant to paragraph 
(b) of this section is effective on the date the Registry transmits 
notification to the registrant that the registration has been renewed or 
updated.

[[Page 239]]

    (d) Required employee information--(1) In general. For purposes of 
the registration required by this section, a covered financial 
institution must require each employee who is a mortgage loan originator 
to submit to the Registry, or must submit on behalf of the employee, the 
following categories of information, to the extent this information is 
collected by the Registry:
    (i) Identifying information, including the employee's:
    (A) Name and any other names used;
    (B) Home address and contact information;
    (C) Principal business location address and business contact 
information;
    (D) Social security number;
    (E) Gender; and
    (F) Date and place of birth;
    (ii) Financial services-related employment history for the 10 years 
prior to the date of registration or renewal, including the date the 
employee became an employee of the covered financial institution;
    (iii) Convictions of any criminal offense involving dishonesty, 
breach of trust, or money laundering against the employee or 
organizations controlled by the employee, or agreements to enter into a 
pretrial diversion or similar program in connection with the prosecution 
for such offense(s);
    (iv) Civil judicial actions against the employee in connection with 
financial services-related activities, dismissals with settlements, or 
judicial findings that the employee violated financial services-related 
statutes or regulations, except for actions dismissed without a 
settlement agreement;
    (v) Actions or orders by a state or Federal regulatory agency or 
foreign financial regulatory authority that:
    (A) Found the employee to have made a false statement or omission or 
been dishonest, unfair or unethical; to have been involved in a 
violation of a financial services-related regulation or statute; or to 
have been a cause of a financial services-related business having its 
authorization to do business denied, suspended, revoked, or restricted;
    (B) Are entered against the employee in connection with a financial 
services-related activity;
    (C) Denied, suspended, or revoked the employee's registration or 
license to engage in a financial services-related activity; disciplined 
the employee or otherwise by order prevented the employee from 
associating with a financial services-related business or restricted the 
employee's activities; or
    (D) Barred the employee from association with an entity or its 
officers regulated by the agency or authority or from engaging in a 
financial services-related business;
    (vi) Final orders issued by a state or Federal regulatory agency or 
foreign financial regulatory authority based on violations of any law or 
regulation that prohibits fraudulent, manipulative, or deceptive 
conduct;
    (vii) Revocation or suspension of the employee's authorization to 
act as an attorney, accountant, or state or Federal contractor;
    (viii) Customer-initiated financial services-related arbitration or 
civil action against the employee that required action, including 
settlements, or which resulted in a judgment; and
    (ix) Fingerprints of the employee, in digital form if practicable, 
and any appropriate identifying information for submission to the 
Federal Bureau of Investigation and any governmental agency or entity 
authorized to receive such information in connection with a state and 
national criminal history background check; however, fingerprints 
provided to the Registry that are less than 3 years old may be used to 
satisfy this requirement.
    (2) Employee authorizations and attestation. An employee registering 
as a mortgage loan originator or renewing or updating his or her 
registration under this part, and not the employing covered financial 
institution or other employees of the covered financial institution, 
must:
    (i) Authorize the Registry and the employing institution to obtain 
information related to sanctions or findings in any administrative, 
civil, or criminal action, to which the employee is a party, made by any 
governmental jurisdiction;
    (ii) Attest to the correctness of all information required by 
paragraph (d) of this section, whether submitted by

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the employee or on behalf of the employee by the employing covered 
financial institution; and
    (iii) Authorize the Registry to make available to the public 
information required by paragraphs (d)(1)(i)(A) and (C), and (d)(1)(ii) 
through (viii) of this section.
    (3) Submission of information. A covered financial institution may 
identify one or more employees of the covered financial institution who 
may submit the information required by paragraph (d)(1) of this section 
to the Registry on behalf of the covered financial institution's 
employees provided that this individual, and any employee delegated such 
authority, does not act as a mortgage loan originator, consistent with 
paragraph (e)(1)(i)(F) of this section. In addition, a covered financial 
institution may submit to the Registry some or all of the information 
required by paragraphs (d)(1) and (e)(2) of this section for multiple 
employees in bulk through batch processing in a format to be specified 
by the Registry, to the extent such batch processing is made available 
by the Registry.
    (e) Required covered financial institution information. A covered 
financial institution must submit the following categories of 
information to the Registry:
    (1) Covered financial institution record. (i) In connection with the 
registration of one or more mortgage loan originators:
    (A) Name, main office address, and business contact information;
    (B) Internal Revenue Service Employer Tax Identification Number 
(EIN);
    (C) Research Statistics Supervision and Discount (RSSD) number, as 
issued by the Board of Governors of the Federal Reserve System;
    (D) Identification of its primary Federal regulator;
    (E) Name(s) and contact information of the individual(s) with 
authority to act as the covered financial institution's primary point of 
contact for the Registry;
    (F) Name(s) and contact information of the individual(s) with 
authority to enter the information required by paragraphs (d)(1) and (e) 
of this section to the Registry and who may delegate this authority to 
other individuals. For the purpose of providing information required by 
paragraph (e) of this section, this individual and their delegates must 
not act as mortgage loan originators unless the covered financial 
institution has 10 or fewer full time or equivalent employees and is not 
a subsidiary; and
    (G) If a subsidiary of a national bank, member bank, savings 
association, or insured state nonmember bank, indication that it is a 
subsidiary and the RSSD number of the parent institution; if an 
operating subsidiary of an agricultural credit association, indication 
that it is a subsidiary, and the RSSD number of the parent agricultural 
credit association.
    (ii) Attestation. The individual(s) identified in paragraphs 
(e)(1)(i)(E) and (F) of this section must comply with Registry protocols 
to verify their identity and must attest that they have the authority to 
enter data on behalf of the covered financial institution, that the 
information provided to the Registry pursuant to this paragraph (e) is 
correct, and that the covered financial institution will keep the 
information required by this paragraph (e) current and will file 
accurate supplementary information on a timely basis.
    (iii) A covered financial institution must update the information 
required by this paragraph (e) of this section within 30 days of the 
date that this information becomes inaccurate.
    (iv) A covered financial institution must renew the information 
required by paragraph (e) of this section on an annual basis.
    (2) Employee information. In connection with the registration of 
each employee who acts as a mortgage loan originator:
    (i) After the information required by paragraph (d) of this section 
has been submitted to the Registry, confirmation that it employs the 
registrant; and
    (ii) Within 30 days of the date the registrant ceases to be an 
employee of the covered financial institution, notification that it no 
longer employs the registrant and the date the registrant ceased being 
an employee.

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Sec. 1007.104  Policies and procedures.

    A covered financial institution that employs one or more mortgage 
loan originators must adopt and follow written policies and procedures 
designed to assure compliance with this part. These policies and 
procedures must be appropriate to the nature, size, complexity, and 
scope of the mortgage lending activities of the covered financial 
institution, and apply only to those employees acting within the scope 
of their employment at the covered financial institution. At a minimum, 
these policies and procedures must:
    (a) Establish a process for identifying which employees of the 
covered financial institution are required to be registered mortgage 
loan originators;
    (b) Require that all employees of the covered financial institution 
who are mortgage loan originators be informed of the registration 
requirements of the S.A.F.E. Act and this part and be instructed on how 
to comply with such requirements and procedures;
    (c) Establish procedures to comply with the unique identifier 
requirements in Sec. 1007.105;
    (d) Establish reasonable procedures for confirming the adequacy and 
accuracy of employee registrations, including updates and renewals, by 
comparisons with its own records;
    (e) Establish reasonable procedures and tracking systems for 
monitoring compliance with registration and renewal requirements and 
procedures;
    (f) Provide for independent testing for compliance with this part to 
be conducted at least annually by covered financial institution 
personnel or by an outside party;
    (g) Provide for appropriate action in the case of any employee who 
fails to comply with the registration requirements of the S.A.F.E. Act, 
this part, or the covered financial institution's related policies and 
procedures, including prohibiting such employees from acting as mortgage 
loan originators or other appropriate disciplinary actions;
    (h) Establish a process for reviewing employee criminal history 
background reports received pursuant to this part, taking appropriate 
action consistent with applicable Federal law, including section 19 of 
the Federal Deposit Insurance Act (12 U.S.C. 1829), section 206 of the 
Federal Credit Union Act (12 U.S.C. 1786(i)), and section 5.65(d) of the 
Farm Credit Act of 1971, as amended (12 U.S.C. 2277a-14(d)), and 
implementing regulations with respect to these reports, and maintaining 
records of these reports and actions taken with respect to applicable 
employees; and
    (i) Establish procedures designed to ensure that any third party 
with which the covered financial institution has arrangements related to 
mortgage loan origination has policies and procedures to comply with the 
S.A.F.E. Act, including appropriate licensing and/or registration of 
individuals acting as mortgage loan originators.



Sec. 1007.105  Use of unique identifier.

    (a) The covered financial institution shall make the unique 
identifier(s) of its registered mortgage loan originator(s) available to 
consumers in a manner and method practicable to the institution.
    (b) A registered mortgage loan originator shall provide his or her 
unique identifier to a consumer:
    (1) Upon request;
    (2) Before acting as a mortgage loan originator; and
    (3) Through the originator's initial written communication with a 
consumer, if any, whether on paper or electronically.



   Sec. Appendix A to Part 1007--Examples of Mortgage Loan Originator 
                               Activities

    This appendix provides examples to aid in the understanding of 
activities that would cause an employee of a covered financial 
institution to fall within or outside the definition of mortgage loan 
originator. The examples in this Appendix are not all-inclusive. They 
illustrate only the issue described and do not illustrate any other 
issues that may arise under this part. For purposes of the examples 
below, the term ``loan'' refers to a residential mortgage loan.
    (a) Taking a loan application. The following examples illustrate 
when an employee takes, or does not take, a loan application.
    (1) Taking an application includes: receiving information provided 
in connection with a request for a loan to be used to determine whether 
the consumer qualifies for a loan, even if the employee:

[[Page 242]]

    (i) Has received the consumer's information indirectly in order to 
make an offer or negotiate a loan;
    (ii) Is not responsible for verifying information;
    (iii) Is inputting information into an online application or other 
automated system on behalf of the consumer; or
    (iv) Is not engaged in approval of the loan, including determining 
whether the consumer qualifies for the loan.
    (2) Taking an application does not include any of the following 
activities performed solely or in combination:
    (i) Contacting a consumer to verify the information in the loan 
application by obtaining documentation, such as tax returns or payroll 
receipts;
    (ii) Receiving a loan application through the mail and forwarding 
it, without review, to loan approval personnel;
    (iii) Assisting a consumer who is filling out an application by 
clarifying what type of information is necessary for the application or 
otherwise explaining the qualifications or criteria necessary to obtain 
a loan product;
    (iv) Describing the steps that a consumer would need to take to 
provide information to be used to determine whether the consumer 
qualifies for a loan or otherwise explaining the loan application 
process;
    (v) In response to an inquiry regarding a prequalified offer that a 
consumer has received from a covered financial institution, collecting 
only basic identifying information about the consumer and forwarding the 
consumer to a mortgage loan originator; or
    (vi) Receiving information in connection with a modification to the 
terms of an existing loan to a borrower as part of the covered financial 
institution's loss mitigation efforts when the borrower is reasonably 
likely to default.
    (b) Offering or negotiating terms of a loan. The following examples 
are designed to illustrate when an employee offers or negotiates terms 
of a loan, and conversely, what does not constitute offering or 
negotiating terms of a loan.
    (1) Offering or negotiating the terms of a loan includes:
    (i) Presenting a loan offer to a consumer for acceptance, either 
verbally or in writing, including, but not limited to, providing a 
disclosure of the loan terms after application under the Truth in 
Lending Act, even if:
    (A) Further verification of information is necessary;
    (B) The offer is conditional;
    (C) Other individuals must complete the loan process; or
    (D) Only the rate approved by the covered financial institution's 
loan approval mechanism function for a specific loan product is 
communicated without authority to negotiate the rate.
    (ii) Responding to a consumer's request for a lower rate or lower 
points on a pending loan application by presenting to the consumer a 
revised loan offer, either verbally or in writing, that includes a lower 
interest rate or lower points than the original offer.
    (2) Offering or negotiating terms of a loan does not include solely 
or in combination:
    (i) Providing general explanations or descriptions in response to 
consumer queries regarding qualification for a specific loan product, 
such as explaining loan terminology (e.g., debt-to-income ratio); 
lending policies (e.g., the loan-to-value ratio policy of the covered 
financial institution); or product-related services;
    (ii) In response to a consumer's request, informing a consumer of 
the loan rates that are publicly available, such as on the covered 
financial institution's Web site, for specific types of loan products 
without communicating to the consumer whether qualifications are met for 
that loan product;
    (iii) Collecting information about a consumer in order to provide 
the consumer with information on loan products for which the consumer 
generally may qualify, without presenting a specific loan offer to the 
consumer for acceptance, either verbally or in writing;
    (iv) Arranging the loan closing or other aspects of the loan 
process, including communicating with a consumer about those 
arrangements, provided that communication with the consumer only 
verifies loan terms already offered or negotiated;
    (v) Providing a consumer with information unrelated to loan terms, 
such as the best days of the month for scheduling loan closings at the 
covered financial institution;
    (vi) Making an underwriting decision about whether the consumer 
qualifies for a loan;
    (vii) Explaining or describing the steps or process that a consumer 
would need to take in order to obtain a loan offer, including 
qualifications or criteria that would need to be met without providing 
guidance specific to that consumer's circumstances; or
    (viii) Communicating on behalf of a mortgage loan originator that a 
written offer, including disclosures provided pursuant to the Truth in 
Lending Act, has been sent to a consumer without providing any details 
of that offer.
    (c) Offering or negotiating a loan for compensation or gain. The 
following examples illustrate when an employee does or does not offer or 
negotiate terms of a loan ``for compensation or gain.''
    (1) Offering or negotiating terms of a loan for compensation or gain 
includes engaging in any of the activities in paragraph (b)(1) of this 
appendix in the course of carrying out employment duties, even if the 
employee does not receive a referral fee or commission or other special 
compensation for the loan.

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    (2) Offering or negotiating terms of a loan for compensation or gain 
does not include engaging in a seller-financed transaction for the 
employee's personal property that does not involve the covered financial 
institution.



PART 1008_S.A.F.E. MORTGAGE LICENSING ACT_STATE COMPLIANCE AND BUREAU
REGISTRATION SYSTEM (REGULATION H)--Table of Contents



Sec.
1008.1 Purpose.
1008.3 Confidentiality of information.

                            Subpart A_General

1008.20 Scope of this subpart.
1008.23 Definitions.

    Subpart B_Determination of State Compliance With the S.A.F.E. Act

1008.101 Scope of this subpart.
1008.103 Individuals required to be licensed by states.
1008.105 Minimum loan originator license requirements.
1008.107 Minimum annual license renewal requirements.
1008.109 Effective date of state requirements imposed on individuals.
1008.111 Other minimum requirements for state licensing systems.
1008.113 Performance standards.
1008.115 Determination of noncompliance.

 Subpart C_The Bureau's Loan Originator Licensing System and Nationwide 
                 Mortgage Licensing and Registry System

1008.201 Scope of this subpart.
1008.203 The Bureau's establishment of loan originator licensing system.
1008.205 The Bureau's establishment of nationwide mortgage licensing 
          system and registry.

     Subpart D_Minimum Requirements for Administration of the NMLSR

1008.301 Scope of this subpart.
1008.303 Financial reporting.
1008.305 Data security.
1008.307 Fees.
1008.309 Absence of liability for good-faith administration.

         Subpart E_Enforcement of the Bureau's Licensing System

1008.401 Bureau's authority to examine loan originator records.
1008.403 [Reserved]
1008.405 [Reserved]

Appendix A to Part 1008--Examples of Mortgage Loan Originator Activities
Appendix B to Part 1008--Engaging in the Business of a Loan Originator: 
          Commercial Context and Habitualness
Appendix C to Part 1008--Independent Contractors and Loan Processor and 
          Underwriter Activities That Require a State Mortgage Loan 
          Originator License
Appendix D to Part 1008--Attorneys: Circumstances That Require a State 
          Mortgage Loan Originator License

    Authority: 12 U.S.C. 5101-5116; Pub. L. 111-203, 124 Stat. 1376.

    Source: 76 FR 78487, Dec. 19, 2011, unless otherwise noted.



Sec. 1008.1  Purpose.

    (a) Authority. This part, known as Regulation H, is issued by the 
Bureau of Consumer Financial Protection to implement the Secure and Fair 
Enforcement for Mortgage Licensing Act of 2008, title V of the Housing 
and Economic Recovery Act of 2008 (S.A.F.E. Act) (Pub. L. 110-289, 122 
Stat. 2654, 12 U.S.C. 5101 et seq.).
    (b) Purpose. The purpose of this part is to enhance consumer 
protection and reduce fraud by directing states to adopt minimum uniform 
standards for the licensing and registration of residential mortgage 
loan originators and to participate in a nationwide mortgage licensing 
system and registry database of residential mortgage loan originators. 
Under the S.A.F.E. Act, if the Bureau determines that a state's loan 
origination licensing system does not meet the minimum requirements of 
the S.A.F.E. Act, the Bureau is charged with establishing and 
implementing a system for all loan originators in that state. 
Additionally, if at any time the Bureau determines that the nationwide 
mortgage licensing system and registry is failing to meet the S.A.F.E. 
Act's requirements, the Bureau is charged with establishing and 
maintaining a licensing and registry database for loan originators.
    (c) Organization. The regulation is divided into subparts and 
appendices as follows:
    (1) Subpart A establishes the definitions applicable to this part.
    (2) Subpart B provides the minimum standards that a state must meet 
in licensing loan originators, including

[[Page 244]]

standards for whom a state must require to be licensed, and sets forth 
the Bureau's procedure for determining a state's compliance with the 
minimum standards.
    (3) Subpart C provides the requirements that the Bureau will apply 
in any state that the Bureau determines has not established a licensing 
and registration system in compliance with the minimum standards of the 
S.A.F.E. Act.
    (4) Subpart D provides minimum requirements for the administration 
of the Nationwide Mortgage Licensing System and Registry.
    (5) Subpart E clarifies the Bureau's enforcement authority in states 
in which it operates a state licensing system.
    (6) Appendices A through D set forth examples to aid in the 
understanding and application of the regulations.



Sec. 1008.3  Confidentiality of information.

    (a) Except as otherwise provided in this part, any requirement under 
Federal or state law regarding the privacy or confidentiality of any 
information or material provided to the Nationwide Mortgage Licensing 
System and Registry or a system established by the Director under this 
part, and any privilege arising under Federal or state law (including 
the rules of any Federal or state court) with respect to such 
information or material, shall continue to apply to such information or 
material after the information or material has been disclosed to the 
system. Such information and material may be shared with all state and 
Federal regulatory officials with mortgage industry oversight authority 
without the loss of privilege or the loss of confidentiality protections 
provided by Federal and state laws.
    (b) Information or material that is subject to a privilege or 
confidentiality under paragraph (a) of this section shall not be subject 
to:
    (1) Disclosure under any Federal or state law governing the 
disclosure to the public of information held by an officer or an agency 
of the Federal Government or the respective state; or
    (2) Subpoena or discovery, or admission into evidence, in any 
private civil action or administrative process, unless with respect to 
any privilege held by the Nationwide Mortgage Licensing System and 
Registry or by the Director with respect to such information or 
material, the person to whom such information or material pertains, 
waives, in whole or in part, in the discretion of such person, that 
privilege.
    (c) Any state law, including any state open record law, relating to 
the disclosure of confidential supervisory information or any 
information or material described in paragraph (a) of this section that 
is inconsistent with paragraph (a), shall be superseded by the 
requirements of such provision to the extent that state law provides 
less confidentiality or a weaker privilege.
    (d) This section shall not apply with respect to the information or 
material relating to the employment history of, and any publicly 
adjudicated disciplinary and enforcement action against, any loan 
originator that is included in the Nationwide Mortgage Licensing System 
and Registry for access by the public.



                            Subpart A_General



Sec. 1008.20  Scope of this subpart.

    This subpart provides the definitions applicable to this part, and 
other general requirements applicable to this part.



Sec. 1008.23  Definitions.

    Terms that are defined in the S.A.F.E. Act and used in this part 
have the same meaning as in the S.A.F.E. Act, unless otherwise provided 
in this section.
    Administrative or clerical tasks means the receipt, collection, and 
distribution of information common for the processing or underwriting of 
a loan in the mortgage industry and communication with a consumer to 
obtain information necessary for the processing or underwriting of a 
residential mortgage loan.
    American Association of Residential Mortgage Regulators (AARMR) is 
the national association of executives and employees of the various 
states who are charged with the responsibility for administration and 
regulation of residential mortgage lending, servicing, and brokering, 
and dedicated to the goals described at www.aarmr.org.

[[Page 245]]

    Application means a request, in any form, for an offer (or a 
response to a solicitation of an offer) of residential mortgage loan 
terms, and the information about the borrower or prospective borrower 
that is customary or necessary in a decision on whether to make such an 
offer.
    Bureau means the Bureau of Consumer Financial Protection.
    Clerical or support duties:
    (1) Include:
    (i) The receipt, collection, distribution, and analysis of 
information common for the processing or underwriting of a residential 
mortgage loan; and
    (ii) Communicating with a consumer to obtain the information 
necessary for the processing or underwriting of a loan, to the extent 
that such communication does not include offering or negotiating loan 
rates or terms, or counseling consumers about residential mortgage loan 
rates or terms; and
    (2) Does not include:
    (i) Taking a residential mortgage loan application; or
    (ii) Offering or negotiating terms of a residential mortgage loan.
    Conference of State Bank Supervisors (CSBS) is the national 
organization composed of state bank supervisors dedicated to maintaining 
the state banking system and state regulation of financial services in 
accordance with the CSBS statement of principles described at 
www.csbs.org.
    Director means the Director of the Bureau of Consumer Financial 
Protection.
    Employee means an individual:
    (1) Whose manner and means of performance of work are subject to the 
right of control of, or are controlled by, a person, and
    (2) Whose compensation for Federal income tax purposes is reported, 
or required to be reported, on a W-2 form issued by the controlling 
person.
    Farm Credit Administration means the independent Federal agency, 
authorized by the Farm Credit Act of 1971, that examines and regulates 
the Farm Credit System.
    For compensation or gain. See Sec. 1008.103(c)(2)(ii).
    Independent contractor means an individual who performs his or her 
duties other than at the direction of and subject to the supervision and 
instruction of an individual who is licensed and registered in 
accordance with Sec. 1008.103(a), or is not required to be licensed, in 
accordance with Sec. 1008.103(e)(5), (6), or (7).
    Loan originator. See Sec. 1008.103.
    Loan processor or underwriter, for purposes of this part, means an 
individual who, with respect to the origination of a residential 
mortgage loan, performs clerical or support duties at the direction of 
and subject to the supervision and instruction of:
    (1) A state-licensed loan originator; or
    (2) A registered loan originator.
    Nationwide Mortgage Licensing System and Registry or NMLSR means the 
mortgage licensing system developed and maintained by the Conference of 
State Bank Supervisors and the American Association of Residential 
Mortgage Regulators for the licensing and registration of loan 
originators and the registration of registered loan originators or any 
system established by the Director, as provided in subpart D of this 
part.
    Nontraditional mortgage product means any mortgage product other 
than a 30-year fixed-rate mortgage.
    Origination of a residential mortgage loan, for purposes of the 
definition of loan processor or underwriter, means all residential 
mortgage loan-related activities from the taking of a residential 
mortgage loan application through the completion of all required loan 
closing documents and funding of the residential mortgage loan.
    Real estate brokerage activities mean any activity that involves 
offering or providing real estate brokerage services to the public 
including--
    (1) Acting as a real estate agent or real estate broker for a buyer, 
seller, lessor, or lessee of real property;
    (2) Bringing together parties interested in the sale, purchase, 
lease, rental, or exchange of real property;
    (3) Negotiating, on behalf of any party, any portion of a contract 
relating to the sale, purchase, lease, rental, or exchange of real 
property (other than in connection with providing financing with respect 
to any such transaction);

[[Page 246]]

    (4) Engaging in any activity for which a person engaged in the 
activity is required to be registered as a real estate agent or real 
estate broker under any applicable law; and
    (5) Offering to engage in any activity, or act in any capacity, 
described in paragraphs (1), (2), (3), or (4) of this definition.
    Residential mortgage loan means any loan primarily for personal, 
family, or household use that is secured by a mortgage, deed of trust, 
or other equivalent consensual security interest on a dwelling (as 
defined in section 103(w) of the Truth in Lending Act) or residential 
real estate upon which is constructed or intended to be constructed a 
dwelling (as so defined).
    State means any state of the United States, the District of 
Columbia, any territory of the United States, Puerto Rico, Guam, 
American Samoa, the Virgin Islands, and the Commonwealth of the Northern 
Mariana Islands.
    Unique identifier means a number or other identifier that:
    (1) Permanently identifies a loan originator;
    (2) Is assigned by protocols established by the Nationwide Mortgage 
Licensing System and Registry and the Bureau to facilitate electronic 
tracking of loan originators and uniform identification of, and public 
access to, the employment history of and the publicly adjudicated 
disciplinary and enforcement actions against loan originators; and
    (3) Shall not be used for purposes other than those set forth under 
the S.A.F.E. Act.



    Subpart B_Determination of State Compliance With the S.A.F.E. Act



Sec. 1008.101  Scope of this subpart.

    This subpart describes the minimum standards of the S.A.F.E. Act 
that apply to a state's licensing and registering of loan originators. 
This subpart also provides the procedures that the Bureau follows to 
determine that a state does not have in place a system for licensing and 
registering mortgage loan originators that complies with the minimum 
standards. Upon making such a determination, the Bureau will impose the 
requirements and exercise the enforcement authorities described in 
subparts C and E of this part.



Sec. 1008.103  Individuals required to be licensed by states.

    (a) Except as provided in paragraph (e) of this section, in order to 
operate a S.A.F.E.-compliant program, a state must prohibit an 
individual from engaging in the business of a loan originator with 
respect to any dwelling or residential real estate in the state, unless 
the individual first:
    (1) Registers as a loan originator through and obtains a unique 
identifier from the NMLSR, and
    (2) Obtains and maintains a valid loan originator license from the 
state.
    (b) An individual engages in the business of a loan originator if 
the individual, in a commercial context and habitually or repeatedly:
    (1)(i) Takes a residential mortgage loan application; and
    (ii) Offers or negotiates terms of a residential mortgage loan for 
compensation or gain; or
    (2) Represents to the public, through advertising or other means of 
communicating or providing information (including the use of business 
cards, stationery, brochures, signs, rate lists, or other promotional 
items), that such individual can or will perform the activities 
described in paragraph (b)(1) of this section.
    (c)(1) An individual ``takes a residential mortgage loan 
application'' if the individual receives a residential mortgage loan 
application for the purpose of facilitating a decision whether to extend 
an offer of residential mortgage loan terms to a borrower or prospective 
borrower (or to accept the terms offered by a borrower or prospective 
borrower in response to a solicitation), whether the application is 
received directly or indirectly from the borrower or prospective 
borrower.
    (2) An individual ``offers or negotiates terms of a residential 
mortgage loan for compensation or gain'' if the individual:
    (i)(A) Presents for consideration by a borrower or prospective 
borrower particular residential mortgage loan terms;
    (B) Communicates directly or indirectly with a borrower, or 
prospective

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borrower for the purpose of reaching a mutual understanding about 
prospective residential mortgage loan terms; or
    (C) Recommends, refers, or steers a borrower or prospective borrower 
to a particular lender or set of residential mortgage loan terms, in 
accordance with a duty to or incentive from any person other than the 
borrower or prospective borrower; and
    (ii) Receives or expects to receive payment of money or anything of 
value in connection with the activities described in paragraph (c)(2)(i) 
of this section or as a result of any residential mortgage loan terms 
entered into as a result of such activities.
    (d)(1) Except as provided in paragraph (e) of this section, a state 
must prohibit an individual who is an independent contractor from 
engaging in residential mortgage loan origination activities as a loan 
processor or underwriter with respect to any dwelling or residential 
real estate in the state, unless the individual first:
    (i) Registers as a loan originator through and obtains a unique 
identifier from the NMLSR, and
    (ii) Obtains and maintains a valid loan originator license from the 
state.
    (2) An individual ``engage[s] in residential mortgage loan 
origination activities as a loan processor or underwriter'' if, with 
respect to a residential mortgage loan application, the individual 
performs clerical or support duties.
    (e) A state is not required to impose the prohibitions required 
under paragraphs (a) and (d) of this section on the following 
individuals:
    (1) An individual who performs only real estate brokerage activities 
and is licensed or registered in accordance with applicable state law, 
unless the individual is compensated directly or indirectly by a lender, 
mortgage broker, or other loan originator or by an agent of such lender, 
mortgage broker, or other loan originator;
    (2) An individual who is involved only in extensions of credit 
relating to timeshare plans, as that term is defined in 11 U.S.C. 
101(53D);
    (3) An individual who performs only clerical or support duties and:
    (i) Who does so at the direction of and subject to the supervision 
and instruction of an individual who:
    (A) Is licensed and registered in accordance with paragraph (a) of 
this section, or
    (B) Is not required to be licensed in accordance with paragraph 
(e)(5); or
    (ii) Who performs such duties solely with respect to transactions 
for which the individual who acts as a loan originator is not required 
to be licensed, in accordance with paragraph (e)(2), (6), or (7) of this 
section;
    (4) An individual who performs only purely administrative or 
clerical tasks on behalf of a loan originator;
    (5) An individual who is lawfully registered with, and maintains a 
unique identifier through, the Nationwide Mortgage Licensing System and 
Registry, and who is an employee of a covered financial institution, as 
that term is defined in 12 CFR part 1007.
    (6)(i) An individual who is an employee of a Federal, state, or 
local government agency or housing finance agency and who acts as a loan 
originator only pursuant to his or her official duties as an employee of 
the Federal, state, or local government agency or housing finance 
agency.
    (ii) For purposes of this paragraph (e)(6), the term employee has 
the meaning provided in paragraph (1) of the definition of employee in 
Sec. 1008.23 and excludes the meaning provided in paragraph (2) of the 
definition.
    (iii) For purposes of this paragraph (e)(6), the term housing 
finance agency means any authority:
    (A) That is chartered by a state to help meet the affordable housing 
needs of the residents of the state;
    (B) That is supervised directly or indirectly by the state 
government;
    (C) That is subject to audit and review by the state in which it 
operates; and
    (D) Whose activities make it eligible to be a member of the National 
Council of State Housing Agencies.
    (7)(i) An employee of a bona fide nonprofit organization who acts as 
a loan originator only with respect to his or her work duties to the 
bona fide nonprofit organization, and who acts as a loan originator only 
with respect to

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residential mortgage loans with terms that are favorable to the 
borrower.
    (ii) For an organization to be considered a bona fide nonprofit 
organization under this paragraph, a state supervisory authority that 
opts not to require licensing of the employee must determine, under 
criteria and pursuant to processes established by the state, that the 
organization:
    (A) Has the status of a tax-exempt organization under section 
501(c)(3) of the Internal Revenue Code of 1986;
    (B) Promotes affordable housing or provides homeownership education, 
or similar services;
    (C) Conducts its activities in a manner that serves public or 
charitable purposes, rather than commercial purposes;
    (D) Receives funding and revenue and charges fees in a manner that 
does not incentivize it or its employees to act other than in the best 
interests of its clients;
    (E) Compensates its employees in a manner that does not incentivize 
employees to act other than in the best interests of its clients;
    (F) Provides or identifies for the borrower residential mortgage 
loans with terms favorable to the borrower and comparable to mortgage 
loans and housing assistance provided under government housing 
assistance programs; and
    (G) Meets other standards that the state determines are appropriate.
    (iii) A state must periodically examine the books and activities of 
an organization it determines is a bona fide nonprofit organization and 
revoke its status as a bona fide nonprofit organization if it does not 
continue to meet the criteria under paragraph (e)(7)(ii) of this 
section;
    (iv) For residential mortgage loans to have terms that are favorable 
to the borrower, a state must determine that the terms are consistent 
with loan origination in a public or charitable context, rather than a 
commercial context.
    (f) A state must require an individual licensed in accordance with 
paragraphs (a) or (d) of this section to renew the loan originator 
license no less often than annually.



Sec. 1008.105  Minimum loan originator license requirements.

    For an individual to be eligible for a loan originator license 
required under Sec. 1008.103(a) and (d), a state must require and find, 
at a minimum, that an individual:
    (a) Has never had a loan originator license revoked in any 
governmental jurisdiction, except that a formally vacated revocation 
shall not be deemed a revocation;
    (b)(1) Has never been convicted of, or pled guilty or nolo 
contendere to, a felony in a domestic, foreign, or military court:
    (i) During the 7-year period preceding the date of the application 
for licensing; or
    (ii) At any time preceding such date of application, if such felony 
involved an act of fraud, dishonesty, a breach of trust, or money 
laundering.
    (2) For purposes of this paragraph (b):
    (i) Expunged convictions and pardoned convictions do not, in 
themselves, affect the eligibility of the individual; and
    (ii) Whether a particular crime is classified as a felony is 
determined by the law of the jurisdiction in which an individual is 
convicted.
    (c) Has demonstrated financial responsibility, character, and 
general fitness, such as to command the confidence of the community and 
to warrant a determination that the loan originator will operate 
honestly, fairly, and efficiently, under reasonable standards 
established by the individual state.
    (d) Completed at least 20 hours of pre-licensing education that has 
been reviewed and approved by the Nationwide Mortgage Licensing System 
and Registry. The pre-licensing education completed by the individual 
must include at least:
    (1) 3 hours of Federal law and regulations;
    (2) 3 hours of ethics, which must include instruction on fraud, 
consumer protection, and fair lending issues; and
    (3) 2 hours of training on lending standards for the nontraditional 
mortgage product marketplace.
    (e)(1) Achieved a test score of not less than 75 percent correct 
answers on a

[[Page 249]]

written test developed by the NMLSR in accordance with 12 U.S.C. 
5105(d).
    (2) To satisfy the requirement under paragraph (e)(1) of this 
section, an individual may take a test three consecutive times, with 
each retest occurring at least 30 days after the preceding test. If an 
individual fails three consecutive tests, the individual must wait at 
least 6 months before taking the test again.
    (3) If a formerly state-licensed loan originator fails to maintain a 
valid license for 5 years or longer, not taking into account any time 
during which such individual is a registered loan originator, the 
individual must retake the test and achieve a test score of not less 
than 75 percent correct answers.
    (f) Be covered by either a net worth or surety bond requirement, or 
pays into a state fund, as required by the state loan originator 
supervisory authority.
    (g) Has submitted to the NMLSR fingerprints for submission to the 
Federal Bureau of Investigation and to any government agency for a state 
and national criminal history background check; and
    (h) Has submitted to the NMLSR personal history and experience, 
which must include authorization for the NMLSR to obtain:
    (1) Information related to any administrative, civil, or criminal 
findings by any governmental jurisdiction; and
    (2) An independent credit report.



Sec. 1008.107  Minimum annual license renewal requirements.

    (a) For an individual to be eligible to renew a loan originator 
license as required under Sec. 1008.103(f), a state must require the 
individual:
    (1) To continue to meet the minimum standards for license issuance 
provided in Sec. 1008.105; and
    (2) To satisfy annual continuing education requirements, which must 
include at least 8 hours of education approved by the NMLSR. The 8 hours 
of annual continuing education must include at least:
    (i) 3 hours of Federal law and regulations;
    (ii) 2 hours of ethics (including instruction on fraud, consumer 
protection, and fair lending issues); and
    (iii) 2 hours of training related to lending standards for the 
nontraditional mortgage product marketplace.
    (b) A state must provide that a state-licensed loan originator may 
only receive credit for a continuing education course in the year in 
which the course is taken, and that a state-licensed loan originator may 
not apply credits for education courses taken in one year to meet the 
continuing education requirements of subsequent years. A state must 
provide that an individual may not meet the annual requirements for 
continuing education by taking an approved course more than one time in 
the same year or in successive years.
    (c) An individual who is an instructor of an approved continuing 
education course may receive credit for the individual's own annual 
continuing education requirement at the rate of 2 hours credit for every 
one hour taught.



Sec. 1008.109  Effective date of state requirements imposed on 
individuals.

    (a) Except as provided in paragraphs (b) and (c) of this section, a 
state must provide that the effective date for requirements it imposes 
in accordance with Sec. Sec. 1008.103, 1008.105, and 1008.107 is no 
later than August 29, 2011.
    (b) For an individual who was permitted to perform residential 
mortgage loan originations under state legislation or regulations 
enacted or promulgated prior to the state's enactment or promulgation of 
a licensing system that complies with this subpart, a state may delay 
the effective date for requirements it imposes in accordance with 
Sec. Sec. 1008.103, 1008.105, and 1008.107 to no later than August 29, 
2011. For purposes of this paragraph (b), an individual was permitted to 
perform residential mortgage loan originations only if prior state law 
required the individual to be licensed, authorized, registered, or 
otherwise granted a form of affirmative and revocable government 
permission for individuals as a condition of performing residential 
mortgage loan originations.
    (c) The Bureau may approve a later effective date only upon a 
state's demonstration that substantial numbers of loan originators (or 
of a class of loan originators) who require a state license face unusual 
hardship, through no fault

[[Page 250]]

of their own or of the state government, in complying with the standards 
required by the S.A.F.E. Act and in obtaining state licenses within one 
year.



Sec. 1008.111  Other minimum requirements for state licensing systems.

    (a) General. A state must maintain a loan originator licensing, 
supervisory, and oversight authority (supervisory authority) that 
provides effective supervision and enforcement, in accordance with the 
minimum standards provided in this section and in Sec. 1008.113.
    (b) Authorities. A supervisory authority must have the legal 
authority and mechanisms:
    (1) To examine any books, papers, records, or other data of any loan 
originator operating in the state;
    (2) To summon any loan originator operating in the state, or any 
person having possession, custody, or care of the reports and records 
relating to such a loan originator, to appear before the supervisory 
authority at a time and place named in the summons and to produce such 
books, papers, records, or other data, and to give testimony, under 
oath, as may be relevant or material to an investigation of such loan 
originator for compliance with the requirements of the S.A.F.E. Act;
    (3) To administer oaths and affirmations and examine and take and 
preserve testimony under oath as to any matter in respect to the affairs 
of any such loan originator;
    (4) To enter an order requiring any individual or person that is, 
was, or would be a cause of a violation of the S.A.F.E. Act as 
implemented by the state, due to an act or omission the person knew or 
should have known would contribute to such violation, to cease and 
desist from committing or causing such violation and any future 
violation of the same requirement;
    (5) To suspend, terminate, and refuse renewal of a loan originator 
license for violation of state or Federal law; and
    (6) To impose civil money penalties for individuals acting as loan 
originators, or representing themselves to the public as loan 
originators, in the state without a valid license or registration.
    (c) A supervisory authority must have established processes in place 
to verify that individuals subject to the requirement described in Sec. 
1008.103(a)(1) and (d)(1) are registered with the NMLSR.
    (d) The supervisory authority must be required under state law to 
regularly report violations of such law, as well as enforcement actions 
and other relevant information, to the NMLSR.
    (e) The supervisory authority must have a process in place for 
challenging information contained in the NMLSR.
    (f) The supervisory authority must require a loan originator to 
ensure that all residential mortgage loans that close as a result of the 
loan originator engaging in activities described in Sec. 1008.103(b)(1) 
are included in reports of condition submitted to the NMLSR. Such 
reports of condition shall be in such form, shall contain such 
information, and shall be submitted with such frequency and by such 
dates as the NMLSR may reasonably require.



Sec. 1008.113  Performance standards.

    (a) For the Bureau to determine that a state is providing effective 
supervision and enforcement, a supervisory authority must meet the 
following performance standards:
    (1) The supervisory authority must participate in the NMLSR;
    (2) The supervisory authority must approve or deny loan originator 
license applications and must renew or refuse to renew existing loan 
originator licenses for violations of state or Federal law;
    (3) The supervisory authority must discipline loan originator 
licensees with appropriate enforcement actions, such as license 
suspensions or revocations, cease-and-desist orders, civil money 
penalties, and consumer refunds for violations of state or Federal law;
    (4) The supervisory authority must examine or investigate loan 
originator licensees in a systematic manner based on identified risk 
factors or on a periodic schedule.
    (b) A supervisory authority that is accredited under the Conference 
of State Bank Supervisors-American Association of Residential Mortgage 
Regulators Mortgage Accreditation Program will be presumed by the Bureau 
to be compliant with the requirements of this section.

[[Page 251]]



Sec. 1008.115  Determination of noncompliance.

    (a) Evidence of compliance. Any time a state enacts legislation that 
affects its compliance with the S.A.F.E. Act, it must notify the Bureau. 
Upon request from the Bureau, a state must provide evidence that it is 
in compliance with the requirements of the S.A.F.E. Act and this part, 
including citations to applicable state law and regulations; 
descriptions of processes followed by the state's supervisory authority; 
and data concerning examination, investigation, and enforcement actions.
    (b) Initial determination of noncompliance. If the Bureau makes an 
initial determination that a state is not in compliance with the 
S.A.F.E. Act, the Bureau will notify the state and will publish, in the 
Federal Register, a notice providing the Bureau's initial determination 
and presenting the opportunity for public comment for a period of no 
less than 30 days. This public comment period will allow the residents 
of the state and other interested members of the public to comment on 
the Bureau's initial determination.
    (c) Final determination of noncompliance. In making a final 
determination of noncompliance, the Bureau will review additional 
information that may be offered by a state and the comments submitted 
during the public comment period described in paragraph (b) of this 
section. If the Bureau makes a final determination that a state does not 
have in place by law or regulation a system that complies with the 
minimum requirements of the S.A.F.E. Act, as described in this part, the 
Bureau will publish that final determination in the Federal Register.
    (d) Good-faith effort to comply. If the Bureau makes the final 
determination described in paragraph (c) of this section, but the Bureau 
finds that the state is making a good-faith effort to meet the 
requirements of 12 U.S.C. 5104, 5105, 5107(d), and this subpart, the 
Bureau may grant the state a period of not more than 24 months to comply 
with these requirements. If an extension is granted to the state in 
accordance with this paragraph (d), then the Bureau will provide an 
additional initial and final determination process before it determines 
that the state is not in compliance and is subject to subparts C and E 
of this part.
    (e) Effective date of subparts C and E. The provisions of subparts C 
and E of this part will become effective with respect to a state for 
which a final determination of noncompliance has been made upon:
    (1) The effective date of the Bureau's final determination with 
respect to the state, pursuant to paragraph (c) of this section, unless 
an extension had been granted to the state in accordance with paragraph 
(d) of this section; or
    (2) If an extension had been granted to the state in accordance with 
paragraph (d) of this section, the effective date of the Bureau's 
subsequent final determination with respect to the state following the 
expiration of the period of time granted pursuant to paragraph (d) of 
this section.



 Subpart C_The Bureau's Loan Originator Licensing System and Nationwide 
                 Mortgage Licensing and Registry System



Sec. 1008.201  Scope of this subpart.

    The S.A.F.E. Act provides the Bureau with ``backup authority'' to 
establish a loan originator licensing system for any state that is 
determined by the Bureau not to be in compliance with the minimum 
standards of the S.A.F.E. Act. The provisions of this subpart become 
applicable to individuals in a state as provided in Sec. 1008.115(e). 
The S.A.F.E. Act also authorizes the Bureau to establish and maintain a 
nationwide mortgage licensing system and registry if the Bureau 
determines that the NMLSR is failing to meet the purposes and 
requirements of the S.A.F.E. Act for a comprehensive licensing, 
supervisory, and tracking system for loan originators.



Sec. 1008.203  The Bureau's establishment of loan originator licensing
system.

    If the Bureau determines, in accordance with Sec. 1008.115(e), that 
a state has not established a licensing and registration system in 
compliance with the minimum standards of the S.A.F.E. Act, the Bureau 
shall apply to individuals in that state the minimum standards of the 
S.A.F.E. Act, as specified in

[[Page 252]]

subpart B, which provides the minimum requirements that a state must 
meet to be in compliance with the S.A.F.E. Act, and as may be further 
specified in this part.



Sec. 1008.205  The Bureau's establishment of nationwide mortgage 
licensing system and registry.

    If the Bureau determines that the NMLSR established by CSBS and 
AARMR does not meet the minimum requirements of subpart D of this part, 
the Bureau will establish and maintain a nationwide mortgage licensing 
system and registry.



     Subpart D_Minimum Requirements for Administration of the NMLSR



Sec. 1008.301  Scope of this subpart.

    This subpart establishes minimum requirements that apply to 
administration of the NMLSR by the Conference of State Bank Supervisors 
or by the Bureau. The NMLSR must accomplish the following objectives:
    (a) Provide uniform license applications and reporting requirements 
for state-licensed loan originators.
    (b) Provide a comprehensive licensing and supervisory database.
    (c) Aggregate and improve the flow of information to and between 
regulators.
    (d) Provide increased accountability and tracking of loan 
originators.
    (e) Streamline the licensing process and reduce the regulatory 
burden.
    (f) Enhance consumer protections and support anti-fraud measures.
    (g) Provide consumers with easily accessible information, offered at 
no charge, utilizing electronic media, including the Internet, regarding 
the employment history of, and publicly adjudicated disciplinary and 
enforcement actions against, loan originators.
    (h) Establish a means by which residential mortgage loan originators 
would, to the greatest extent possible, be required to act in the best 
interests of the consumer.
    (i) Facilitate responsible behavior in the mortgage marketplace and 
provide comprehensive training and examination requirements related to 
mortgage lending.
    (j) Facilitate the collection and disbursement of consumer 
complaints on behalf of state and Federal mortgage regulators.



Sec. 1008.303  Financial reporting.

    To the extent that CSBS maintains the NMLSR, CSBS must annually 
provide to the Bureau, and the Bureau will annually collect and make 
available to the public, NMLSR financial statements, audited in 
accordance with Generally Accepted Accounting Principles (GAAP) 
promulgated by the Federal Accounting Standards Advisory Board, and 
other data. These financial statements and other data shall include, but 
not be limited to, the level and categories of funds received in 
relation to the NMLSR and how such funds are spent, including the 
aggregate total of funds paid for system development and improvements, 
the aggregate total of salaries and bonuses paid, the aggregate total of 
other administrative costs, and detail on other money spent, including 
money and interest paid to reimburse system investors or lenders, and a 
report of each state's activity with respect to the NMLSR, including the 
number of licensees, the state's financial commitment to the system, and 
the fees collected by the state through the NMLSR.



Sec. 1008.305  Data security.

    (a) To the extent that CSBS, AARMR, or their successors maintain the 
NMLSR, CSBS, AARMR, and their successors, as applicable, must complete a 
background check on their employees, contractors, or other persons who 
have access to loan originators' Social Security Numbers, fingerprints, 
or any credit reports collected by the system.
    (b) To the extent that CSBS, AARMR, or their successors maintain the 
NMLSR, CSBS, AARMR, and their successors as applicable, must keep and 
adhere to an appropriate information security and privacy policy. If the 
NMLSR forms a reasonable belief that a security breach has occurred, it 
shall notify affected parties, as soon as practicable, including the 
Bureau, any loan originator or registrant whose data may have been 
compromised, and the

[[Page 253]]

employer of the loan originator or registrant, if such employer is also 
licensed through the system.



Sec. 1008.307  Fees.

    CSBS, AARMR, or the Bureau, as applicable, may charge reasonable 
fees to cover the costs of maintaining and providing access to 
information from the Nationwide Mortgage Licensing System and Registry. 
Fees shall not be charged to consumers for access to such system and 
registry. If the Bureau determines to charge fees, the fees to be 
charged shall be issued by notice with the opportunity for comment prior 
to any fees being charged.



Sec. 1008.309  Absence of liability for good-faith administration.

    The Bureau or any organization serving as the administrator of the 
Nationwide Mortgage Licensing System and Registry or a system 
established by the Bureau under 12 U.S.C. 5108 and in accordance with 
subpart C, or any officer or employee of the Bureau or the Bureau's 
designee, shall not be subject to any civil action or proceeding for 
monetary damages by reason of the good-faith action or omission of any 
officer or employee of any such entity, while acting within the scope of 
office or employment, relating to the collection, furnishing, or 
dissemination of information concerning persons who are loan originators 
or are applying for licensing or registration as loan originators.



         Subpart E_Enforcement of the Bureau's Licensing System



Sec. 1008.401  The Bureau's authority to examine loan originator records.

    (a) Summons authority. The Bureau may:
    (1) Examine any books, papers, records, or other data of any loan 
originator operating in any state which is subject to a licensing system 
established by the Bureau under subpart C of this part; and
    (2) Summon any loan originator referred to in paragraph (a)(1) of 
this section or any person having possession, custody, or care of the 
reports and records relating to such loan originator, to appear before 
the Bureau at a time and place named in the summons and to produce such 
books, papers, records, or other data, and to give testimony, under 
oath, as may be relevant or material to an investigation of such loan 
originator for compliance with the requirements of the S.A.F.E. Act.
    (b) Examination authority--(1) In general. If the Bureau establishes 
a licensing system under 12 U.S.C. 5107 and in accordance with subpart C 
of this part for any state, the Bureau shall appoint examiners for the 
purposes of ensuring the appropriate administration of the Bureau's 
licensing system.
    (2) Power to examine. Any examiner appointed under paragraph (b)(1) 
of this section shall have power, on behalf of the Bureau, to make any 
examination of any loan originator operating in any state which is 
subject to a licensing system established by the Bureau under 12 U.S.C. 
5107 and in accordance with subpart C of this part, whenever the Bureau 
determines that an examination of any loan originator is necessary to 
determine the compliance by the originator with minimum requirements of 
the S.A.F.E. Act.
    (3) Report of examination. Each Bureau examiner appointed under 
paragraph (b)(1) of this section shall make a full and detailed report 
to the Bureau of examination of any loan originator examined under this 
section.
    (4) Administration of oaths and affirmations; evidence. In 
connection with examinations of loan originators operating in any state 
which is subject to a licensing system established by the Bureau under 
12 U.S.C. 5107, and in accordance with subpart C of this part, or with 
other types of investigations to determine compliance with applicable 
law and regulations, the Bureau and the examiners appointed by the 
Bureau may administer oaths and affirmations and examine and take and 
preserve testimony under oath as to any matter in respect to the affairs 
of any such loan originator.
    (5) Assessments. The cost of conducting any examination of any loan 
originator operating in any state which is subject to a licensing system 
established by the Bureau under 12 U.S.C 5107 and in accordance with 
subpart C of this part shall be assessed by the Bureau against the loan 
originator to

[[Page 254]]

meet the Director's expenses in carrying out such examination.



Sec. 1008.403  [Reserved]



Sec. 1008.405  [Reserved]



   Sec. Appendix A to Part 1008--Examples of Mortgage Loan Originator 
                               Activities

    This Appendix provides examples to aid in the understanding of 
activities that would cause an individual to fall within or outside the 
definition of a mortgage loan originator under Part 1008. The examples 
in this Appendix are not all-inclusive. They illustrate only the issue 
described and do not illustrate any other issues that may arise. For 
purposes of the examples below, the term ``loan'' refers to a 
residential mortgage loan as defined in Sec. 1008.23 of this part.
    (a) Taking a Loan Application. Taking a residential mortgage loan 
application within the meaning of Sec. 1008.103(c)(1) means receipt by 
an individual, for the purpose of facilitating a decision whether to 
extend an offer of loan terms to a borrower or prospective borrower, of 
an application as defined in Sec. 1008.23 (a request in any form for an 
offer, or a response to a solicitation of an offer, of residential 
mortgage loan terms, and the information about the borrower or 
prospective borrower that is customary or necessary in a decision 
whether to make such an offer).
    (1) The following are examples to illustrate when an individual 
takes, or does not take, a loan application:
    (i) An individual ``takes a residential mortgage loan application'' 
even if the individual:
    (A) Has received the borrower or prospective borrower's request or 
information indirectly. Section 1008.103(c)(1) provides that an 
individual takes an application, whether he or she receives it 
``directly or indirectly'' from the borrower or prospective borrower. 
This means that an individual who offers or negotiates residential 
mortgage loan terms for compensation or gain cannot avoid licensing 
requirements simply by having another person physically receive the 
application from the prospective borrower and then pass the application 
to the individual;
    (B) Is not responsible for verifying information. The fact that an 
individual who takes application information from a borrower or 
prospective borrower is not responsible for verifying that information--
for example, the individual is a mortgage broker who collects and sends 
that information to a lender--does not mean that the individual is not 
taking an application;
    (C) Only inputs the information into an online application or other 
automated system; or
    (D) Is not involved in approval of the loan, including determining 
whether the consumer qualifies for the loan. Similar to an individual 
who is not responsible for verification, an individual can still ``take 
a residential mortgage loan application'' even if he or she is not 
ultimately responsible for approving the loan. A mortgage broker, for 
example, can take a residential mortgage loan application even though it 
is passed on to a lender for a decision on whether the borrower 
qualifies for the loan and for the ultimate loan approval.
    (ii) An individual does not take a loan application merely because 
the individual performs any of the following actions:
    (A) Receives a loan application through the mail and forwards it, 
without review, to loan approval personnel. The Bureau interprets the 
term ``takes a residential mortgage loan application'' to exclude an 
individual whose only role with respect to the application is physically 
handling a completed application form or transmitting a completed form 
to a lender on behalf of a borrower or prospective borrower. This 
interpretation is consistent with the definition of ``loan originator'' 
in section 1503(3) of the S.A.F.E. Act.
    (B) Assists a borrower or prospective borrower who is filling out an 
application by explaining the contents of the application and where 
particular borrower information is to be provided on the application;
    (C) Generally describes for a borrower or prospective borrower the 
loan application process without a discussion of particular loan 
products; or
    (D) In response to an inquiry regarding a prequalified offer that a 
borrower or prospective borrower has received from a lender, collects 
only basic identifying information about the borrower or prospective 
borrower on behalf of that lender.
    (b) Offering or Negotiating Terms of a Loan. The following examples 
are designed to illustrate when an individual offers or negotiates terms 
of a loan within the meaning of Sec. 1008.103(c)(2) and, conversely, 
what does not constitute offering or negotiating terms of a loan:
    (1) Offering or negotiating the terms of a loan includes:
    (i) Presenting for consideration by a borrower or prospective 
borrower particular loan terms, whether verbally, in writing, or 
otherwise, even if:
    (A) Further verification of information is necessary;
    (B) The offer is conditional;
    (C) Other individuals must complete the loan process;
    (D) The individual lacks authority to negotiate the interest rate or 
other loan terms; or
    (E) The individual lacks authority to bind the person that is the 
source of the prospective financing.
    (ii) Communicating directly or indirectly with a borrower or 
prospective borrower for

[[Page 255]]

the purpose of reaching a mutual understanding about prospective 
residential mortgage loan terms, including responding to a borrower or 
prospective borrower's request for a different rate or different fees on 
a pending loan application by presenting to the borrower or prospective 
borrower a revised loan offer, even if a mutual understanding is not 
subsequently achieved.
    (2) Offering or negotiating terms of a loan does not include any of 
the following activities:
    (i) Providing general explanations or descriptions in response to 
consumer queries, such as explaining loan terminology (e.g., debt-to-
income ratio) or lending policies (e.g., the loan-to-value ratio policy 
of the lender), or describing product-related services;
    (ii) Arranging the loan closing or other aspects of the loan 
process, including by communicating with a borrower or prospective 
borrower about those arrangements, provided that any communication that 
includes a discussion about loan terms only verifies terms already 
agreed to by the borrower or prospective borrower;
    (iii) Providing a borrower or prospective borrower with information 
unrelated to loan terms, such as the best days of the month for 
scheduling loan closings at the bank;
    (iv) Making an underwriting decision about whether the borrower or 
prospective borrower qualifies for a loan;
    (v) Explaining or describing the steps that a borrower or 
prospective borrower would need to take in order to obtain a loan offer, 
including providing general guidance about qualifications or criteria 
that would need to be met that is not specific to that borrower or 
prospective borrower's circumstances;
    (vi) Communicating on behalf of a mortgage loan originator that a 
written offer has been sent to a borrower or prospective borrower 
without providing any details of that offer; or
    (vii) Offering or negotiating loan terms solely through a third-
party licensed loan originator, so long as the nonlicensed individual 
does not represent to the public that he or she can or will perform 
covered activities and does not communicate with the borrower or 
potential borrower. For example:
    (A) A seller who provides financing to a purchaser of a dwelling 
owned by that seller in which the offer and negotiation of loan terms 
with the borrower or prospective borrower is conducted exclusively by a 
third-party licensed loan originator;
    (B) An individual who works solely for a lender, when the individual 
offers loan terms exclusively to third-party licensed loan originators 
and not to borrowers or potential borrowers.
    (c) For Compensation or Gain. (1) An individual acts ``for 
compensation or gain'' within the meaning of Sec. 1008.103(c)(2)(ii) if 
the individual receives or expects to receive in connection with the 
individual's activities anything of value, including, but not limited 
to, payment of a salary, bonus, or commission. The concept ``anything of 
value'' is interpreted broadly and is not limited only to payments that 
are contingent upon the closing of a loan.
    (2) An individual does not act ``for compensation or gain'' if the 
individual acts as a volunteer without receiving or expecting to receive 
anything of value in connection with the individual's activities.



    Sec. Appendix B to Part 1008--Engaging in the Business of a Loan 
             Originator: Commercial Context and Habitualness

    An individual who acts (or holds himself or herself out as acting) 
as a loan originator in a commercial context and with some degree of 
habitualness or repetition is considered to be ``engage[d] in the 
business of a loan originator[.]'' An individual who acts as a loan 
originator does so in a commercial context if the individual acts for 
the purpose of obtaining anything of value for himself or herself, or 
for an entity or individual for which the individual acts, rather than 
exclusively for public, charitable, or family purposes. The habitualness 
or repetition of the origination activities that is needed to ``engage 
in the business of a loan originator'' may be met either if the 
individual who acts as a loan originator does so with a degree of 
habitualness or repetition, or if the source of the prospective 
financing provides mortgage financing or performs other origination 
activities with a degree of habitualness or repetition. This Appendix 
provides examples to aid in the understanding of activities that would 
not constitute engaging in the business of a loan originator, such that 
an individual is not required to obtain and maintain a state mortgage 
loan originator license. The examples in this Appendix are not all-
inclusive. They illustrate only the issue described and do not 
illustrate any other issues that may arise under part 1008. For purposes 
of the examples below, the term ``loan'' refers to a ``residential 
mortgage loan'' as defined in Sec. 1008.23 of this part.
    (a) Not Engaged in the Business of a Mortgage Loan Originator. The 
following examples illustrate when an individual generally does not 
``engage in the business of a loan originator'':
    (1) An individual who acts as a loan originator in providing 
financing for the sale of that individual's own residence, provided that 
the individual does not act as a loan originator or provide financing 
for such sales so frequently and under such circumstances that it 
constitutes a habitual and commercial activity.

[[Page 256]]

    (2) An individual who acts as a loan originator in providing 
financing for the sale of a property owned by that individual, provided 
that such individual does not engage in such activity with habitualness.
    (3) A parent who acts as a loan originator in providing loan 
financing to his or her child.
    (4) An employee of a government entity who acts as a loan originator 
only pursuant to his or her official duties as an employee of that 
government entity, if all applicable conditions in Sec. 1008.103(e)(6) 
of this part are met.
    (5) If all applicable conditions in Sec. 1008.103(e)(7) of this 
part are met, an employee of a nonprofit organization that has been 
determined to be a bona fide nonprofit organization by the state 
supervisory authority, when the employee acts as a loan originator 
pursuant to his or her duties as an employee of that organization.
    (6) An individual who does not act as a loan originator habitually 
or repeatedly, provided that the source of prospective financing does 
not provide mortgage financing or perform other loan origination 
activities habitually or repeatedly.



Sec. Appendix C to Part 1008--Independent Contractors and Loan Processor 
and Underwriter Activities That Require a State Mortgage Loan Originator 
                                 License

    The examples below are designed to aid in the understanding of loan 
processing or underwriting activities for which an individual is 
required to obtain a S.A.F.E. Act-compliant mortgage loan originator 
license. The examples in this Appendix are not all-inclusive. They 
illustrate only the issue described and do not illustrate any other 
issues that may arise under part 1008. For purposes of the examples 
below, the term ``loan'' refers to a residential mortgage loan as 
defined in Sec. 1008.23 of this part.
    (a) An individual who is a loan processor or underwriter who must 
obtain and maintain a state loan originator license includes:
    (1) Any individual who engages in the business of a loan originator, 
as defined in Sec. 1008.103 of this part;
    (2) Any individual who performs clerical or support duties and who 
is an independent contractor, as those terms are defined in Sec. 
1008.23;
    (3) Any individual who collects, receives, distributes, or analyzes 
information in connection with the making of a credit decision and who 
is an independent contractor, as that term is defined in Sec. 1008.23; 
and
    (4) Any individual who communicates with a consumer to obtain 
information necessary for making a credit decision and who is an 
independent contractor, as that term is defined in Sec. 1008.23.
    (b) A state is not required to impose S.A.F.E. Act licensing 
requirements on any individual loan processor or underwriter who, for 
example:
    (1) Performs only clerical or support duties (i.e., the loan 
processor's or underwriter's activities do not include, e.g., offering 
or negotiating loan rates or terms, or counseling borrowers or 
prospective borrowers about loan rates or terms), and who performs those 
clerical or support duties at the direction of and subject to the 
supervision and instruction of an individual who either: Is licensed and 
registered in accordance with Sec. 1008.103(a) (state licensing of loan 
originators); or is not required to be licensed because he or she is 
excluded from the licensing requirement pursuant to Sec. 1008.103(e)(2) 
(time-share exclusion), (e)(5)(federally registered loan originator), 
(e)(6) (government employees exclusion), or (e)(7) (nonprofit 
exclusion).
    (2) Performs only clerical or support duties as an employee of a 
mortgage lender or mortgage brokerage firm, and who performs those 
duties at the direction of and subject to the supervision and 
instruction of an individual who is employed by the same employer and 
who is licensed in accordance with Sec. 1008.103(a) (state licensing of 
loan originators).
    (3) Is an employee of a loan processing or underwriting company that 
provides loan processing or underwriting services to one or more 
mortgage lenders or mortgage brokerage firms under a contract between 
the loan processing or underwriting company and the mortgage lenders or 
mortgage brokerage firms, provided the employee performs only clerical 
or support duties and performs those duties only at the direction of and 
subject to the supervision and instruction of a licensed loan originator 
employee of the same loan processing and underwriting company.
    (4) Is an individual who does not otherwise perform the activities 
of a loan originator and is not involved in the receipt, collection, 
distribution, or analysis of information common for the processing or 
underwriting of a residential mortgage loan, nor is in communication 
with the consumer to obtain such information.
    (c) In order to conclude that an individual who performs clerical or 
support duties is doing so at the direction of and subject to the 
supervision and instruction of a loan originator who is licensed or 
registered in accordance with Sec. 1008.103 (or, as applicable, an 
individual who is excluded from the licensing and registration 
requirements under Sec. 1008.103(e)(2), (e)(6), or (e)(7)), there must 
be an actual nexus between the licensed or registered loan originator's 
(or excluded individual's) direction, supervision, and instruction and 
the loan processor or underwriter's activities. This actual nexus must 
be more

[[Page 257]]

than a nominal relationship on an organizational chart. For example, 
there is an actual nexus when:
    (1) The supervisory licensed or registered loan originator assigns, 
authorizes, and monitors the loan processor or underwriter employee's 
performance of clerical and support duties.
    (2) The supervisory licensed or registered loan originator exercises 
traditional supervisory responsibilities, including, but not limited to, 
the training, mentoring, and evaluation of the loan processor or 
underwriter employee.



 Sec. Appendix D to Part 1008--Attorneys: Circumstances That Require a 
                 State Mortgage Loan Originator License

    This Appendix D clarifies the circumstances in which the S.A.F.E. 
Act requires a licensed attorney who engages in loan origination 
activities to obtain a state loan originator license and registration. 
This special category recognizes limited, heavily regulated activities 
that meet strict criteria that are different from the criteria for 
specific exemptions from the S.A.F.E. Act requirements and the 
exclusions set forth in the regulations and illustrated in other 
appendices of part 1008.
    (a) S.A.F.E. Act-compliant licensing required. An individual who is 
a licensed attorney is required to be licensed if the individual is 
engaged in the business of a loan originator as defined in Sec. 
1008.103 and such loan origination activities are not all of the 
following:
    (1) Considered by the state's court of last resort (or other state 
governing body responsible for regulating the practice of law) to be 
part of the authorized practice of law within the state;
    (2) Carried out within an attorney-client relationship; and
    (3) Accomplished by the attorney in compliance with all applicable 
laws, rules, ethics, and standards.
    (b) S.A.F.E. Act-compliant licensing not required. A licensed 
attorney performing activities that come within the definition of a loan 
originator is not required to be licensed, provided that such activities 
are:
    (1) Considered by the state's court of last resort (or other state 
governing body responsible for regulating the practice of law) to be 
part of the authorized practice of law within the state;
    (2) Carried out within an attorney-client relationship; and
    (3) Accomplished by the attorney in compliance with all applicable 
laws, rules, ethics, and standards.



PART 1009_DISCLOSURE REQUIREMENTS FOR DEPOSITORY INSTITUTIONS LACKING
FEDERAL DEPOSIT INSURANCE (REGULATION I)--Table of Contents



Sec.
1009.1 Scope.
1009.2 Definitions.
1009.3 Disclosures in periodic statements and account records.
1009.4 Disclosures in advertising and on the premises.
1009.5 Disclosure acknowledgment.
1009.6 Exception for certain depository institutions.
1009.7 Enforcement.

    Authority: 12 U.S.C. 1831t, 5512, 5581.

    Source: 76 FR 78129, Dec. 16, 2011, unless otherwise noted.



Sec. 1009.1  Scope.

    This part, known as Regulation I, is issued by the Bureau of 
Consumer Financial Protection. This part applies to all depository 
institutions lacking Federal deposit insurance. It requires the 
disclosure of certain insurance-related information in periodic 
statements, account records, locations where deposits are normally 
received, and advertising. This part also requires such depository 
institutions to obtain a written acknowledgment from depositors 
regarding the institution's lack of Federal deposit insurance.



Sec. 1009.2  Definitions.

    For purposes of this part:
    Depository institution means any bank or savings association as 
defined under 12 U.S.C. 1813, or any credit union organized and operated 
according to the laws of any state, the District of Columbia, the 
several territories and possessions of the United States, the Panama 
Canal Zone, or the Commonwealth of Puerto Rico, which laws provide for 
the organization of credit unions similar in principle and objectives to 
Federal credit unions.
    Lacking Federal deposit insurance means the depository institution 
is neither an insured depository institution as defined in 12 U.S.C. 
1813(c)(2), nor an insured credit union as defined in section 101 of the 
Federal Credit Union Act, 12 U.S.C. 1752.

[[Page 258]]

    Standard maximum deposit insurance amount means the maximum amount 
of deposit insurance as determined under section 11(a)(1) of the Federal 
Deposit Insurance Act (12 U.S.C. 1821(a)(1)).



Sec. 1009.3  Disclosures in periodic statements and account records.

    Depository institutions lacking Federal deposit insurance must 
include a notice disclosing clearly and conspicuously that the 
institution is not federally insured, and that if the institution fails, 
the Federal Government does not guarantee that depositors will get back 
their money, in all periodic statements of account, on each signature 
card, and on each passbook, certificate of deposit, or share 
certificate. For example, a notice would comply with the requirement if 
it conspicuously stated: ``[Institution's name] is not federally 
insured. If it fails, the Federal Government does not guarantee that you 
will get your money back.'' The disclosures required by this section 
must be clear and conspicuous and presented in a simple and easy to 
understand format, type size, and manner.



Sec. 1009.4  Disclosures in advertising and on the premises.

    (a) Required disclosures. Each depository institution lacking 
Federal deposit insurance must include a clear and conspicuous notice 
disclosing that the institution is not federally insured:
    (1) At each station or window where deposits are normally received, 
its principal place of business and all its branches where it accepts 
deposits or opens accounts (excluding automated teller machines or point 
of sale terminals), and on its main internet page; and
    (2) In all advertisements except as provided in paragraph (c) of 
this section.
    (b) Format and type size. The disclosures required by this section 
must be clear and conspicuous and presented in a simple and easy to 
understand format, type size, and manner.
    (c) Exceptions. The following need not include a notice that the 
institution is not federally insured:
    (1) Any sign, document, or other item that contains the name of the 
depository institution, its logo, or its contact information, but only 
if the sign, document, or item does not include any information about 
the institution's products or services or information otherwise 
promoting the institution; and
    (2) Small utilitarian items that do not mention deposit products or 
insurance, if inclusion of the notice would be impractical.



Sec. 1009.5  Disclosure acknowledgment.

    (a) New depositors obtained other than through a conversion or 
merger. With respect to any depositor who was not a depositor at the 
depository institution on or before October 13, 2006, and who is not a 
depositor as described in paragraph (b) of this section, a depository 
institution lacking Federal deposit insurance may receive a deposit for 
the account of such depositor only if the institution has obtained the 
depositor's signed written acknowledgement that:
    (1) The institution is not federally insured; and
    (2) If the institution fails, the Federal Government does not 
guarantee that the depositor will get back the depositor's money.
    (b) New depositors obtained through a conversion or merger. With 
respect to a depositor at a federally insured depository institution 
that converts to, or merges into, a depository institution lacking 
Federal insurance after October 13, 2006, a depository institution 
lacking Federal deposit insurance may receive a deposit for the account 
of such depositor only if:
    (1) The institution has obtained the depositor's signed written 
acknowledgement described in paragraph (a) of this section; or
    (2) The institution makes an attempt, sent by mail no later than 45 
days after the effective date of the conversion or merger, to obtain the 
acknowledgment. In making such an attempt, the institution must transmit 
to each depositor who has not signed and returned a written 
acknowledgement described in paragraph (a) of this section:
    (i) A conspicuous card containing the information described in 
paragraphs (a)(1) and (2) of this section, and a line for the signature 
of the depositor; and
    (ii) Accompanying materials requesting the depositor to sign the 
card, and

[[Page 259]]

return the signed card to the institution.
    (c) Depositors obtained on or before October 13, 2006. (1) Any 
depository institution lacking Federal deposit insurance may receive any 
deposit after October 13, 2006, for the account of a depositor who was a 
depositor on or before that date only if:
    (i) The depositor has signed a written acknowledgement described in 
paragraph (a) of this section; or
    (ii) The institution has transmitted to the depositor:
    (A) A conspicuous card containing the information described in 
paragraphs (a)(1) and (2) of this section, and a line for the signature 
of the depositor; and
    (B) Accompanying materials requesting that the depositor sign the 
card, and return the signed card to the institution.
    (2) An institution described in paragraph (c)(1) of this section 
must have made the transmission described in paragraph (c)(1)(ii) of 
this section via mail not later than three months after October 13, 
2006. The institution must have made a second identical transmission via 
mail not less than 30 days, and not more than three months, after the 
first transmission to the depositor in accordance with paragraph 
(c)(1)(ii) of this section, if the institution has not, by the date of 
such mailing, received from the depositor a card referred to in 
paragraph (c)(1)(i) of this section which has been signed by the 
depositor.
    (d) Format and type size. The disclosures required by this section 
must be clear and conspicuous and presented in a simple and easy to 
understand format, type size, and manner.



Sec. 1009.6  Exception for certain depository institutions.

    The requirements of this part do not apply to any depository 
institution lacking Federal deposit insurance and located within the 
United States that does not receive initial deposits of less than an 
amount equal to the standard maximum deposit insurance amount from 
individuals who are citizens or residents of the United States, other 
than money received in connection with any draft or similar instrument 
issued to transmit money.



Sec. 1009.7  Enforcement.

    Compliance with the requirements of this part shall be enforced 
under the Consumer Financial Protection Act of 2010, Public Law 111-203, 
Title X, 124 Stat. 1955, by the Bureau of Consumer Financial Protection, 
subject to subtitle B of the Consumer Financial Protection Act of 2010, 
and under the Federal Trade Commission Act, 15 U.S.C. 41 et seq, by the 
Federal Trade Commission.



PART 1010_LAND REGISTRATION (REGULATION J)--Table of Contents



                     Subpart A_General Requirements

Sec.
1010.1 Definitions.
1010.2 [Reserved]
1010.3 General applicability.
1010.4 Exemptions--general.
1010.5 Statutory exemptions.
1010.6 One hundred lot exemption.
1010.7 Twelve lot exemption.
1010.8 Scattered site subdivisions.
1010.9 Twenty acre lots.
1010.10 Single-family residence exemption.
1010.11 Manufactured home exemption.
1010.12 Intrastate exemption.
1010.13 Metropolitan Statistical Area (MSA) exemption.
1010.14 Regulatory exemptions.
1010.15 Regulatory exemption--multiple site subdivision--determination 
          required.
1010.16 Regulatory exemption--determination required.
1010.17 Advisory opinion.
1010.18 No Action Letter.
1010.19 [Reserved]
1010.20 Requirements for registering a subdivision--Statement of 
          Record--filing and form.
1010.21 Effective dates.
1010.22 Statement of record--initial or consolidated.
1010.23 Amendment--filing and form.
1010.24-1010.28 [Reserved]
1010.29 Use of property report--misstatements, omissions or 
          representation of Bureau approval prohibited.
1010.35 Payment of fees.
1010.45 Suspensions.

                    Subpart B_Reporting Requirements

1010.100 Statement of Record--format.
1010.101 [Reserved]
1010.102 General instructions for completing the Statement of Record.

[[Page 260]]

1010.103 Developer obligated improvements.
1010.104 [Reserved]
1010.105 Cover page.
1010.106 Table of contents.
1010.107 Risks of buying land.
1010.108 General information.
1010.109 Title to the property and land use.
1010.110 Roads.
1010.111 Utilities.
1010.112 Financial information.
1010.113 Local services.
1010.114 Recreational facilities.
1010.115 Subdivision characteristics and climate.
1010.116 Additional information.
1010.117 Cost sheet, signature of Senior Executive Officer.
1010.118 Receipt, agent certification, and cancellation page.
1010.200 Instructions for Statement of Record, Additional Information 
          and Documentation.
1010.201-1010.207 [Reserved]
1010.208 General information.
1010.209 Title and land use.
1010.210 Roads.
1010.211 Utilities.
1010.212 Financial information.
1010.214 Recreational facilities.
1010.215 Subdivision characteristics and climate.
1010.216 Additional information.
1010.219 Affirmation.
1010.310 Annual report of activity.

      Subpart C_Certification of Substantially Equivalent State Law

1010.500 General.
1010.503 Notice of certification.
1010.504 Cooperation among certified states and between certified states 
          and the Director.
1010.505 Withdrawal of state certification.
1010.506 State/Federal filing requirements.
1010.507 Effect of suspension or withdrawal of certification granted 
          under Sec. 1010.501(a): Full disclosure requirement.
1010.508 Effect of suspension of certification granted under Sec. 
          1010.501(b): Sufficient protection requirement.
1010.552 Previously accepted state filings.
1010.556 Previously accepted state filings--amendments and 
          consolidations.
1010.558 Previously accepted state filings--notice of revocation rights 
          on property report cover page.
1010.559 Previously accepted state filings--notice of revocation rights 
          in contracts and agreements.

Appendix A to Part 1010--Standard and Model Forms and Clauses

    Authority: 12 U.S.C. 5512, 5581; 15 U.S.C. 1718.

    Source: 76 FR 79489, Dec. 21, 2011, unless otherwise noted.



                     Subpart A_General Requirements



Sec. 1010.1  Definitions.

    (a) Statutory terms. All terms are used in accordance with their 
statutory meaning in 15 U.S.C. 1702, unless otherwise defined in 
paragraph (b) of this section or elsewhere in this part.
    (b) Other terms. As used in this part:
    Act means the Interstate Land Sales Full Disclosure Act, 15 U.S.C. 
1701.
    Advisory opinion means the formal written opinion of the Director as 
to jurisdiction in a particular case or the applicability of an 
exemption under Sec. Sec. 1010.5 through 1010.15, based on facts 
submitted to the Director.
    Available for use means that in addition to being constructed, the 
subject facility is fully operative and supplied with any materials and 
staff necessary for its intended purpose.
    Beneficial property restrictions means restrictions that are 
enforceable by the lot owners and are designed to control the use of the 
lot and to preserve or enhance the environment and the aesthetic and 
economic value of the subdivision.
    Date of filing means the date a Statement of Record, amendment, or 
consolidation, accompanied by the applicable fee, is received by the 
Director.
    Good faith estimate means an estimate based on documentary evidence. 
In the case of cost estimates, the documentation may be obtained from 
the suppliers of the services. In the case of estimates of completion 
dates, the documentation may be actual contracts let, engineering 
schedules, or other evidence of commitments to complete the amenities.
    ILSRP means the Interstate Land Sales Registration Program.
    Lot means any portion, piece, division, unit, or undivided interest 
in land located in any state or foreign country, if the interest 
includes the right to the exclusive use of a specific portion of the 
land.
    Owner means the person or entity who holds the fee title to the land 
and has the power to convey that title to others.
    Parent corporation means that entity which ultimately controls the 
subsidiary, even though the control may

[[Page 261]]

arise through any series or chain of other subsidiaries or entities.
    Principal means any person or entity holding at least a 10 percent 
financial or ownership interest in the developer or owner, directly or 
through any series or chain of subsidiaries or other entities.
    Rules means all rules adopted pursuant to the Act, including the 
general requirements published in this part.
    Sale means any obligation or arrangement for consideration to 
purchase or lease a lot directly or indirectly. The terms ``sale'' or 
``seller'' include in their meanings the terms ``lease'' and ``lessor''.
    Senior Executive Officer means the individual of highest rank 
responsible for the day-to-day operations of the developer and who has 
the authority to bind or commit the developing entity to contractual 
obligations.
    Site means a group of contiguous lots, whether such lots are 
actually divided or proposed to be divided. Lots are considered to be 
contiguous even though contiguity may be interrupted by a road, park, 
small body of water, recreational facility, or any similar object.
    Start of construction means breaking ground for building a facility, 
followed by diligent action to complete the facility.



Sec. 1010.2  [Reserved]



Sec. 1010.3  General applicability.

    Except in the case of an exempt transaction, a developer may not 
sell or lease lots in a subdivision, making use of any means or 
instruments of transportation or communication in interstate commerce, 
or of the mails, unless a Statement of Record is in effect in accordance 
with the provisions of this part. In non-exempt transactions, the 
developer must give each purchaser a printed Property Report, meeting 
the requirements of this part, in advance of the purchaser's signing of 
any contract or agreement for sale or lease. Information collection 
requirements contained in this part have been approved by the Office of 
Management and Budget under the provisions of 44 U.S.C. 3501 et seq. and 
have been assigned OMB Control No. 3170-0012.



Sec. 1010.4  Exemptions--general.

    (a) The exemptions available under Sec. Sec. 1010.5 through 1010.16 
are not applicable when the method of sale, lease or other disposition 
of land or an interest in land is adopted for the purpose of evasion of 
the Act.
    (b) With the exception of the sales or leases which are exempt under 
Sec. 1010.5, the anti-fraud provisions of the Act (15 U.S.C. 
1703(a)(2)) apply to exempt transactions. The anti-fraud provisions make 
it unlawful for a developer or agent to employ any device, scheme, or 
artifice to:
    (1) Defraud;
    (2) To obtain money or property by means of any untrue statement of 
a material fact, or
    (3) To omit to state a material fact necessary in order to make the 
statements made not misleading, with respect to any information 
pertinent to the lot or subdivision; or
    (4) To engage in any transaction, practice, or course of business 
which operates or would operate as a fraud or deceit upon a purchaser.
    (c) The anti-fraud provisions of the Act require that certain 
representations be included in the contract in transactions which are 
not exempt under Sec. 1010.5. Specifically, the Act requires that if a 
developer or agent represents that roads, sewers, water, gas or electric 
service or recreational amenities will be provided or completed by the 
developer, the contract must stipulate that the services or amenities 
will be provided or completed. See Sec. 1011.15(f).
    (d) Eligibility for exemptions available under Sec. Sec. 1010.5 
through 1010.14 is self-determining. With the exception of the 
exemptions available under Sec. Sec. 1010.15 and 1010.16, a developer 
is not required to file notice with or obtain the approval of the 
Director in order to take advantage of an exemption. If a developer 
elects to take advantage of an exemption, the developer is responsible 
for maintaining records to demonstrate that the requirements of the 
exemption have been met.
    (e) A developer may present evidence, or otherwise discuss, in an 
informal hearing before the Office of Nonbank Supervision, the Bureau's 
position on

[[Page 262]]

the jurisdiction or non-exempt status of a particular subdivision.



Sec. 1010.5  Statutory exemptions.

    A listing of the statutory exemptions is contained in 15 U.S.C. 
1703. In accordance with 15 U.S.C. 1703(a)(2), if the sale involves a 
condominium or multi-unit construction, a presale clause conditioning 
the sale of a unit on a certain percentage of sales of other units is 
permissible if it is legally binding on the parties and is for a period 
not to exceed 180 days. However, the 180-day provision cannot extend the 
2-year period for performance. The permissible 180 days is calculated 
from the date the first purchaser signs a sales contract in the project 
or, if a phased project, from the date the first purchaser signs the 
first sales contract in each phase.



Sec. 1010.6  One hundred lot exemption.

    The sale of lots in a subdivision is exempt from the registration 
requirements of the Act if, since April 28, 1969, the subdivision has 
contained fewer than 100 lots, exclusive of lots which are exempt from 
jurisdiction under Sec. 1010.5. In the sale of lots in the subdivision 
that are not exempt under Sec. 1010.5, the developer must comply with 
the Act's anti-fraud provisions, set forth in Sec. 1010.4(b) and (c).



Sec. 1010.7  Twelve lot exemption.

    (a) The sale of lots is exempt from the registration requirements of 
the Act if, beginning with the first sale after June 20, 1980, no more 
than twelve lots in the subdivision are sold in the subsequent twelve-
month period. Thereafter, the sale of the first twelve lots is exempt 
from the registration requirements if no more than twelve lots were sold 
in each previous twelve month period which began with the anniversary 
date of the first sale after June 20, 1980.
    (b) A developer may apply to the Director to establish a different 
twelve month period for use in determining eligibility for the exemption 
and the Director may allow the change if it is for good cause and 
consistent with the purpose of this section.
    (c) In determining eligibility for this exemption, all lots sold or 
leased in the subdivision after June 20, 1980, are counted, whether or 
not the transactions are otherwise exempt. Sales or leases made prior to 
June 21, 1980, are not considered in determining eligibility for the 
exemption.
    (d) The sale must also comply with the anti-fraud provisions of 
Sec. 1010.4(b) and (c) of this part.



Sec. 1010.8  Scattered site subdivisions.

    (a) The sale of lots in a subdivision consisting of noncontiguous 
parts is exempt from the registration requirements of the Act if:
    (1) Each noncontiguous part of the subdivision contains twenty or 
fewer lots; and
    (2) Each purchaser or purchaser's spouse makes a personal, on-the-
lot inspection of the lot purchased prior to signing a contract.
    (b) For purposes of this exemption, interruptions such as roads, 
parks, small bodies of water or recreational facilities do not serve to 
break the contiguity of parts of a subdivision.
    (c) The sale must also comply with the anti-fraud provisions of 
Sec. 1010.4(b) and (c) of this part.



Sec. 1010.9  Twenty acre lots.

    (a) The sale of lots in a subdivision is exempt from the 
registration requirements of the Act if, since April 28, 1969, each lot 
in the subdivision has contained at least twenty acres. In determining 
eligibility for the exemption, easements for ingress and egress or 
public utilities are considered part of the total acreage of the lot if 
the purchaser retains ownership of the property affected by the 
easement.
    (b) The sale must also comply with the anti-fraud provisions of 
Sec. 1010.4(b) and (c) of this part.



Sec. 1010.10  Single-family residence exemption.

    (a) General. The sale of a lot which meets the requirements 
specified under paragraphs (b) and (c) of this section is exempt from 
the registration requirements of the Act.
    (b) Subdivision requirements. (1) The subdivision must meet all 
local codes and standards.
    (2) In the promotion of the subdivision there must be no offers, by 
direct mail or telephone solicitation, of gifts,

[[Page 263]]

trips, dinners or use of similar promotional techniques to induce 
prospective purchasers to visit the subdivision or to purchase a lot.
    (c) Lot requirements. (1) The lot must be located within a 
municipality or county where a unit of local government or the state 
specifies minimum standards in the following areas for the development 
of subdivision lots taking place within its boundaries:
    (i) Lot dimensions.
    (ii) Plat approval and recordation.
    (iii) Roads and access.
    (iv) Drainage.
    (v) Flooding.
    (vi) Water supply.
    (vii) Sewage disposal.
    (2) Each lot sold under the exemption must be either zoned for 
single-family residences or, in the absence of a zoning ordinance, 
limited exclusively by enforceable covenants or restrictions to single-
family residences. Manufactured homes, townhouses, and residences for 
one-to-four family use are considered single-family residences for 
purposes of this exemption provision.
    (3) The lot must be situated on a paved street or highway which has 
been built to standards established by the state or the unit of local 
government in which the subdivision is located. If the roads are to be 
public roads they must be acceptable to the unit of local government 
that will be responsible for maintenance. If the street or highway is 
not complete, the developer must post a bond or other surety acceptable 
to the municipality or county in the full amount of the cost of 
completing the street or highway to assure completion to local 
standards. For purposes of this exemption, paved means concrete or 
pavement with a bituminous surface that is impervious to water, protects 
the base and is durable under the traffic load and maintenance 
contemplated.
    (4) The unit of local government or a homeowners association must 
have accepted or be obligated to accept the responsibility for 
maintaining the street or highway upon which the lot is situated. In any 
case in which a homeowners association has accepted or is obligated to 
accept maintenance responsibility, the developer must, prior to signing 
of a contract or agreement to purchase, provide the purchaser with a 
good faith written estimate of the cost of carrying out the 
responsibility over the first ten years of ownership.
    (5) At the time of closing, potable water, sanitary sewage disposal, 
and electricity must be extended to the lot or the unit of local 
government must be obligated to install the facilities within 180 days 
following closing. For subdivisions which will not have a central water 
or sewage disposal system, there must be assurances that an adequate 
potable water supply is available year-round and that the lot is 
approved for the installation of a septic tank.
    (6) The contract of sale must require delivery within 180 days after 
the signing of the sales contract of a warranty deed, which at the time 
of delivery is free from monetary liens and encumbrances. If a warranty 
deed is not commonly used in the jurisdiction where the lot is located, 
a deed or grant which warrants that the seller has not conveyed the lot 
to another person may be delivered in lieu of a warranty deed. The deed 
or grant used must warrant that the lot is free from encumbrances made 
by the seller or any other person claiming by, through, or under the 
seller.
    (7) At the time of closing, a title insurance binder or title 
opinion reflecting the condition of title must be in existence and 
issued or presented to the purchaser showing that, subject only to 
exceptions which are approved in writing by the purchaser at the time of 
closing, marketable title to the lot is vested in the seller.
    (8) The purchaser or purchaser's spouse must make a personal, on-
the-lot inspection of the lot purchased prior to signing a contract or 
agreement to purchase.
    (d) The sale must also comply with the anti-fraud provisions of 
Sec. 1010.4(b) and (c) of this part.



Sec. 1010.11  Manufactured home exemption.

    (a) The sale of a lot is exempt from the registration requirements 
of the Act when the following eligibility requirements are met:
    (1) The lot is sold as a homesite by one party and a manufactured 
home is

[[Page 264]]

sold by another party and the contracts of sale:
    (i) Obligate the sellers to perform, contingent upon the other 
seller carrying out its obligations so that a completed manufactured 
home will be erected on a completed homesite within two years after the 
date the purchaser signed the contract to purchase the lot;
    (ii) Provide that all funds received by the sellers are to be 
deposited in escrow accounts independent of the sellers until the 
transactions are completed;
    (iii) Provide that funds received by the sellers will be released to 
the buyer upon demand if the lot on which the manufactured home has been 
erected is not conveyed within two years; and
    (iv) Contain no provisions which restrict the purchaser's remedy of 
bringing suit for specific performance.
    (2) The homesite is developed in conformance with all local codes 
and standards, if any, for manufactured home subdivisions.
    (3) At the time of closing:
    (i) Potable water and sanitary sewage disposal are available to the 
homesite and electricity has been extended to the lot line;
    (ii) The homesite is accessible by roads;
    (iii) The purchaser receives marketable title to the lot; and
    (iv) Other common facilities represented in any manner by the 
developer or agent to be provided are completed or there are letters of 
credit, cash escrows or surety bonds in the form acceptable to the local 
government in an amount equal to 100 percent of the estimated cost of 
completion. Corporate bonds are not acceptable for purposes of the 
exemption.
    (4) For purposes of this section, a manufactured home is a unit 
receiving a label in conformance with U.S. Department of Housing and 
Urban Development (HUD) regulations implementing the National 
Manufactured Housing Construction and Safety Standards Act of 1974 (42 
U.S.C. 5401).
    (b) The sale must also comply with the anti-fraud provisions of 
Sec. 1010.4(b) and (c) of this part.



Sec. 1010.12  Intrastate exemption.

    (a) Eligibility requirements. The sale of a lot is exempt from the 
registration requirements of the Act if the following requirements are 
met:
    (1) The sale of lots in the subdivision after December 20, 1979, is 
restricted solely to residents of the state in which the subdivision is 
located unless the sale is exempt under Sec. 1010.5, Sec. 1010.11, or 
Sec. 1010.13.
    (2) The purchaser or purchaser's spouse makes a personal on-the-lot 
inspection of the lot to be purchased before signing a contract.
    (3) Each contract:
    (i) Specifies the developer's and purchaser's responsibilities for 
providing and maintaining roads, water and sewer facilities and any 
existing or promised amenities;
    (ii) Contains a good faith estimate of the year in which the roads, 
water and sewer facilities and promised amenities will be completed; and
    (iii) Contains a non-waivable provision giving the purchaser the 
opportunity to revoke the contract until at least midnight of the 
seventh calendar day following the date the purchaser signed the 
contract. If the purchaser is entitled to a longer revocation period by 
operation of state law, that period becomes the Federal revocation 
period and the contract must reflect the requirements of the longer 
period.
    (4) The lot being sold is free and clear of all liens, encumbrances 
and adverse claims except the following:
    (i) Mortgages or deeds of trust which contain release provisions for 
the individual lot purchased if:
    (A) The contract of sale obligates the developer to deliver, within 
180 days, a warranty deed (or its equivalent under local law), which at 
the time of delivery is free from any monetary liens or encumbrances; 
and
    (B) The purchaser's payments are deposited in an escrow account 
independent of the developer until a deed is delivered.
    (ii) Liens which are subordinate to the leasehold interest and do 
not affect the lessee's right to use or enjoy the lot.

[[Page 265]]

    (iii) Property reservations which are for the purpose of bringing 
public services to the land being developed, such as easements for water 
and sewer lines.
    (iv) Taxes or assessments which constitute liens before they are due 
and payable if imposed by a state or other public body having authority 
to assess and tax property or by a property owners' association.
    (v) Beneficial property restrictions that are mutually enforceable 
by the lot owners in the subdivision. Restrictions, whether separately 
recorded or incorporated into individual deeds, must be applied 
uniformly to every lot or group of lots. To be considered beneficial and 
enforceable, any restriction or covenant that imposes an assessment on 
lot owners must apply to the developer on the same basis as other lot 
owners. Developers who maintain control of a subdivision through a 
Property Owners' Association, Architectural Control Committee, 
restrictive covenant or otherwise, shall transfer such control to the 
lot owners no later than when the developer ceases to own a majority of 
total lots in, or planned for, the subdivision. Relinquishment of 
developer control shall require affirmative action, usually in the form 
of an election based upon one vote per lot.
    (vi) Reservations contained in United States land patents and 
similar Federal grants or reservations.
    (5) Prior to the sale the developer discloses in a written statement 
to the purchaser all qualifying liens, reservations, taxes, assessments 
and restrictions applicable to the lot purchased. The developer must 
obtain a written receipt from the purchaser acknowledging that the 
statement required by this subparagraph was delivered to the purchaser.
    (6) Prior to the sale the developer provides in a written statement 
good faith estimates of the cost to the purchaser of providing electric, 
water, sewer, gas and telephone service to the lot. The estimates for 
unsold lots must be updated every two years or more frequently if the 
developer has reason to believe that significant cost increases have 
occurred. The dates on which the estimates were made must be included in 
the statement. The developer must obtain a written receipt from the 
purchaser acknowledging that the statement required by this subparagraph 
was delivered to the purchaser.
    (b) Intrastate Exemption Statement. To satisfy the requirements of 
paragraphs (a)(5) and (6) of this section, an Intrastate Exemption 
Statement containing the information prescribed in each such paragraph 
shall be given to each purchaser. A State-approved disclosure document 
may be used to satisfy this requirement if all the information required 
by paragraphs (a)(5) and (6) of this section is included in this 
disclosure. In such a case, the developer must obtain a written receipt 
from the purchaser and comply with all other requirements of the 
exemption. To be acceptable for purposes of the exemption, the 
statement(s) given to purchasers must contain neither advertising nor 
promotion on behalf of the developer or subdivision nor references to 
the Bureau of Consumer Financial Protection or the Consumer Financial 
Protection Bureau. A sample Intrastate Exemption Statement is included 
in the exemption guidelines.
    (c) The sale must also comply with the anti-fraud provisions of 
Sec. 1010.4(b) and (c) of this part.



Sec. 1010.13  Metropolitan Statistical Area (MSA) exemption.

    (a) Eligibility requirements. The sale of a lot which meets the 
following requirements is exempt from registration requirements of the 
Act:
    (1) The lot is in a subdivision which contains fewer than 300 lots 
and has contained fewer than 300 lots since April 28, 1969.
    (2) The lot is located within a Metropolitan Statistical Area (MSA) 
as defined by the Office of Management and Budget and characterized in 
paragraph (b) of this section.
    (3) The principal residence of the purchaser is within the same MSA 
as the subdivision.
    (4) The purchaser or purchaser's spouse makes a personal on-the-lot 
inspection of the lot to be purchased prior to signing a contract or 
agreement.
    (5) Each contract:

[[Page 266]]

    (i) Specifies the developer's and purchaser's responsibilities for 
providing and maintaining roads, water and sewer facilities and any 
existing or promised amenities;
    (ii) Contains a good faith estimate of the year in which the roads, 
water and sewer facilities and promised amenities will be completed;
    (iii) Contains a nonwaivable provision giving the purchaser the 
opportunity to revoke the contract until at least midnight of the 
seventh calendar day following the date the purchaser signed the 
contract, or, if the purchaser is entitled to a longer revocation period 
by operation of state law, that period becomes the Federal revocation 
period and the contract must reflect the requirements of the longer 
period.
    (6) The lot being sold must be free and clear of liens such as 
mortgages, deeds of trust, tax liens, mechanics' liens, or judgments. 
For purposes of this exemption, the term liens does not include the 
following:
    (i) Mortgages or deeds of trust which contain release provisions for 
the individual lot purchased if:
    (A) The contract of sale obligates the developer to deliver, within 
180 days, a warranty deed (or its equivalent under local law), which at 
the time of delivery is free from any monetary liens or encumbrances; 
and
    (B) The purchaser's payments are deposited in an escrow account 
independent of the developer until a deed is delivered.
    (ii) Liens which are subordinate to the leasehold interest and do 
not affect the lessee's right to use or enjoy the lot.
    (iii) Property reservations which are for the purpose of bringing 
public services to the land being developed, such as easements for water 
and sewer lines.
    (iv) Taxes or assessments which constitute liens before they are due 
and payable if imposed by a state or other public body having authority 
to assess and tax property or by a property owners' association.
    (v) Beneficial property restrictions that are mutually enforceable 
by the lot owners in the subdivision. Restrictions, whether separately 
recorded or incorporated into individual deeds, must be applied 
uniformly to every lot or group of lots. To be considered beneficial and 
enforceable, any restriction or covenant that imposes an assessment on 
lot owners must apply to the developer on the same basis as other lot 
owners. Developers who maintain control of a subdivision through a 
Property Owners' Association, Architectural Control Committee, 
restrictive covenants, or otherwise, shall transfer such control to the 
lot owners no later than when the developer ceases to own a majority of 
total lots in, or planned for, the subdivision. Relinquishment of 
developer control shall require affirmative action, usually in the form 
of an election based upon one vote per lot.
    (vi) Reservations contained in United States land patents and 
similar Federal grants or reservations.
    (7) Before the sale the developer gives a written MSA Exemption 
Statement to the purchaser and obtains a written receipt acknowledging 
that the statement was received. A sample MSA Exemption Statement is 
included in the exemption guidelines. A State-approved disclosure 
document may be used to satisfy this requirement if all of the 
information required by this section is included. The statement(s) given 
to purchasers must contain neither advertising nor promotion on behalf 
of the developer or the subdivision nor references to the Bureau of 
Consumer Financial Protection or the Consumer Financial Protection 
Bureau. In descriptive and concise terms, the statement that the 
developer must give the purchaser shall disclose the following:
    (i) All liens, reservations, taxes, assessments, beneficial property 
restrictions which are enforceable by other lot owners in the 
subdivision, and adverse claims which are applicable to the lot to be 
purchased.
    (ii) Good faith estimates of the cost to the purchaser of providing 
electric, water, sewer, gas and telephone service to the lot. The 
estimates for unsold lots must be updated every two years, or more 
frequently if the developer has reason to believe that significant cost 
increases have occurred. The dates on which the estimates were made must 
be included in the statement.

[[Page 267]]

    (8) The developer executes and gives to the purchaser a written 
instrument designating a person within the state of residence of the 
purchaser as the developer's agent for service of process. The developer 
must also acknowledge in writing that it submits to the legal 
jurisdiction of the state in which the purchaser or lessee resides.
    (9) The developer executes a written affirmation for each sale made 
under this exemption. By January 31 of each year, the developer submits 
to the Director a copy of the executed affirmation for each sale made 
during the preceding calendar year or a master affirmation in which are 
listed all purchasers' names and addresses and the identity of the lots 
purchased. Individual affirmations must be available for the Director's 
review at all times during the year. The affirmation must be in the form 
provided in section I of the appendix to this part: Form for Developer's 
Affirmation for Land Sale.
    (b) Metropolitan Statistical Area. Metropolitan Statistical Areas 
are defined by the Office of Management and Budget generally on the 
basis of population statistics reported in a census. To determine 
whether a subdivision is located within an MSA and the boundaries of an 
MSA, contact the Office of Information and Regulatory Affairs, Office of 
Management and Budget, 726 Jackson Place NW., Washington, DC 20503.
    (c) The sale must also comply with the anti-fraud provisions of 
Sec. 1010.4(b) and (c).



Sec. 1010.14  Regulatory exemptions.

    (a) Eligibility requirements. The following transactions are exempt 
from the registration requirements of the Act unless the Director has 
terminated the exemption in accordance with paragraph (b) of this 
section.
    (1) The sale of lots, each of which will be sold for less than $100, 
including closing costs, if the purchaser will not be required to 
purchase more than one lot.
    (2) The lease of lots for a term not to exceed five years if the 
terms of the lease do not obligate the lessee to renew.
    (3) The sale of lots to a person who is engaged in a bona fide land 
sales business.
    (4) The sale of a lot to a person who owns the contiguous lot which 
has a residential, commercial or industrial building on it.
    (5) The sale of real estate to a government or government agency.
    (6) The sale of a lot to a person who has leased and resided 
primarily on the lot for at least the year preceding the sale.
    (b) Termination. If the Director has reasonable grounds to believe 
that exemption from the registration requirements in a particular case 
is not in the public interest, the Director may, after issuing a notice 
and giving the respondent an opportunity to request a hearing within 
fifteen days of receipt of the notice, terminate eligibility for 
exemption. The basis for issuing a notice may be the conduct of the 
developer or agent, such as unlawful conduct or insolvency, or adverse 
information about the lots or real estate that should be disclosed to 
the purchasers. Proceedings will be governed by Sec. 1012.238.
    (c) The sale must also comply with the anti-fraud provisions of 
Sec. 1010.4(b) and (c) of this part.



Sec. 1010.15  Regulatory exemption--multiple site subdivision--
determination required.

    (a) General. (1) The sale of lots contained in multiple sites of 
fewer than 100 lots each, offered pursuant to a single common 
promotional plan, is exempt from the registration requirements.
    (2) For purposes of this exemption, the sale of lots in an 
individual site that exceeds 99 lots is not exempt from registration. 
Likewise, the sale of lots in a site containing fewer than 100 lots, 
where the developer either owns contiguous land or holds an option or 
other evidence of intent to acquire contiguous land which, when taken 
cumulatively, would or could result in one site of 100 or more lots, is 
not exempt from registration. Furthermore, the sale of lots that are 
within a subdivision established by a separate developer is not exempt 
from registration by this provision.

[[Page 268]]

    (b) Eligibility requirements. The sale of each lot must meet the 
following requirements to be eligible for this exemption.
    (1) The lot is sold ``as is'' with all advertised improvements and 
amenities completed and in the condition advertised.
    (2) The lot is in conformance with all local codes and standards.
    (3) The lot is accessible, both legally and physically. For lots 
which are advertised or otherwise represented as ``residential,'' either 
primary or secondary, with any inference that a permanent or temporary 
dwelling unit of any description (excluding collapsible tents) can be 
built or installed, physical access must be available by automobile, 
pick-up truck or equivalent ``on-road'' vehicle.
    (4) At the time of closing, a title insurance binder or title 
opinion reflecting the condition of title must be issued to the 
purchaser showing that, subject only to exceptions approved in writing 
by the purchaser at the time of closing, marketable title is vested in 
the seller.
    (5) Each contract or agreement and any promissory notes:
    (i) Contain the non-waivable provision found in section II of the 
appendix to this part: Language Notifying Buyer of Option to Cancel 
Contract in bold face type (which must be distinguished from the type 
used for the rest of the document) on the face or signature page above 
all signatures. If the purchaser is entitled to a longer revocation 
period by operation of state or local law, that period becomes the 
Federal revocation period and the contract must reflect the requirement 
of the longer period rather than the seven days. The revocation 
provisions may not be limited or qualified in the contract or other 
document by requiring a specific type of notice or by requiring that 
notice be given at a specified place.
    (ii) Obligate the developer to deliver, within 180 days, a warranty 
deed (or its equivalent under local law) for the lot which at the time 
of delivery is free from any monetary liens or encumbrances.
    (6) The purchaser or purchaser's spouse makes a personal on-the-lot 
inspection of the lot to be purchased before signing a contract.
    (7) The purchaser's payments are deposited in an escrow account 
independent of the developer until a deed is delivered.
    (8) Prior to the purchaser signing a contract or agreement of sale, 
the developer discloses in a written Lot Information Statement all 
liens, reservations, taxes, assessments, easements and restrictions 
applicable to the lot purchased (see paragraph (b)(11) of this section).
    (9) Prior to the purchaser signing a contract or agreement of sale, 
the developer discloses in a written Lot Information Statement the name, 
address and telephone number of the local governmental agency or 
agencies from which information on permits or other requirements for 
water, sewer and electrical installations can be obtained. This 
Statement will also contain the name, address and telephone number of 
the suppliers which would or could provide the foregoing services.
    (10) The lot sale must comply with the anti-fraud provisions of 12 
CFR 1010.4(b) and (c) and the sales practices and standards in 
Sec. Sec. 1011.10 through 1011.28.
    (11) A written Lot Information Statement must be delivered to, and 
acknowledged by, each purchaser prior to his or her signing a contract 
or agreement of sale, and must contain the information shown in the 
format below. The Statement must be typed or printed in at least 10 
point font. A copy of the acknowledgement will be maintained by the 
developer for three years and will be made available to ILSRP upon 
request. If the Statement is not delivered as required, the contract or 
agreement of sale may be revoked and a full refund paid, at the option 
of the purchaser, within two years of the signing date and the contract 
or agreement of sale will clearly provide this right. A sample format 
for the Statement is provided in section III of the appendix to this 
part: Sample Lot Information Statement and Sample Receipt.
    (c) Request for Multiple Site Subdivision Exemption. (1) The 
developer must file a request for the Multiple Site Subdivision 
Exemption. The request must be

[[Page 269]]

accompanied by a filing fee of $500 (prepared in accordance with Sec. 
1010.35(a)) and a sample Lot Information Statement, substantially in the 
form set forth in section IV of the appendix to this part: Request for 
Multiple Site Subdivision Exemption.
    (2) This exemption will become effective upon issuance of an 
Exemption Order by the Director.
    (d) Annual Report. (1) By January 31 of each year the developer will 
send a report to the Director listing each site and its location 
available for a sale pursuant to the exemption during the preceding year 
and indicate the number of lot sales made in each site. The report will 
describe any changes in the information provided in the Request for the 
Multiple Site Subdivision Exemption or contain a statement that there 
are no changes.
    (2) The Annual Report must be accompanied by a filing fee of $100.
    (3) The Annual Report must be signed and dated by the developer, 
attesting to its completeness and accuracy.
    (4) Failure to submit the Annual Report within ten days after the 
receipt of notice from the Director will automatically terminate 
eligibility for the exemption as of the Report due date.
    (e) Termination. If, subsequent to the issuance of an Exemption 
Order, the Director has reasonable grounds to believe that exemption 
from the registration requirements in the particular case is not in the 
public interest, the Director may, after issuing a notice and giving the 
respondent an opportunity to request a hearing within fifteen days of 
receipt of the notice, terminate the exemption order. The basis for 
issuing a notice may be apparent omissions or misrepresentations in the 
documents submitted to the Director, the conduct of the developer or 
agent, such as unlawful conduct or insolvency, or adverse information 
about the real estate that should be disclosed to purchasers. 
Proceedings will be governed by Sec. 1012.238.



Sec. 1010.16  Regulatory exemption--determination required.

    (a) General. The Director may exempt from the registration 
requirements of the Act any subdivision or lots in a subdivision by 
issuing an order in writing if it is determined that registration is not 
necessary in the public interest and for the protection of purchasers on 
the basis of the small amount or limited character of the offering and 
the requirements contained in paragraph (b) of this section.
    (b) Eligibility requirements. An exemption order may be issued at 
the discretion of the Director on the basis of the small amount or 
limited character of the offering if the following requirements are met:
    (1) The subdivision or sales substantially meet the requirements of 
one of the exemptions available under this chapter.
    (2) Each contract:
    (i) Specifies the developer's and purchaser's responsibilities for 
providing and maintaining roads, water and sewer facilities and any 
existing or promised amenities;
    (ii) Contains a good faith estimate of the year in which the roads, 
water and sewer facilities and promised amenities will be completed;
    (iii) Contains a non-waivable provision giving the purchaser the 
opportunity to revoke the contract until at least midnight of the 
seventh calendar day following the date the purchaser signed the 
contract. If the purchaser is entitled to a longer revocation period by 
operation of state law, that period becomes the Federal revocation 
period and the contract must reflect the requirements of the longer 
period.
    (iv) Contains a provision that obligates the developer to deliver to 
the purchaser within 180 days of the date the purchaser signed the sales 
contract, a warranty deed, or its equivalent under local law, which at 
the time of delivery is free from any monetary liens or encumbrances.
    (3) The purchaser or purchaser's spouse makes a personal on-the-lot 
inspection of the lot to be purchased before signing a contract.
    (4) The developer files a request for an exemption order and 
supporting documentation in accordance with paragraphs (c) and (d) of 
this section and submits a filing fee of $500.00 in accordance with 
Sec. 1010.35(a) of this part. This fee is not refundable.
    (c) Request. The request for an Exemption Order must be 
substantially in

[[Page 270]]

the format set forth in section V of the appendix to this part: Request 
for Regulatory Exemption Order.
    (d) Supporting documentation. A request for an exemption order must 
be accompanied by the following documentation:
    (1) A plat of the entire subdivision with the lots subject to the 
exemption request delineated thereon.
    (2) A copy of the contract to be used.
    (3) A clear and specific statement detailing how the proposed sales 
of lots subject to the exemption request substantially complies with one 
of the available exemption provisions.
    (4) A description of the method by which the lots have been and will 
be promoted and to which population centers the promotion has been and 
will be directed.
    (e) The sale must also comply with the anti-fraud provisions of 
Sec. 1010.4(b) and (c) of this part.
    (f) Termination. If, subsequent to the issuance of an exemption 
order, the Director has reasonable grounds to believe that exemption 
from the registration requirements in the particular case is not in the 
public interest, the Director may, after issuing a notice and giving the 
respondent an opportunity to request a hearing within fifteen days of 
receipt of the notice, terminate the exemption order. The basis for 
issuing a notice may be apparent omissions or misrepresentations in the 
documents submitted to the Director, the conduct of the developer or 
agent, such as unlawful conduct or insolvency, or adverse information 
about the real estate that should be disclosed to purchasers. 
Proceedings will be governed by Sec. 1012.238.



Sec. 1010.17  Advisory opinion.

    (a) General. A developer may request an opinion from the Director as 
to whether an offering qualifies for an exemption or is subject to the 
jurisdiction of the Act.
    (b) Requirements. All requests for Advisory Opinions must be 
accompanied by the following:
    (1) A $500.00 filing fee submitted in accordance with Sec. 
1010.35(a). This fee is not refundable.
    (2) A comprehensive description of the conditions and operations of 
the offering. There is no prescribed format for submitting this 
information, but the developer should at least cite the applicable 
statutory or regulatory basis for the exemption or lack of jurisdiction 
and thoroughly explain how the offering either satisfies the 
requirements for exemption or falls outside the purview of the Act.
    (3) An affirmation as set forth in section VI of the appendix to 
this part: Developer's Affirmation for Advisory Opinion.



Sec. 1010.18  No Action Letter.

    (a) If the sale of lots is subject to the registration requirements 
of the Act but the circumstances of the sale are such that no 
affirmative action to enforce the registration requirements is needed to 
protect the public interest or prospective purchasers, the Director may 
issue a No Action Letter.
    (b) To obtain a No Action Letter a developer must submit a request 
which includes a thorough description of the proposed transaction, the 
property involved, and the circumstances surrounding the sale.
    (c) The issuance of a No Action Letter will not affect any right 
which a purchaser has under the Act, and it will not limit future action 
by the Director if there is evidence to show that affirmative action is 
necessary to protect the public interest or prospective purchasers. In 
no event will a No Action Letter be issued after the sale has occurred.



Sec. 1010.19  [Reserved]



Sec. 1010.20  Requirements for registering a subdivision--Statement 
of Record--filing and form.

    (a) Filing. In order to register a subdivision and receive an 
effective date, the developer or owner of the subdivision must file a 
Statement of Record with the Director. The official address to be used 
is: CFPB Interstate Land Sales, c/o: Armedia LLC, 8221 Old Courthouse 
Road, Suite 206, Vienna, VA 22182. When the Statement of Record is 
filed, a fee in the amount set out in Sec. 1010.35(b) must be paid in 
accordance with Sec. 1010.35(a).
    (b) Form. The Statement of Record shall be in the format specified 
in

[[Page 271]]

Sec. 1010.100 and shall be completed in accordance with the 
instructions in Sec. Sec. 1010.102, 1010.105 through 1010.118, 
1010.200, 1010.208 through 1010.216 and 1010.219. It shall be supported 
by the documents required by Sec. Sec. 1010.208 through 1010.216 and 
1010.219. It shall include any other information or documents which the 
Director may require as being necessary or appropriate for the 
protection of purchasers.
    (c) State filings. A Statement of Record submitted under the 
provisions of 12 CFR part 1010, subpart C--Certification of 
Substantially Equivalent State Law, shall consist of the materials 
designated by the Certification Agreement between the Director and the 
certified state in which the subdivision is located.



Sec. 1010.21  Effective dates.

    (a) General. The effective date of an initial, consolidated or 
amended Statement of Record is the 30th day after the filing of the 
latest amendatory material unless the Director notifies the developer in 
writing prior to such 30th day that:
    (1) The effective date has been suspended in accordance with Sec. 
1010.45(a), or
    (2) An earlier effective date has been determined.
    (b) Suspension of effective date by developer. (1) A developer, or 
owner, may request that the effective date of its Statement of Record be 
suspended, provided there are no administrative proceedings pending 
against either of them at the time the request is submitted. The request 
must include any consolidations or amendments which have been made to 
the initial Statement of Record. Forms for this purpose will be 
furnished by the Director upon request.
    (2) Upon acceptance by the Director, the effectiveness of the 
Statement of Record shall be suspended as of the date the request was 
executed by the developer or owner.
    (3) The suspension shall continue until the developer, or owner, 
submits all amendments necessary to bring the registration into full 
compliance with the Regulations which are in effect on the date of the 
amendments and the Director allows those amendments to become effective.



Sec. 1010.22  Statement of record--initial or consolidated.

    (a) Initial Statement of Record. (1) Except in the case of exempt 
transactions, an initial Statement of Record shall be filed, and an 
effective date issued, prior to selling or leasing any lot in a 
subdivision.
    (2) If a developer buys from another developer 100 or more lots from 
an existing registration, the new developer, or owner, may have to 
submit a new initial Statement of Record and receive an effective date 
covering the acquired lots prior to selling or leasing any of those 
lots.
    (3) Changes in principals due to a sale of stock in a corporation or 
changes in partners or joint venturers which are accomplished in 
accordance with the partnership or joint venture agreement but which do 
not cause a change in the title to the land in the subdivision may be 
submitted as an amendment.
    (4) Any initial Statement of Record must be accompanied by a fee, as 
specified in Sec. 1010.35(b), based upon the number of lots sought to 
be registered.
    (b) Consolidated Statement of Record. (1) If the developer intends 
to sell or lease additional lots as part of the same common promotional 
plan with lots already registered, a consolidated Statement of Record 
may be submitted for the additional lots. A fee, as specified in Sec. 
1010.35(b) and based on the number of additional lots, must accompany 
the submission. The additional lots may not be sold or leased until a 
new effective date is issued.
    (2) If the additional lots are simply the result of a replatting of 
lots previously registered and enumerated in the Property Report and do 
not include any additional land, the change may be made by an amendment. 
However, the amendment must be accompanied by a fee, as specified in 
Sec. 1010.35(b), based on the number of additional lots.
    (c) Consolidated Statement of Record--Form. A consolidated Statement 
of Record shall contain the elements listed in paragraphs (c)(1) through 
(4) of this section. Pages having no changes and documents in previous 
submissions which apply equally to the additional

[[Page 272]]

lots may be included by reference. However, the developer may, at its 
option, submit the entire format for an initial filing, including copies 
of previously submitted documents, to expedite the examination process.
    (1) Those pages of the Property Report portion and Additional 
Information and Documentation portion which contain changes which have 
occurred since the last effective submission, and
    (2) A recapitulation or listing of each of the section headings, and 
subheadings if necessary, of the Additional Information and 
Documentation portion. Each item of the listing shall contain a 
statement as to whether or not any change is made in the section; 
whether any new or additional information is being submitted and, if 
documentation is added by cross reference, the previous submission in 
which that documentation may be found, and
    (3) Documentation to support the additional lots (e.g., plat maps, 
topographic maps and general plan to reflect new lots, title 
information, permits for additional facilities, financial assurances of 
completion of additional facilities, financial statements) or updated or 
expanded documents in support of previous submissions, and
    (4) The affirmation required by Sec. 1010.219.
    (d) Consolidated Statement of Record amends prior Statement of 
Record. A Consolidated Statement of Record shall contain all applicable 
information for all registered lots in the subdivision except those 
deleted pursuant to other provisions in these regulations. The resulting 
Property Report shall be used for all sales in the subdivision, except 
for those transactions which are exempt from the provisions of the Act 
or which have been granted an exempt status by the Director, unless the 
Director has specifically authorized the use of multiple Property 
Reports.
    (e) Initial Statement of Record--when prior approval to submit is 
required. In those subdivisions where there is a disparity between the 
lots already registered and those sought to be registered because of 
location, terrain, proposed use of the lots or the amenities to be 
furnished or available, the developer may present a resume of the 
differences and request the Director's permission to file a separate 
initial Statement of Record for the additional lots. Upon consideration 
of the facts submitted, the Director may allow such a procedure.
    (f) Lots which have been deleted from registration. Should the 
developer, for any reason, delete by amendment any registered lots from 
an effective Statement of Record, those lots must be reregistered by a 
consolidation and a new effective date issued, before they can be sold 
or leased. An appropriate fee must accompany the submission.
    (g) Lots sold to individual purchasers. It is not necessary to 
delete from the registration those lots which have been sold to 
individual purchasers for their own use.



Sec. 1010.23  Amendment--filing and form.

    (a) Filing. If any change occurs in any representation of material 
fact required to be stated in an effective Statement of Record, an 
amendment shall be filed. The amendment shall be filed within 15 days of 
the date on which the developer knows, or should have known, that there 
has been a change in material fact.
    (b) Form. An amendment shall include by reference the prior 
Statement of Record except for any changes in material fact. A change in 
material fact shall be specifically described and supported by the same 
documentation which would be required for an initial submission. Any 
amendment shall be accompanied by:
    (1) A letter from the developer giving a clear and concise 
description of the purpose and significance of the amendment and 
referring to the section and page of the Statement of Record which is 
being amended, and
    (2) All pages of the Statement of Record, which have been amended, 
retyped in the required format to reflect the changes. The ILSRP number 
of the Statement of Record shall appear at the top of each page of the 
material submitted.
    (c) Amendments to suspended filings. Developers wishing to 
reactivate a suspended filing shall file the following:
    (1) Any amendments necessary to bring the filing into compliance, 
submitted in accordance with paragraphs (a) and (b) of this section;

[[Page 273]]

    (2) An activity report in the form prescribed by Sec. 1010.310; and
    (3) An amendment fee, if required under Sec. 1010.35(d)(2).



Sec. Sec. 1010.24-1010.28  [Reserved]



Sec. 1010.29  Use of property report--misstatements, omissions or 
representation of Bureau approval prohibited.

    Nothing in these regulations shall be construed to authorize or 
approve the use of a property report containing any untrue statement of 
a material fact or omitting to state a material fact required to be 
stated therein. Nor shall anything in these regulations be construed to 
authorize or permit any representation that the Property Report is 
prepared or approved by the Director, ILSRP or the Bureau of Consumer 
Financial Protection.



Sec. 1010.35  Payment of fees.

    (a) Method of payment. (1) Each fee must be paid by:
    (i) Certified check, cashier's check, or postal money order made 
payable to the Treasurer of the United States, with the registration 
number, when known, and the name, of the subdivision on the face of the 
check, and mailed to an address specified by the Director; or
    (ii) Electronic payment in a manner specified by the Director.
    (2) Information regarding the current mailing address or electronic 
payment procedures is available from: Office of Nonbank Supervision, 
Bureau of Consumer Financial Protection,1700 G Street NW., Washington, 
DC 20006.
    (b) Fees for registration. The fee for each initial and consolidated 
registration is set forth in section VII of the appendix to this part: 
Initial and Consolidated Registration Fee Schedule.
    (c) Fee for Exemption Order or Advisory Opinion. The filing fee for 
an Exemption Order or an Advisory Opinion (Sec. 1010.16 or Sec. 
1010.17) is $500. This fee is not refundable.
    (d) Amendment fee. (1) A fee of $800 is charged when an Annual 
Activity Report reflects an annual ending inventory of 101 or more 
unsold registered lots.
    (2) A fee of $800 is charged for an amendment to reactivate a 
Statement of Record subsequent to its suspension, unless the developer 
has 100 or fewer unsold lots included in the Statement of Record.



Sec. 1010.45  Suspensions.

    (a) Suspension notice--prior to effective date. (1) If it appears to 
the Director that a Statement of Record or an amendment is on its face 
incomplete or inaccurate in any material respect, the Director shall so 
advise the developer, by issuing a suspension notice, within a 
reasonable time after the filing of such materials but prior to the time 
the materials would otherwise be effective.
    (2) A suspension notice issued pursuant to this subsection shall 
suspend the effective date of the Statement of Record or the amendment. 
It shall continue in effect until 30 days, or such earlier date as the 
Director may determine, after the necessary amendments are submitted 
which correct all deficiencies cited in the notice.
    (3) Upon receipt of a suspension notice, the developer has 15 days 
in which to request a hearing. If a hearing is requested, it shall be 
held within 20 days of the receipt of the request by the Director.
    (b) Suspension orders--subsequent to effective date. (1) A notice of 
proceedings to suspend an effective Statement of Record may be issued to 
a developer if the Director has reasonable grounds to believe that an 
effective Statement of Record includes an untrue statement of a material 
fact, or omits a material fact required by the Act or rules and 
regulations, or omits a material fact which is necessary to make the 
statements therein not misleading. The Director may, after notice, and 
after opportunity for a hearing requested pursuant to Sec. 1012.220 
within 15 days of receipt of such notice, issue an order suspending the 
Statement of Record. In the event that a suspension order is issued, 
such order shall remain in effect until the developer has amended the 
Statement of Record or otherwise complied with the requirements of the 
order. When the developer has complied with the requirements of the 
order, the Director shall so declare and thereupon the suspension order 
shall cease to be effective.

[[Page 274]]

    (2) If the Director undertakes an examination of a developer or its 
records to determine whether a suspension order should be issued, and 
the developer fails to cooperate with the Director or obstructs, or 
refuses to permit the Director to make such examination, the Director 
may issue an order suspending the Statement of Record. Such order shall 
remain in effect until the developer has complied with the requirements 
of the order. When the developer has complied with the requirements of 
the order, the Director shall so declare and thereupon the suspension 
order shall cease to be effective. In accordance with the procedure 
described in Sec. 1012.235, a hearing may be requested.
    (3) Upon receipt of an amendment to an effective Statement of 
Record, the Director may issue an order suspending the Statement of 
Record until the amendment becomes effective if the Director has 
reasonable grounds to believe that such action is necessary or 
appropriate in the public interest or for the protection of purchasers. 
In accordance with the procedure described in Sec. 1012.235, a hearing 
may be requested.
    (4) Suspension orders issued pursuant to this subsection shall 
operate to suspend the Statement of Record as of the date the order is 
either served on the developer or its registered agent or is delivered 
by certified or registered mail to the address of the developer or its 
authorized agent.



                    Subpart B_Reporting Requirements



Sec. 1010.100  Statement of Record--format.

    (a) The Statement of Record consists of two portions; the Property 
Report portion and the Additional Information and Documentation portion.
    (b) General format. The Statement of Record shall be prepared in 
accordance with the format set forth in section VIII of the appendix to 
this part: Property Report:



Sec. 1010.101  [Reserved]



Sec. 1010.102  General instructions for completing the Statement of 
Record.

    (a) Paper and type. The Statement of Record shall be on good 
quality, unglazed white or pastel paper. Letter size paper, 
approximately 8\1/2\ x 11 inches in size, will be used for the Property 
Report portion and legal size paper, approximately 8\1/2\ x 14 inches in 
size, will be used for the Additional Information and Documentation 
portion. Side margins shall be no less than 1 inch and no greater than 
1\1/2\ inches. Top and bottom margins shall be no less than 1 inch. In 
the preparation of the charts to be included in the Property Report, the 
developer may vary from the above margin requirements or print the 
charts lengthwise on the required size paper if such measures are 
necessary to make the charts readable. The Statement of Record shall be 
prepared in an easily readable, uniform font.
    (b) Numbering and dating. Each page of the Statement of Record as 
submitted to ILSRP shall be numbered and shall include the date of 
typing or preparation in the lower right hand corner, except in the 
final printed version of the Property Report portion.
    (c) Signing. The Statement of Record shall be signed by the senior 
executive officer of the developer or a designated agent.
    (d) Printing. The Statement of Record and, insofar as practical, all 
papers and documents filed as a part thereof, shall be printed, 
lithographed, photocopied, typewritten or prepared by any similar 
process which, in the opinion of the Director, produces copies suitable 
for a permanent record. Irrespective of the process used, all copies of 
any such materials shall be clear and easily readable.
    (e) Headings, subheadings, captions, introductory paragraphs, 
warnings. Property Report subject ``headings'' are those descriptive 
introductory words which appear immediately after section numbers 
1010.106 through 1010.116 (e.g. Sec. 1010.108 has ``General 
Information'' and Sec. 1010.111 has ``Utilities''). Each such heading 
shall be printed in

[[Page 275]]

the Property Report in underlined capital letters and centered at the 
top of a new page. Section numbers shall not be printed in the Property 
Report. Property Report subheadings are those descriptive introductory 
words which appear in italics in the regulations at the beginning of 
paragraphs designated by paragraph letters (a), (b), (c) etc. An example 
of a subheading is ``water'' found immediately after the paragraph 
letter (a) in Sec. 1010.111. These subheadings will be printed in the 
Property Report only if they are relevant to the subject subdivision. If 
printed these subheadings shall be capitalized and shall begin at the 
left hand margin of the page. Property Report ``captions'' are those 
descriptive introductory words which appear in italics in the 
Regulations at the beginning of subparagraphs designated by numbers (1), 
(2), (3), etc. An example of such captions is ``Sales Contract and 
Delivery of Deed'' found immediately after the subparagraph number 
``(1)'' in Sec. 1010.109(b). These captions are to be printed in the 
Property Report only if they are applicable to the subject subdivision. 
If printed, these captions shall be centered on the page from the side 
margins, and shall have only the first letter of each word capitalized. 
Headings and subheadings will be used in the Property Report in 
accordance with the sample page appearing in Sec. 1010.102. 
Introductory paragraphs will follow headings if they are applicable and 
necessary for a readable entry into the subject matters, but note, the 
introductory paragraphs for ``Title to the Property and Land Use'' are 
to be used in every case as provided in Sec. 1010.109(a)(1). 
Subheadings and captions which do not apply to the subdivision should be 
omitted from the Property Report portion and answered ``not applicable'' 
in the Additional Information and Documentation portion, unless 
specifically required to be included elsewhere in these instructions. 
Warnings shall be printed substantially as they appear in the 
instructions in Sec. Sec. 1010.105 through 1010.118. They shall be 
printed in capital letters and enclosed in a box as shown on the sample 
page in Sec. 1010.102. The paragraphs in the Property Report portion 
need not be numbered. A sample page is set forth in section IX of the 
appendix to this part: Sample Page for Statement of Record.
    (f) Language style. All information given in the Property Report 
portion shall be stated in narrative form using plain, concise, everyday 
language which can be readily understood by purchasers who are 
unfamiliar with real estate transactions. Excessively long paragraphs 
should be avoided. Keep them as brief as possible. Use separate 
paragraphs for different points discussed. Disclose all pertinent facts. 
Potential consequences to a purchaser must be made clear even though not 
specifically asked for in the format and the instructions. In the 
Property Report the pronouns ``you'' and ``your'' shall generally be 
used in referring to the prospective purchaser and the pronouns ``we,'' 
``us,'' and ``our'' shall generally be used in referring to the 
developer. The Director specifically reserves the right to require 
modification of the text when the narrative does not meet the standards 
of this section.
    (g) Format of the Additional Information and Documentation portion 
of the Statement of Record. The supporting information and documentation 
required by these regulations shall be identified by affixing a tab on 
the right side of the cover sheet of the required information or 
documentation and by identifying on the tab the section number of the 
Statement of Record instructions to which the information or 
documentation corresponds. This information or documentation shall then 
be placed immediately after the page(s) on which the section number and 
answers for that section appear. If the data in a document is applicable 
to more than one section of instructions, the developer may substitute 
as a document in the second case a statement incorporating the earlier 
document. Deeds, title policies, subdivision plats or maps and other 
documentary information required to be contained in the Additional 
Information and Documentation portion of the Statement of Record need 
not be on the same size paper as the Statement of Record but, if larger, 
shall be folded to a size no larger than 8\1/2\ x 14 inches. Supporting 
documents shall be inserted into the binding in such a manner as to 
permit

[[Page 276]]

them to be examined without the necessity of removing them from the 
binding. This may be accomplished by proper folding or through the use 
of envelopes.
    (h) Binding. The Statement of Record shall be bound with the 
Property Report portion on top, including any documents which may be 
required to be attached when delivered to the purchaser, followed by the 
Additional Information and Documentation portion.
    (i) Advertising and promotional material. No advertising, or 
promotional material or statements which are self-serving on behalf of 
the developer or owner may be included in the Statement of Record or 
resulting Property Report.
    (j) Additional information. (1) In addition to the information 
expressly required to be stated in the Statement of Record, there shall 
be added, and the Director may require, such further material 
information, documentation and certification as may be necessary in the 
public interest and for the protection of purchasers or necessary in 
order to make the statements not misleading in the light of 
circumstances under which they are made.
    (2) The instructions are not all inclusive. The developer shall 
include any other facts which would have a bearing upon the use by the 
purchaser of any of the facilities, services or amenities; which would 
cause or result in additional expenses to the purchaser; which would 
have an effect upon the use and enjoyment of the lot by the purchaser 
for the purpose for which it is sold or which would adversely affect the 
value of the lot.
    (k) Modification of format or content. The Director may require or 
permit modification to the content and format of the Property Report to 
include additional information, to modify or omit required information, 
or to change the sequence or position of information when such changes 
are deemed to be in the public interest or for the protection of 
purchasers.
    (l) Required documentation. Where the documentation required by the 
Statement of Record cannot be obtained, the Director may permit the best 
available alternative documentation to be substituted.
    (m) Final version of property report. On the date that a Statement 
of Record becomes effective, the Property Report portion shall become 
the Property Report for the subject subdivision. The version of the 
Property Report delivered to prospective lot purchasers shall be 
verbatim to that found effective by the Director and shall have no 
covers, pictures, emblems, logograms or identifying insignia other than 
as required by these regulations. It shall meet the same standards as to 
grade of paper, type size, margins, style and color of print as those 
set herein for the Statement of Record, except where required otherwise 
by these regulations. However, the date of typing or preparation of the 
pages and the ILSRP number shall not appear in the final version. If the 
final version of the Property Report is commercially printed, or 
photocopied by a process which results in a commercial printing quality, 
and is bound on the left side, both sides of the pages may be used for 
printed material. If it is typed or photocopied by a process which does 
not result in a clear and legible product on both sides of the page or 
is bound at the top, printing shall be done on only one side of the 
page. Three copies of the final version of the Property Report, in the 
exact form in which it is delivered to prospective lot purchasers, shall 
be sent to ILSRP Office within 20 days of the date on which the 
Statement of Record, amendment, or consolidation is allowed to become 
effective by the Director. If a Property Report in a foreign language is 
used as required by Sec. 1011.25(g), three copies of that Property 
Report together with copies of the translated documents shall be 
furnished the Director within 20 days of the date on which the 
advertising is first used. A Property Report prepared pursuant to these 
regulations shall not be distributed to potential lot purchasers until 
after the Statement of Record of which it is a part or any amendment to 
that Statement of Record has been made effective by the Director.



Sec. 1010.103  Developer obligated improvements.

    (a) If the developer represents either orally or in writing that it 
will provide

[[Page 277]]

or complete roads or facilities for water, sewer, gas, electricity or 
recreational amenities, it must be contractually obligated to do so (see 
Sec. 1011.15(f)), and the obligation shall be clearly stated in the 
Property Report. While the developer may disclose relevant facts about 
completion, the obligation to complete cannot be conditioned, other than 
as provided for in Sec. 1011.15(f), and an estimated completion date 
(month and year) must be stated in the Property Report. However, a 
developer that has only tentative plans to complete may so state in the 
Property Report, provided that the statement clearly identifies 
conditions to which the completion of the facilities are subject and 
states that there are no guarantees the facilities will be completed.
    (b) If a party other than the developer is responsible for providing 
or completing roads or facilities for water, sewer, gas, electricity or 
recreational amenities, that entity shall be clearly identified in the 
Property Report under the categories described in Sec. 1010.110, Sec. 
1010.111 or Sec. 1010.114, as applicable. A statement shall be included 
in the proper section of the Property Report that the developer is not 
responsible for providing or completing the facility or amenity and can 
give no assurance that it will be completed or available for use.



Sec. 1010.104  [Reserved]



Sec. 1010.105  Cover page.

    The cover page of the Property Report shall be prepared in 
accordance with the following directions:
    (a) The margins shall be at least 1 inch.
    (b) The next 3 inches shall contain a warning, centered, in \1/2\ 
inch capital letters in red type with \1/4\ inch space between the lines 
which reads as follows: ``READ THIS PROPERTY REPORT BEFORE SIGNING 
ANYTHING''.
    (c) The remainder of the page shall contain the language set forth 
in section X of the appendix to this part: Language for Warning on Cover 
Page of Property Report beginning \1/4\-inch below the last line of the 
warning.
    (d)(1) If the purchaser is entitled to a longer revocation period by 
operation of state law, that period becomes the Federal revocation 
period and the Cover Page must reflect the requirements of the longer 
period, rather than the seven days.
    (2)(i) If a deed is not delivered within 180 days of the signing of 
the contract or agreement of sale or unless certain provisions are 
included in the contract or agreement, the purchaser is entitled to 
cancel the contract within two years from the date of signing the 
contract or agreement.
    (ii) The deed must be a warranty deed, or where such a deed is not 
commonly used, a similar deed legally acceptable in the jurisdiction 
where the lot is located. The deed must be free and clear of liens and 
encumbrances.
    (iii) The contract provisions are:
    (A) A legally sufficient and recordable lot description; and
    (B) A provision that the seller will give the purchaser written 
notification of purchaser's default or breach of contract and the 
opportunity to have at least 20 days from the receipt of notice to 
correct the default or breach; and
    (C) A provision that, if the purchaser loses rights and interest in 
the lot because of the purchaser's default or breach of contract after 
15% of the purchase price, exclusive of interest, has been paid, the 
seller shall refund to the purchaser any amount which remains from the 
payments made after subtracting 15% of the purchase price, exclusive of 
interest, or the amount of the seller's actual damages, whichever is the 
greater.
    (iv) If a deed is not delivered within 180 days of the signing of 
the contract or if the necessary provisions are not included in the 
contract, the following statement shall be used in place of any other 
rescission language: ``Under Federal law you may cancel your contract or 
agreement of sale any time within two years from the date of signing.''
    (e) At the time of submission, the developer may indicate its 
intention to comply with the red printing by an illustration or by a 
statement to that effect.

[[Page 278]]

    (f) The ``Date of This Report'' shall be the date on which the 
Director allows the Statement of Record to become effective and shall 
not be entered until the submission has become effective.



Sec. 1010.106  Table of contents.

    (a) The second page(s) shall consist of a Table of Contents which 
lists the headings in the Property Report, the major subheadings, if 
any, and the page on which they appear. An example is set forth in 
section XI of the appendix to this part: Sample Entry in Table of 
Contents for Statement of Record.
    (b) Use of ``You'' and ``We.'' At the end of the Table of Contents 
insert the following remark: ``In this Property Report, the words 
``you'' and ``your'' refer to the buyer. The words ``we,'' ``us'' and 
``our'' refer to the developer.''



Sec. 1010.107  Risks of buying land.

    (a) The next page shall be headed ``Risks of Buying Land'' and shall 
contain the paragraphs listed in section XII of the appendix to this 
part: Required Paragraphs for Risks of Buying Land.
    (b) Warnings. If the instructions of the Director require any 
warnings to be included in the Property Report portion, the following 
statement shall be added beneath the ``Risks of Buying Land'' under a 
heading ``Warnings'': ``Throughout this Property Report there are 
specific warnings concerning the developer, the subdivision or 
individual lots. Be sure to read all warnings carefully before signing 
any contract or agreement.'' Both the heading, ``Warnings,'' and the 
statement shall be printed in capital letters and enclosed in a box.



Sec. 1010.108  General information.

    Insert and complete the format set forth in section XIII of the 
appendix to this part: Format for General Information.



Sec. 1010.109  Title to the property and land use.

    (a) General instructions. (1) Below the heading ``Title to the 
Property and Land Use'' insert the introductory paragraphs set forth in 
section XIV of the appendix to this part: Paragraphs to be included in 
the General Report--Title to the Property and Land Use.
    (2) Information to be provided. After the above introductory 
paragraphs provide the information required by the following 
instructions and questions. Follow a general form identical to the 
sample page set forth in section IX of the appendix to this part: Sample 
Page for Statement of Record.
    (b) Method of sale: (1) Sales contract and delivery of deed. (i) 
Will the buyer sign a purchase money or installment contract or similar 
instrument in connection with the purchase of the lot? When will a deed 
be delivered?
    (ii) If an installment contract is used, include the following, or 
substantially the same, language in the disclosure narrative under 
``Method of Sale'': ``If you fail to make your payments required by the 
contract, you may lose your lot and all monies paid.''
    (iii) If, at the time of a credit sale, the developer gives the 
buyer a deed to the lot, what type of security must the buyer give the 
seller?
    (iv) If the lots are to be sold on the basis of an installment 
contract, can the developer or the owner of the subdivision or their 
creditors encumber the lots under contract? If so, include the following 
warning in the disclosure narrative under the caption ``Sales contract 
and delivery of deed'': ``The (indicate subdivision developer, owner, or 
their creditors) can place a mortgage on or encumber the lots in this 
subdivision after they are under contract. This may cause you to lose 
your lot and any monies paid on it.''
    (2) Type of deed. What type of deed will be used to convey title to 
lots in the subdivision?
    (3) Quitclaim deeds. If a quitclaim deed is to be given to lot 
purchasers insert the below warning, or a warning which is substantially 
the same, in the disclosure narrative below the caption ``Quitclaim 
Deeds.'' This particular warning may be deleted at the direction of the 
Director if an acceptable attorney's opinion is submitted with the 
Statement of Record which indicates that a quitclaim deed has a meaning 
in the jurisdiction where the subdivision is located which is 
substantially contrary to the effect of this warning. This warning shall 
be phrased substantially

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as follows: ``The Quitclaim deed used to transfer title to lots in this 
subdivision gives you no assurance of ownership of your lot.''
    (4) Oil, gas, and mineral rights. If oil, gas or mineral rights have 
been reserved, insert the following statement or one substantially the 
same in the narrative answer under the caption ``oil, gas, and mineral 
rights'': ``The (indicate oil, gas, or mineral rights) to (state which 
lots) in this subdivision will not belong to the purchaser of those 
lots. The exercise of these rights could affect the use, enjoyment and 
value of your lot.''
    (c) Encumbrances, mortgages and liens--(1) In general. State whether 
any of the lots or common facilities which serve the subdivision, other 
than recreation facilities, are subject to a blanket encumbrance, 
mortgage or lien. If yes, identify the type of encumbrance (e.g., deed 
of trust, mortgage, mechanics liens), the holder of the lien, and the 
lots covered by the lien. If any blanket encumbrance, mortgage, or lien 
is not current in accordance with its terms, so indicate.
    (2) Release provisions. (i) Explain the effect of any release 
provisions of any blanket encumbrance, mortgage or lien and include the 
one of the following statements that pertains.
    (A) If the release clauses are not included in a recorded 
instrument, insert the statement set forth in section XV of the appendix 
to this part: Statement on Release Provisions, or one substantially the 
same in the disclosure narrative below under the caption ``Release 
Provisions.''
    (B) If the developer or subdivision owner states that the release 
provisions are recorded and that the lot purchaser may pay the release 
price of the mortgage, the statement shall be supported by documentation 
supplied in Sec. 1010.209. If the purchaser may pay the release fee, 
state the amount of the release fee and inform the purchaser that the 
amount may be in addition to the contract payments unless there is a 
bona fide trust or escrow arrangement in which the purchaser's payments 
are set aside to pay the release price before any payments are made to 
the developer.
    (C)(1) If there are no provisions in the blanket encumbrance for 
release of an individual purchaser's lot from a blanket encumbrance, 
include the warning set forth in section XVI of the appendix to this 
part: Warning for Release Provisions or a warning substantially the 
same, in the disclosure narrative under the ``Release Provisions'' 
caption.
    (2) If the provisions for release of individual lots from the 
blanket encumbrance may be exercised only by the developer insert the 
following statement, or one substantially the same, in the disclosure 
narrative under the ``Release Provisions'' caption: ``The release 
provisions in the (state the type of encumbrance) on (indicate all or 
particular lots) in this subdivision may be exercised only by us. 
Therefore, if we default on the (state type of encumbrance) before 
obtaining a release of your lot, you may lose your lot and any money you 
have paid for it.''
    (d) Recording the contract and deed--(1) Method or purpose of 
recording. (i) State what protection, if any, recording of deeds and 
contracts gives a lot purchaser in your jurisdiction.
    (ii) If the sales contract or deed may be recorded, so state. Also 
state whose responsibility it is to record the contract or deed.
    (iii) If the developer or subdivision owner will not have the sales 
contract officially acknowledged or if the applicable jurisdiction will 
not record sales contracts, state that sales contracts will not be 
recorded and why they will not be recorded.
    (iv) If at, or immediately after, the signing of a contract, the 
contract or a deed transfer to the buyer is not recorded by the 
developer or owner or if title to the lot is not otherwise transferred 
of record to a trust, or if other sufficient notice of transfer or sale 
is not placed of record, then the developer shall include the warning 
set forth in section XVII of the appendix to this part: Method and 
Purpose of Recording Warning, or substantially the same warning in the 
disclosure narrative under the caption ``Method and Purpose of 
Recording.'' The reference to contracts shall be deleted from the above 
warning if the answer to paragraph (d)(1)(i) of this section indicates

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that recording of a contract in the subject jurisdiction does not 
protect the purchaser from claims of later purchasers or creditors of 
anyone having an interest in the land.
    (2) Title insurance. If the developer does not deliver a title 
insurance policy to the buyer, state that the purchaser should obtain an 
attorney's opinion of title or a title insurance policy which will 
describe the rights of ownership which are being acquired in the lot. 
Recommend that an appropriate professional should interpret the opinion 
or policy.
    (e) Payments--(1) Escrow. If purchasers' deposits, down payments, or 
installment payments are to be placed in a third party controlled escrow 
or similar account, describe the arrangement including the name and 
address of the escrow holder or similar person. If there is no such 
arrangement, insert the statement set forth in section XVIII of the 
appendix to this part: Escrow Statement. The questions regarding an 
escrow agreement or similar protection may be answered affirmatively 
only if the money is under the control of an independent third party, 
allowing a purchaser to receive a return of all money paid in the event 
of the developer's failure to convey title or the developer's default on 
any obligation which would otherwise result in the purchaser's loss of 
that money.
    (2) Prepayments. Explain any prepayment penalties or privileges in 
everyday language.
    (3) Default. What are the developer's or subdivision owners' 
remedies against a defaulted purchaser?
    (f) Restrictions on the use of your lot--(1) Restrictive covenants 
(i) Have any restrictive covenants been recorded against the land in the 
subdivision? If so, do they contain items which require the purchaser to 
secure permissions, approvals or take any other action prior to using or 
disposing of his lot (e.g., architectural control, developer's right of 
first refusal, building deadlines, etc.)? If any of these or similar 
items are included, explain their meaning and effect upon the purchaser.
    (ii) If any restrictive covenants are to be used and if they have 
not been recorded, how will they be imposed? Include a statement to the 
effect that the restrictive covenants have not been recorded; that there 
is no assurance they will be applied uniformly; that they may be changed 
and that they may be difficult to enforce. If no restrictive covenants 
will be imposed, include a statement to the effect that, since there are 
no restrictive covenants on the use of the lots, they may be used for 
purposes which could adversely affect the use and enjoyment of 
surrounding lots.
    (iii) If there are restrictive covenants, whether recorded or 
unrecorded, the following statement shall be made: ``A complete copy of 
these restrictions is available upon request.''
    (2) Easements. (i) Are there easements which may have an effect on 
the purchaser's building or lot use plans (e.g., large drainage 
easements along lot lines, high voltage electric transmission lines, 
pipe lines or drainage easements which encroach upon the building area 
of the lot or inhibit its use)?
    (ii) Is the subdivision subject to any type of flood control or 
flowage easements?
    (iii) If the answer to either (2)(i) or (2)(ii) is in the 
affirmative, identify the affected lots and state the effect upon the 
use of the lots.
    (g) Plats, zoning, surveying, permits and environment--(1) Plats (i) 
Have the subdivision plans and plats of specific units been approved by 
the regulatory authorities? If the approvals have not been obtained, 
include a warning to the effect that regulatory authorities have not 
approved the proposed plats; that they may require significant 
alterations before they will approve them and they may not allow the 
land to be used for the purpose for which it is being sold.
    (ii) Have plats covering the lots in this Report been recorded? If 
so, where are they recorded? If they have not been recorded, is the 
description of the lots given in this Report legally adequate for the 
conveyance of land in the jurisdiction where the subdivision is located? 
If it is not, include a statement to the effect that the description of 
the lots is not legally adequate for the conveyance of the lots and that 
it will not be until the plat is recorded.

[[Page 281]]

    (2) Zoning. For what purpose may the lots be used (e.g., single 
family homes, camping, commercial)? Does this use conform to local 
zoning requirements and the restrictive covenants?
    (3) Surveying. Has each lot been surveyed and is each lot marked for 
identification? If not, and the purchaser is responsible for the 
expense, state the estimated cost.
    (4) Permits. Must the purchaser obtain a building permit before 
beginning construction on his lot? Where is the permit obtained? Are any 
other permits necessary to use the lot for the purpose for which it is 
sold or for construction in connection with its use?
    (5) Environment. Has there been any environmental impact study 
prepared which considers the effect of the subdivision on the 
environment? If a study has been prepared, summarize any adverse 
conclusions and refer the lot buyer to the proper State Clearinghouse 
for complete information. If a study has not been prepared, include a 
statement that ``No determination has been made as to the possible 
adverse effects the subdivision may have upon the environment and 
surrounding area.'' If the developer does not know whether an 
environmental impact study has been prepared, or the name and location 
of the Office where any study made can be found, inquiry should be made 
to the State or Area Clearinghouse established under the authority of 
title IV of the Intergovernmental Cooperation Act of 1968.



Sec. 1010.110  Roads.

    (a) Access to the subdivision. (1) Is access to the subdivision 
provided by public or private roads? What type of surface do they have? 
How many lanes? What is the width of the wearing surface?
    (2) Who is responsible for their maintenance? What is the cost to 
the purchaser, if any? Are any improvements contemplated? If so, when 
will they begin and when will they be completed? At whose expense?
    (b) Access within the subdivision. (1) How have legal and physical 
access by conventional automobile been or will they be, provided to the 
lots (e.g., road on recorded easement; right of way dedicated to the 
public; right of way dedicated to use of lot owners)?
    (2) Who is responsible for the road construction? Is there any 
construction cost to the purchaser? Is there any financial assurance of 
completion? If there is no financial assurance of completion, enter a 
warning to the effect that no funds have been set aside in an escrow or 
trust account and there are no other financial arrangements to assure 
completion of the roads.
    (3) How many lanes do the interior roads have? What is the estimated 
starting date of construction (month and year); the present percentage 
of construction now complete; the present surface; the estimated 
completion date (month and year) and what is the final surface to be? If 
there are separate units or sections in the subdivision which will have 
different completion dates or different surfaces, the chart in section 
XIX of the appendix to this part: Road Chart shall be used rather than a 
narrative paragraph.
    (4) Who is responsible for road maintenance? If the roads are to be 
maintained by a public authority, a property owners' association or some 
other entity at some time in the future, who is responsible for their 
maintenance during the interim period? What is the cost to the purchaser 
during the interim period and after acceptance for permanent 
maintenance? Will they be maintained so as to provide access to the lots 
on a year round basis? If not, include a warning which informs the 
purchaser that access may not be available year round. Identify the 
months when access may not be available to lots. If there are no 
arrangements for maintenance, include a warning to the effect that 
purchasers are responsible for maintaining the roads and that, if 
maintenance is not performed, the roads may soon deteriorate and access 
may become difficult or impossible.
    (5) If estimated completion dates given in prior Statements of 
Record have not been met, state that previous dates have not been met 
and give the previous dates. Underline the answer. If the roads are 100 
percent completed, no dates are needed.
    (6) Complete the chart in section XX of the appendix to this part: 
Nearby

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Communities Chart by listing the county seat (identify) and at least two 
nearby communities. Include at least one community of significant size 
which offers general services.
    (7) If the purchasers will be individually responsible for providing 
access to their lots and for maintaining that access, what is the 
estimated cost of construction and maintenance?



Sec. 1010.111  Utilities.

    (a) Water. (1) How is water to be supplied to the individual lots 
(e.g., central system or individual wells)? Of the following items only 
those which apply to the subdivision need be included.
    (i) Individual system. (A) If water is to be supplied by an 
individual private well, cistern or other individual system, what are 
the total estimated costs of the system, including but not limited to, 
the costs of installation, storage, any treatment facilities and other 
necessary equipment?
    (B) If individual cisterns or similar storage tanks are to be used, 
state where water to fill them can be secured; the cost of the water, 
and its delivery costs for a supply sufficient to serve the monthly 
needs of a family of four living in a house on a year-round basis. 
Include a statement to the effect that water stored for extended periods 
tends to become stale and may acquire an unpleasant taste or odor.
    (C) If individual wells are to be used and if the sales contract 
contains no provisions for refund or exchange in the event a productive 
well cannot be installed, include a statement to the effect that there 
is no assurance a productive well can be installed and, if it cannot, no 
refund of the purchase price of the lot will be made.
    (D) If individual wells or individual cisterns are to be used, 
include a brief statement to the effect that the purity and chemical 
content of the water cannot be determined until each individual well or 
source of water is completed and tested.
    (E) If there have been no hydrological surveys in connection with 
the use of individual wells or sources of hauled water for cisterns, 
include a warning to the effect that there is no assurance of a 
sufficient supply of water for the anticipated population.
    (F) Is a permit required to install the individual system to be 
used? If so, from whom and where is the permit secured? State the cost 
of a permit.
    (ii) Central system. (A) If water is to be provided by a central 
system, who is the supplier? What is the supplier's address?
    (B) Will the water mains be extended in front of, or adjacent to, 
each lot? When will construction begin? What is the present percentage 
of completion of the water mains and central supply plant? When will 
service be available to the individual lots? If the central system is 
not complete and there are separate units or sections of the subdivision 
included in the Statement of Record which have different completion 
dates, then the starting date for construction (month and year), the 
percentage of construction now complete and the estimated service 
availability date (month and year) shall be set forth in the chart in 
section XXI of the appendix to this part: Water Chart Form rather than 
in a narrative paragraph.
    (C) What is the present capacity of the central plant (i.e., how 
many connections can be supplied)? If the capacity is not sufficient to 
serve all lots in the Statement of Record and is to be expanded in 
phases, what is the time-table for each phase to be in service and what 
will trigger the beginning of the expansion for each phase? If an entity 
other than the developer or an affiliate or subsidiary of the developer 
will supply the water for the central system; if the operation of that 
entity is supervised by a governmental agency and if that entity states 
it can supply the anticipated population of the development, then 
information as to the capacity of the plant and a hydrological survey is 
not necessary. If the entity does not indicate it can supply enough 
water for the anticipated population or if the capacity of any central 
system is not sufficient to serve all lots in the Statement of Record, 
include a warning which describes the limitations and sets forth the 
number of lots which can now be served.
    (D) Have there been any hydrological surveys to determine that a 
sufficient source of water is available to serve

[[Page 283]]

the anticipated population of the subdivision? Has the water in the 
central system been tested for purity and chemical content? If so, did 
the results show that the water meets all standards for a public water 
supply? If there have been no hydrological surveys showing a sufficient 
supply of water or no tests for purity and chemical content for the 
central system, include a warning to the effect that there is no 
assurance of a sufficient supply or that the water is drinkable.
    (E) Is there any financial assurance of completion of the central 
system and any future expansion? If not, include a warning to the effect 
that no funds have been set aside in an escrow or trust account nor have 
any other financial arrangements been made to assure completion of the 
water system.
    (F) If the developer or an affiliate or subsidiary of the developer 
operates the central system, have all permits been obtained from the 
proper agencies for the construction, use and operation of the central 
system? If not, include a warning to the effect that the required 
permits, approvals or licenses for construction, operation or use of the 
water system have not been obtained, therefore there is no assurance the 
system can be constructed or used.
    (G) If previous completion dates given in prior Statements of Record 
have not been met, state that previous completion dates have not been 
met and give the previous dates. Underline the answer. If the central 
water system is 100 percent completed, no dates are needed.
    (H) Is the purchaser to pay any construction costs, one-time 
connection fees, availability fees, special assessments or deposits for 
the central system? If so, what are the amounts? If not, state that 
there are no charges other than use fees. If the purchaser will be 
responsible for construction costs of the water mains, state the cost to 
install the mains to the most remote lot covered by this report.
    (I) If a purchaser wishes to use a lot prior to the date central 
water is available to it, may the purchaser install an individual 
system? If so, include the information required for individual systems 
in Sec. 1010.111(a)(1)(i). Will the purchaser be required to 
discontinue use of any individual system and connect to the central 
system when service is available to the lot? If the purchaser is not 
required to connect to the central system, must any construction costs, 
connection fees, availability fees, special assessments or deposits in 
connection with the central system still be paid? If an individual 
system may not be installed, so state and indicate water will not be 
available until the central system is extended to the lot.
    (J) If connection to the system is voluntary and not all purchasers 
elect to use the system, will the cost to those who do use the system be 
increased? If so, include a statement to the effect that connection to 
the central system is voluntary and those who use the system may have to 
pay a disproportionate share of the cost of the system and its 
operation.
    (K) If the developer is to construct the system and will later turn 
it over to a property owners' association for operation and maintenance, 
state the estimated date and conditions of the conveyance and if it will 
be conveyed free and clear of any encumbrance. If there is a charge or 
if the association must assume an encumbrance, state the estimated 
amount of either and the terms for retirement of either obligation.
    (L) If the supplier of water is other than a governmental agency or 
an entity which is regulated and supervised by a governmental agency, 
state that neither the operation of the water system nor the rates are 
regulated by a public authority.
    (M) The warning ``We do not own or operate the central water system 
so we cannot assure its continued availability for your use'' shall be 
included unless:
    (1) The central water system is owned and operated by the developer, 
or an affiliate or subsidiary of the developer, or
    (2) The central water system is owned and operated by a governmental 
agency or by an entity which is regulated and supervised by a 
governmental agency.
    (b) Sewer. (1) What methods of sewage disposal are to be used (e.g., 
central system, comfort stations or individual on-site systems such as 
septic tanks,

[[Page 284]]

holding tanks, etc.) in the subdivision? Of the following items, only 
those which apply to the subdivision need be included.
    (i) Individual systems. (A) If individual systems are to be used, 
have the local authorities given general approval to the use of these 
systems in the subdivision or have they given specific approval for each 
lot? Are permits necessary? From whom and where are they obtained? Must 
testing of the lot be done prior to the issuance of a permit? State the 
cost of a permit and the estimated costs of the system and any necessary 
tests.
    (B) If holding tanks are to be used, state whether pumping and 
hauling service is available and the estimated monthly costs of that 
service for a family of four living in a house on a year-round basis.
    (C) If each and every lot has not been approved for the use of an 
individual on-site system, include a warning to the effect that there is 
no assurance permits can be obtained for the installation and use of 
individual on-site systems. If the sales contract contains no provisions 
for refund or exchange in the event a permit cannot be obtained, include 
a statement to the effect that there is no assurance an individual on-
site system can be installed and, if it cannot, no refund of the 
purchase price of the lot will be made.
    (D) If no permit is required for the installation and use of 
individual on-site systems, explain whether this may have an effect upon 
the purchaser or the availability of construction or permanent 
financing.
    (E) If the developer has knowledge that permits for the installation 
of individual on-site systems have been denied; that there have been 
unsatisfactory percolation tests or that systems have not operated 
satisfactory in the subdivision, state the number of these rejections, 
unsatisfactory tests or operations.
    (ii) Comfort stations. (A) If comfort stations are to be used, how 
many lots will be served by each station? When will construction be 
started? When will the station or stations be completed and ready for 
use? Have the necessary permits been obtained for the construction and 
use of comfort stations? If the necessary permits have not been 
obtained, include a warning that the necessary permits, approvals or 
licenses have not been obtained for the construction and use of the 
comfort stations; therefore there is no assurance they can be 
constructed or used. If there are comfort stations located in different 
units and having different completion dates, the chart found in section 
XXII of the appendix to this part: Comfort Station Chart shall be used 
to show the estimated construction starting date (month and year), the 
present percentage of completion and the date on which they will be used 
rather than a narrative paragraph.
    (B) Who is to construct the comfort stations? Is there any financial 
assurance of their completion? If not, include a warning to the effect 
that no funds have been set aside in an escrow or trust account nor have 
any other financial arrangements been made to assure completion of the 
comfort stations and there is no assurance the facilities will be 
completed.
    (C) Who will be responsible for maintenance of the comfort stations? 
Is there any cost to the purchaser for construction, use or maintenance?
    (iii) Central system. (A) If a central sewage treatment and 
collection system is being installed, who is responsible for 
construction of the system? Will the sewer mains be installed in front 
of, or adjacent to, each lot? When will construction be started (month 
and year)? When will service be available (month and year)? Who will own 
and operate the system? Give the name and address of the entity.
    (B) What is the present percentage of completion and the present 
capacity of the system (i.e., number of connections which can be 
served)? If the present capacity is not sufficient to serve all lots in 
the Statement of Record and it is to be expanded in phases, what is the 
time-table for expansion and what will trigger that expansion? If the 
central system is not complete and there are separate units or sections 
of the subdivision which have different service availability dates, the 
chart found in section XXIII of the appendix to this part: Sewer Chart 
shall be used to show the construction starting date (month

[[Page 285]]

and year); the percentage of completion and service availability date 
(month and year) in each unit or section rather than a narrative 
paragraph. If sewage treatment facilities are to be supplied by an 
entity which is regulated by a governmental agency and which is not the 
developer or an affiliate or subsidiary of the developer and the entity 
has stated it can serve the anticipated population of the development, 
then information on capacity need not appear.
    (C) If the developer or an affiliate or subsidiary of the developer 
operates the central system, have all necessary permits been obtained 
for the construction, operation and use of the central system? Do these 
permits limit the number of connections or homes which the system may 
serve? If the permits have not been obtained, enter a warning to the 
effect that the necessary permits, approvals or licenses have not been 
obtained for the central sewage system; therefore there is no assurance 
that the system can be completed, operated or used.
    (D) If the system cannot now serve all lots included in the 
Statement of Record, either because the supplier of the service has not 
stated it can and will serve all lots or if construction has not reached 
a stage where all lots can be served or permits to serve all lots have 
not been obtained, include a warning which states that all lots cannot 
now be served; the number which can be served and the reason for the 
lack of capacity.
    (E) Will the purchaser pay any construction costs, special 
assessments, one time connection fees or availability fees? What are the 
amounts of these charges? If the purchaser is to pay construction costs 
of the sewer mains, state the cost of installation of the mains to the 
most remote lot in this Report.
    (F) If the purchaser wishes to use the lot prior to the date central 
sewer service is available, may the purchaser install an individual 
system? If so, include the information on individual systems required by 
Sec. 1010.111(b)(1)(i). Will the purchaser be required to discontinue 
use of the individual system and connect to the central system when 
service is available? If the purchaser is not required to connect to the 
central system, must the purchaser still pay any construction costs, 
connection fees, availability fees, or special assessments? If the 
purchaser may not install an individual system, so state and indicate 
service will not be available until the central system reaches the lot.
    (G) If connection to the system is voluntary and not all purchasers 
elect to use the system, will the cost to those who do use the system be 
increased? If so, include a statement to the effect that connection to 
the central system is voluntary and those who use the system may have to 
pay a disproportionate share of the cost of the system and its 
operation.
    (H) Is there any financial assurance of completion of the central 
system and any future expansion? If not, include a warning that no funds 
have been set aside in an escrow or trust account nor have any other 
financial arrangements been made to assure the completion of the central 
system; therefore there is no assurance that it will be completed.
    (I) If previous completion dates given in prior Statements of Record 
have not been met, state that previous dates have not been met and give 
the previous dates. Underline the answer. If the central sewage 
treatment and collection system are 100 percent completed, no dates are 
needed.
    (J) If the developer is to construct the system and will later turn 
it over to a property owners' association for operation and maintenance, 
state the date of the transfer and whether there will be any charge for 
the conveyance and if it will be conveyed free and clear of any 
encumbrance. If there is a charge or if the association must assume an 
encumbrance, state the estimated amount of either and the terms for 
retirement of either obligation.
    (K) If the owner or operator of the central sewer system is other 
than a governmental agency or an entity which is regulated and 
supervised by a governmental agency, state that neither the operation of 
the sewer system nor the rates are regulated by a public authority.
    (L) The warning ``We do not own or operate the central sewer system 
so we

[[Page 286]]

cannot assure its continued availability for your use.'' shall be 
included unless:
    (1) The central sewer system is owned and operated by the developer, 
or an affiliate or subsidiary of the developer, or
    (2) The central sewer system is owned and operated by a governmental 
agency or by an entity which is regulated and supervised by a 
governmental agency.
    (c) Electricity. (1) Who will provide electrical services to the 
subdivision?
    (2) Have primary electrical service lines been extended in front of, 
or adjacent to, all of the lots? If not, when (month and year) or under 
what conditions will construction begin and when will service be 
available? If they have not been installed, who is responsible for their 
construction? If electrical service lines have not been extended in 
front of, or adjacent to, all lots and there are separate units or 
sections having different service availability dates, the chart found in 
section XXIV of the appendix to this part: Electric Service Chart shall 
be used rather than a narrative paragraph.
    (3) If construction of the lines or service to the ultimate consumer 
is provided by an entity other than a publicly regulated utility, who 
provides, or will provide, the service? Who will be responsible for 
maintenance? What is the assurance of completion? If service is not 
provided by a publicly regulated utility, what charges or assessments 
will the purchaser pay?
    (4) If the primary service lines have not been extended in front of, 
or adjacent to each lot, will the purchaser be responsible for any 
construction costs? If so, what is the utility company's policy and 
charges for extension of primary lines? Based on that policy, what would 
be the cost to the purchaser for extending primary service to the most 
remote lot in this Report?
    (5) If electrical service will not be provided, what is an alternate 
source (e.g., generators, etc.) and what are the estimated costs?
    (6) If the lines are to be installed by some entity other than a 
publicly regulated utility and if there is no financial assurance of 
completion, include a warning to the effect that no funds have been set 
aside in an escrow or trust account nor have any other financial 
arrangements been made to assure construction of the electric lines.
    (d) Telephone. (1) Is telephone service now, or will it be, 
available? Who will furnish the service?
    (2) Have the service lines been extended in front of, or adjacent 
to, each of the lots? If not, when, and under what conditions, will 
construction be started and when will service be available (month and 
year)?
    (3) If the service lines have not been extended in front of, or 
adjacent to, each lot, will the purchaser be responsible for any 
construction costs? If so, what is the utility company's policy and 
charges for extension of service lines? Based on that policy, what would 
be the cost to the purchaser of extending service lines to the most 
remote lot in this Report?
    (e) Fuel or other energy source. (1) What fuel, or other energy 
source, will be available for heating, cooking, etc. in the subdivision? 
If other than electricity is to be used, describe the availability of 
the fuel or other energy source. Give the name and address of the 
supplier. If the fuel is natural gas, when will the mains be installed 
to the lots? What is the cost to the purchaser for installation fees and 
connection fees? If oil or propane gas will be used, include the cost of 
a storage tank.
    (2) [Reserved]



Sec. 1010.112  Financial information.

    (a) The information required by paragraphs (b) and (c) of this 
section need appear only if the answer to the question is an affirmative 
one.
    (b) Has the developer had a deficit in retained earnings or 
experienced an operating loss during the last fiscal year or, if less 
than a year old, since its formation? If so, include a statement to the 
effect that this may affect the developer's ability to complete promised 
facilities and to discharge financial obligations. This statement may be 
omitted if:
    (1) All facilities, utilities and amenities proposed to be completed 
by the developer in the Property Report and sales contract have been 
completed so that the lots included in the Statement of Record are 
immediately usable for

[[Page 287]]

the purpose for which they are sold, or if:
    (2) The developer is contractually obligated to the purchaser to 
complete all facilities, utilities and amenities promised by it in the 
Statement of Record, and:
    (i) The developer has made financial arrangements, such as the 
posting of surety bonds (corporate or individual notes or bonds are not 
acceptable), irrevocable letters of credit, escrow or trust accounts, to 
assure that the facilities, utilities and amenities will be completed by 
the dates set out in the Property Report or contract;
    (ii) The sales contract provides for delivery of a deed within 180 
days of the signing of the contract which conveys title free of any 
mortgage or lien, or the developer has filed an assurance of title 
agreement with ILSRP as outlined in Sec. 1010.212(e); and
    (iii) Any down payments or deposits are held in an escrow or trust 
account.
    (c) If the developer's financial statements have been audited, did 
the accountant qualify the opinion or decline to give an opinion? If so, 
why was the opinion qualified or declined?
    (d) The following statement shall appear: ``A copy of our financial 
statements for the period ending ---------- is available from us upon 
request.''
    (e) The information furnished in Sec. 1010.212(b) may necessitate a 
warning as to costs and/or feasibility of the completion of the 
subdivision.



Sec. 1010.113  Local services.

    (a) Fire protection. Describe the availability of fire protection 
and indicate whether it is available year round.
    (b) Police protection. Describe the availability of police 
protection.
    (c) Schools. State whether elementary, junior high and senior high 
schools are available to residents of the subdivision. Is school bus 
transportation available from within the subdivision?
    (d) Hospital. Give the name and location of the nearest hospital and 
state whether ambulance service is available.
    (e) Physicians and dentists. State the location of the nearest 
physicians' and dentists' offices.
    (f) Shopping facilities. State the location of the nearest shopping 
facilities.
    (g) Mail service. If there is no mail service to the subdivision, 
describe the arrangements the purchasers must make to receive mail 
service.
    (h) Public transportation. Is there public transportation available 
in the subdivision or to nearby towns? If not, give the location of the 
nearest public transportation and the distance from the subdivision.



Sec. 1010.114  Recreational facilities.

    (a) Recreational facilities to be covered. Unless otherwise 
indicated, all information required by paragraphs (b) and (c) of this 
section shall be provided for only those recreational facilities which
    (1) The developer is contractually responsible to provide or 
complete and which are:
    (i) Within, adjacent or contiguous to the subdivision, and
    (ii) Maintained substantially for the use of lot owners; or
    (2) For which a third party is responsible and which are:
    (i) Within, adjacent or contiguous to the subdivision, and
    (ii) Maintained substantially for the use of lot owners.
    (b) Recreational facility chart. Complete the chart found in section 
XXV of the appendix to this part: Recreational Facility Chart in 
accordance with the instructions which follow it. This chart shall 
immediately follow the Sec. 1010.114 heading. Limit the chart to 
facilities provided essentially for use of lot buyers.
    (1) Facility. Identify each recreational facility. Identify closely 
related facilities (e.g., swimming pool and bathhouse) separately only 
if their availability dates differ. If any recreational facility is not 
owned by the developer, insert a warning below the chart phrased 
substantially as follows: ``We do not own the (name of facility or 
facilities) so we can not assure its (their) continued availability.''
    (2) Percent complete. State the present percentage of completion of 
construction for each recreational facility.
    (3) Estimated date of start of construction. Insert the estimated 
date of the start of construction for the facility (month and year).

[[Page 288]]

    (4) Estimated date available for use. If the construction of the 
facility is not complete or if it is not available to lot owners for its 
intended use, indicate the estimated date (month and year) that the 
facility will be available for use. If the ``estimated date available 
for use'' for any facility has been amended to delay it to a later date, 
indicate such delay in a statement immediately below the chart. 
Underline the response. This statement shall include the name of the 
facility and the prior estimated availability date, and it shall be 
referenced to the appropriate facility listed on the chart by use of an 
asterisk or other appropriate symbol. If a facility is 100 percent 
completed and in use, no date is needed.
    (5) Financial assurance of completion. If the construction of the 
facility is not complete, state whether there is any financial assurance 
of completion. If none, state ``none.'' If such exists, state the type 
of assurance (i.e., bond, escrow, or trust). If no documentation for 
such assurance has been provided in Sec. 1010.214 of the Statement of 
Record, then do not indicate such assurance on the chart, but in place 
of such assurance on the chart state ``none.''
    (6) Buyer's annual cost or assessments. State the lot buyer's annual 
cost or assessments for using the facility. These costs should include 
any applicable property owners' association assessment, and the 
developer's maintenance assessment. If the cost information is lengthy, 
you may use an asterisk or other appropriate symbol and include the cost 
information in a paragraph below the chart.
    (c) Information to be provided below the recreational facility chart 
and related warnings.
    (1) Constructing the facilities. If the facilities are not complete, 
indicate who is responsible for the construction of the facilities. 
Indicate whether the purchaser will be required to pay any of the cost 
of construction of these facilities (estimate and disclose such cost, if 
any).
    (2) Maintaining the facilities. Indicate who is responsible for the 
operation and maintenance of these facilities.
    (3) Facilities which will be leased to lot purchasers. If no 
facilities covered here will be leased to a Property Owners' Association 
or other lot owners in the subject subdivision, omit this caption and 
any information requested under it from the Property Report. If such 
leases exist or are anticipated, state which facilities are or will be 
leased and indicate the term of the lease. Also, state whether the lot 
owners will have an opportunity to terminate or ratify the lease after 
control of the Property Owners' Association is turned over to them. 
Indicate whether the owner of a recreational facility leased to the 
Property Owners' Association or other lot owners may encumber it and 
whether the holders of such encumbrances may acquire the leased 
facilities and not honor the lease. Indicate whether the lease payments 
may be increased on an escalating or other basis and what costs or 
expenses, if any, will be borne by the owner. State whether the lease 
can be assigned or sublet. State how the lease can be terminated.
    (4) Transfer of the facilities. If there are presently any liens or 
mortgages on any of these recreational facilities, describe such liens 
or mortgages. If the developer, or owner of the subdivision, their 
principals, or subsidiaries, intend to transfer the title of a listed 
recreational facility in the future, explain at what time, by what type 
of conveyance, and to whom such transfer will be made. Disclose any 
adverse effects on, or cost to, lot purchasers which may be caused by 
such transfer. If any facility is to be transferred to lot owners as a 
Property Owners' Association or otherwise, state whether the facility 
will be transferred free and clear of all liens and encumbrances. If 
not, state the amount of the encumbrance to be assumed and disclose any 
contractual conditions on such transfer which relate to lot purchasers.
    (5) Permits. If the necessary permits have not been obtained for the 
construction and/or use of the facilities, identify the facilities for 
which such permits have not been obtained and include the following 
statement, or one substantially the same, in the narrative under the 
caption ``Permits'': ``The (identify the permit or license) has not been 
obtained and therefore there is no assurance that the lot owners will be 
able to use the (identify the facility).''

[[Page 289]]

    (6) Who may use the facilities. Indicate who will be permitted to 
use the recreational facilities (e.g., lot owners, their guests, 
employees of developer, general public). If the general public will be 
permitted to use the facilities include the following statement in the 
narrative under the caption ``Who may use the facilities'': ``The 
(identify the facility) is open to use by the general public and their 
use of the facility may limit use of it by lot owners.''



Sec. 1010.115  Subdivision characteristics and climate.

    (a) General topography. What is the general topography and the major 
physical characteristics of the land in the subdivision? State the 
percentage of the subdivision which is to remain as natural open space 
and as developed parkland. Are there any steep slopes, rock 
outcroppings, unstable or expansive soil conditions, etc., which will 
necessitate the use of special construction techniques to build on, or 
use, any lot in the subdivision? If so, identify the lots affected, and 
describe the techniques recommended. If any lots in the subdivision have 
a slope of 20%, or more, include a warning that ``Some lots in this 
subdivision have a slope of 20%, or more. This may affect the type and 
cost of construction.''
    (b) Water coverage. Are any lots, or portions of any lots, covered 
by water at any time? What lots are affected? When are they covered by 
water? How does this affect their use for the purpose for which they are 
sold? Can the condition be corrected? At what cost to the purchaser?
    (c) Drainage and fill. Identify the lots which require draining or 
fill prior to being used for the purpose for which they are being sold. 
Who will be responsible for any corrective action? If the purchaser is 
responsible, what are the estimated costs?
    (d) Flood plain. Is the subdivision located within a flood plain or 
an area designated by any Federal, state or local agency as being flood 
prone? What lots are affected? Is flood insurance available? Is it 
required in connection with the financing of any improvements to the 
lot? What is the estimated cost of the flood insurance?
    (e) Flooding and soil erosion. (1) Does the developer have a program 
which provides, or will provide, at least minimum controls for soil 
erosion, sedimentation or periodic flooding throughout the subdivision?
    (2) If there is a program, describe it. Include in the description 
information as to whether the program has been approved by the 
appropriate government officials; when it is to start; when it is to be 
completed (month and year); whether the developer is obligated to comply 
with the program and whether there is any financial assurance of 
completion.
    (3) If there is no program or if the program has not been approved 
by the appropriate officials or if the program does not provide minimum 
protection, include a statement to the effect that the measures being 
taken may not be sufficient to prevent property damage or health and 
safety hazards. A minimum program will usually provide for:
    (i) Temporary measures such as mulching and seeding of exposed areas 
and silt basins to trap sediments in runoff water, and
    (ii) Permanent measures such as sodding and seeding in areas of 
heavy grading or cut and fill along with the construction of diversion 
channels, ditches, outlet channels, waterway stabilizers and sediment 
control basins.
    (f) Nuisances. Are there any land uses which may adversely affect 
the subdivision (e.g., unusual or unpleasant noises or odors, pollutants 
or nuisances such as existing or proposed industrial activity, military 
installations, airports, railroads, truck terminals, race tracks, animal 
pens, noxious smoke, chemical fumes, stagnant ponds, marshes, 
slaughterhouses and sewage treatment facilities)? If any nuisances 
exist, describe them. If there are none, state there are no nuisances 
which affect the subdivision.
    (g) Hazards. (1) Are there any unusual safety factors which affect 
the subdivision (e.g., dilapidated buildings, abandoned mines or wells, 
air or vehicular traffic hazards, danger from fire or explosion or 
radiation hazards)? Is the developer aware of any proposed plans for 
construction which may create a nuisance or safety hazard or adversely 
affect the subdivision? If there are any

[[Page 290]]

existing hazards or if there is any proposed construction which will 
create a nuisance or hazard, describe the hazard or nuisance. If there 
are no existing or possible future hazards, state that there are none.
    (2) Is the area subject to natural hazards or has it been formally 
identified by any Federal, state or local agency as an area subject to 
the frequent occurrence of natural hazards (e.g., tornadoes, hurricanes, 
earthquakes, mudslides, forest fires, brush fires, avalanches, flash 
flooding)? If the jurisdiction in which the subdivision is located has a 
rating system for fire hazard, state the rating assigned to the land in 
the subdivision and explain its meaning.
    (h) Climate. What are the average temperature ranges, summer and 
winter, for the area in which the subdivision is located (i.e., high, 
low and mean)? What is the average annual rainfall and snowfall?
    (i) Occupancy. How many homes are occupied on a full- or part-time 
basis as of (date of submission)?



Sec. 1010.116  Additional information.

    (a) Property Owners' Association. (1) Will there be a property 
owners' association for the subdivision? Has it been formed? What is its 
name? Is it operating? If not yet formed, when will it be formed? Who is 
responsible for its formation?
    (2) Does the developer exercise, or have the right to exercise, any 
control over the Association because of voting rights or placement of 
officers or directors? For how long will this control last?
    (3) Is membership in the association voluntary? Will non-member lot 
owners be subject to the payment of dues or assessments? What are the 
association dues? Can they be increased? Are members subject to special 
assessments? For what purpose? If membership in the association is 
voluntary and if the association is responsible for operating or 
maintaining facilities which serve all lot owners, include the following 
statement: ``Since membership in the association is voluntary, you may 
be required to pay a disproportionate share of the association costs or 
it may not be able to carry out its responsibilities.''
    (4) What are the functions and responsibilities of the association? 
Will the association hold architectural control over the subdivision?
    (5) Are there any functions or services that the developer now 
provides at no charge for which the association may be required to 
assume responsibility in the future? If so, will an increase in 
assessments or fees be necessary to continue these functions or 
services?
    (6) Does the current level of assessments, fees, charges or other 
income provide the capability for the association to meet its present, 
or planned, financial obligations including operating costs, maintenance 
and repair costs and reserves for replacement? If not, how will any 
deficit be made up?
    (b) Taxes. (1) When will the purchaser's obligation to pay taxes 
begin? To whom are the taxes paid? What are the annual taxes on an 
unimproved lot after the sale to a purchaser? If the taxes are to paid 
to the developer, include a statement that ``Should we not forward the 
tax funds to the proper authorities, a tax lien may be placed against 
your lot.''
    (2) If the subdivision is encompassed within a special improvement 
district or if a special district is proposed, describe the purpose of 
the district and state the amount of assessments. Describe the 
purchaser's obligation to retire the debt.
    (c) Violations and litigations. This information need appear only if 
any of the questions are answered in the affirmative. Unless the 
Director gives prior approval for it to be omitted, a brief description 
of the action and its present status or disposition shall be given.
    (1) With respect to activities relating to or in violation of a 
Federal, state or local law concerned with the environment, land sales, 
securities sales, construction or sale of homes or home improvements, 
consumer fraud or similar activity, has the developer, the owner of the 
land or any of their principals, officers, directors, parent 
corporation, subsidiaries or an entity in which any of them hold a 10% 
or more financial interest, been:

[[Page 291]]

    (i) Disciplined, debarred or suspended by any governmental agency, 
or is there now pending against them an action which could result in 
their being disciplined, debarred or suspended or,
    (ii) Convicted by any court, or is there now pending against them 
any criminal proceedings in any court? ILSRP suspension notices on pre-
effective Statements of Record and amendments need not be listed.
    (2) Has the developer, the owner of the land, any principal, any 
person holding a 10% or more financial or ownership interest in either, 
or any officer or director of either, filed a petition in bankruptcy? 
Has an involuntary petition in bankruptcy been filed against it or them 
or have they been an officer or director of a company which became 
insolvent or was involved, as a debtor, in any proceedings under the 
Bankruptcy Act during the last 13 years?
    (3) Is the developer or any of its principals, any parent 
corporation or subsidiary, any officer or director a party to any 
litigation which may have a material adverse impact upon its financial 
condition or its ability to transfer title to a purchaser or to complete 
promised facilities? If so, include a warning which describes the 
possible effects which the action may have upon the subdivision.
    (d) Resale or exchange program. (1) Are there restrictions which 
might hinder lot owners in the resale of their lots (e.g., a prohibition 
against posting signs, limitations on access to the subdivision by 
outside brokers or prospective buyers; the developer's right of first 
refusal; membership requirements)? If so, briefly explain the 
restrictions.
    (2) Does the developer have an active resale program? If the answer 
is ``no,'' include the following statement: ``We have no program to 
assist you in the sale of your lot.''
    (3) Does the developer have a lot exchange program? If the answer is 
``yes,'' describe the program; state any conditions and indicate if the 
program reserves a sufficient number of lots to accommodate all those 
wishing to participate. If there is no program or if sufficient lots are 
not reserved, include one of the following statements as applicable: 
``We do not have any provision to allow you to exchange one lot for 
another'' or ``We do not have a program which assures that you will be 
able to exchange your lot for another.''
    (e) Unusual situations. This topic need appear only if one or more 
of the following cases apply to the subdivision, then only the 
applicable subject, or subjects, will appear.
    (1) Leases. What is the term of the lease? Is it renewable? Is it 
recordable? Can creditors of the developer, or owner, acquire title to 
the property without any obligation to honor the terms of the lease? Are 
the lease payments a flat sum or are they graduated? Can the lessee 
mortgage or otherwise encumber the leasehold? Will the lessee be 
permitted to remove any improvements which have been installed when the 
lease expires or is terminated?
    (2) Foreign subdivision. (i) Is the owner or developer of the 
subdivision a foreign country corporation? If legal action is necessary 
to enforce the contract, must it be taken in the courts of the country 
where the subdivision is located?
    (ii) Does the country in which the subdivision is located have any 
laws which restrict, in any way, the ownership of land by aliens? If so, 
what are the restrictions?
    (iii) Must an alien obtain a permit or license to own land, build a 
home, live, work or do business in the country where the subdivision is 
located? If so, where is such permit or license secured; for how long is 
it valid and what is its cost?
    (3) Time sharing. (i) How is title to be conveyed? How many shares 
will be sold in each lot? How is use time allocated? How are taxes, 
maintenance and utility expenses divided and billed? How are voting 
rights in any Association apportioned? Are there management fees? If so, 
what are their amounts and how are they apportioned?
    (ii) Is conveyance of any portion of the lot contingent upon the 
sale of the remaining portions? Is the initial buyer responsible for any 
greater portion of the expense than his normal share until the remaining 
interests are

[[Page 292]]

sold? If the purchase of any of the portions is financed, will the 
default of one owner have any effect upon the remaining owners?
    (4) Memberships. (i) Does the purchaser receive any interest in 
title to the land? What is the term of the membership? Is it renewable? 
What disposition is made of the membership in the event of the death of 
the member? Are the lots individually surveyed and the corners marked? 
If not, how does the member identify the area which the member is 
entitled to use? What is the approximate square footage the member is 
entitled to use? Are there different classes of membership? How are the 
different classes identified and what are the differences between them?
    (ii) If the member does not receive any interest in the title to the 
land, include a warning to the effect that ``you receive no interest in 
the title to the land but only the right to use it for a certain period 
of time.''
    (f) Equal opportunity in lot sales. State whether or not the 
developer is in compliance with title VIII of the Civil Rights Act of 
1968 by not directly or indirectly discriminating on the basis of race, 
color, religion, sex, national origin, familial status, and handicap in 
any of the following general areas: Lot marketing and advertising, 
rendering of lot services, and in requiring terms and conditions on lot 
sales and leases. An affirmative answer cannot be given if the 
developer, directly or indirectly, because of race, color, religion, 
sex, national origin, familial status, or handicap is:
    (1) Refusing to sell or lease lots after the making of a bona fide 
offer or to negotiate for the sale or lease of lots or is otherwise 
making unavailable or denying a lot to any person, or
    (2) Discriminating against any person in the terms, conditions or 
privileges in the sale or leasing of lots or in providing services or 
facilities in connection therewith, or
    (3) Making, printing, publishing or causing to be made, printed or 
published any notice, statement or advertisement with respect to the 
sale or leasing of lots that indicates any preference, limitation or 
discrimination against any person, or
    (4) Representing to any person that any lot is not available for 
inspection, sale or lease when such lot is in fact available, or
    (5) For profit, inducing or attempting to induce any person to sell 
or lease any lot by representations regarding the entry or non-entry 
into the neighborhood of a person or persons of a particular race, 
color, religion, sex, national origin, familial status, or handicap.
    (g) Listing of lots. Provide a listing of lots which shall consist 
of a description of the lots included in the Statement of Record by the 
names or number of the section or unit, if any; the block number, if 
any; and the lot numbers. The lots shall be listed in the most efficient 
and concise manner. If the filing is a consolidation, the listing shall 
include all lots registered to date in the subdivision, except any which 
have been deleted by amendment.



Sec. 1010.117  Cost sheet, signature of Senior Executive Officer.

    (a) Cost sheet--Format. (1) The cost sheet shall be prepared in 
accordance with the format found in section XXVI of the appendix to this 
part: Cost Sheet Format and paragraph (a)(2) of this section.
    (2) Cost sheet instructions. (i) All amounts for cost sheet items 
will be entered before the purchaser signs the receipt. However, any 
costs that are identical for all lots may be pre-printed.
    (ii) If a central water or sewer system will be used in all or part 
of the subdivision and a private system in all or other parts, then the 
portion that does not apply to the purchaser's lot shall be crossed out.
    (iii) If individual private systems may be used prior to the 
availability of service from any central system and the purchaser is not 
required to connect to any central system, both figures may be entered 
or only the highest cost figures may be used with a parenthetical 
explanation or footnote. If the purchaser is required to connect to any 
central system and discontinue the use of his private system when 
central service is available, both cost figures shall be given, together 
with an explanation or footnote.

[[Page 293]]

    (iv) If there is a one time, lump sum ``availability fee'' which is 
assessed to the purchaser in connection with a central utility, include 
under ``other'' and identify.
    (v) Dues and assessments need be included only if they are 
involuntary regardless of use.
    (vi) At the discretion of the Director, where there is extreme 
diversity in the figures for different areas of the subdivision, 
variations may be permitted as to whether the figures will be printed, 
entered manually, or a range of costs used or any combination of these 
features.
    (vii) The estimated annual taxes shall be based upon the projected 
valuation of the lot after sale to a purchaser.
    (b) Signature of the Senior Executive Officer. The Senior Executive 
Officer or a duly authorized agent shall sign the property report. 
Facsimile signatures may be used for purposes of reproduction of the 
property report.



Sec. 1010.118  Receipt, agent certification, and cancellation page.

    (a) Format. The receipt, agent certification and cancellation page 
shall be prepared in accordance with the sample found in section XXVII 
of the appendix to this part: Sample Receipt, Agent Certification and 
Cancellation Page.
    (b) The original and one copy of this executed page shall be 
attached to the Property Report delivered to prospective purchasers. 
After the purchaser has signed the receipt and the salesman has signed 
the certification, the copies can be retained by the developer for a 
period of three years from the date of execution or the term of the 
contract, whichever is the longer. Upon demand by the Director, the 
developer shall, without delay, make the copies of these receipts and 
certifications available for inspection by the Director or the developer 
shall forward to the Director any of the receipts and certifications, or 
copies thereof, as the Director may specify.
    (c) If the transaction takes place through the mails, the cost 
figures shall be entered and the person most active in dealing with the 
prospective purchaser shall sign the certification prior to mailing the 
Property Report to the purchaser. Otherwise, the certification shall be 
executed in the presence of the purchaser.
    (d) The date of Report appearing on the receipt shall be the same as 
that appearing on the cover sheet of the Property Report.
    (e) Notification of cancellation by mail shall be considered given 
at the time post-marked.



Sec. 1010.200  Instructions for Statement of Record, Additional 
Information and Documentation.

    The Additional Information and Documentation portion of the 
Statement of Record shall contain the statements and documents required 
in Sec. Sec. 1010.208 through 1010.219. Each section number and its 
associated heading and each paragraph letter or number and their 
associated subheadings or captions must appear in this portion. 
Following each heading, subheading, or caption printed in this portion, 
the registrant shall insert an appropriate response. If a heading, 
subheading, or caption does not apply to the subdivision, it shall be 
followed by the words ``not applicable''. Immediately after the page(s) 
on which the section number and answers for that section appear, insert 
the information or documents which support that section. In addition to 
the statements and documentation expressly required there shall be added 
any further material, information, documentation and certifications as 
may be necessary in the public interest and for the protection of 
purchasers or to cause the statements made to be not misleading in the 
light of the circumstances under which they are made.



Sec. Sec. 1010.201-1010.20   [Reserved]



Sec. 1010.208  General information.

    (a) Administrative information. (1) State whether the material 
represents an initial Statement of Record or a consolidated Statement of 
Record. If it is a consolidated Statement of Record, identify the 
original ILSRP number assigned to the initial Statement of Record. State 
whether subsequent Statements of Record will be submitted for additional 
lots in the subdivision.

[[Page 294]]

    (2) Has the developer submitted a request for an exemption for the 
subdivision?
    (3) List the states in which registration has been made by the 
developer for the sale of lots in the subdivision.
    (4) If any state listed in paragraph (a)(3) of this section has not 
permitted a registration to become effective or has suspended the 
registration or prohibited sales, name the state involved and give the 
reasons cited by the state for their action.
    (5) State whether the developer has made, or intends to make, a 
filing with the U.S. Securities and Exchange Commission (SEC) which is 
related in any way to the subdivision. If a filing has been made with 
the SEC, give the SEC identification number; identify the prospectus by 
name; date of filing and state the page number of the prospectus upon 
which specific reference to the subdivision is made. Any disciplinary 
action taken against the developer by the SEC should be disclosed in 
Sec. Sec. 1010.116 and 1010.216.
    (b) Subdivision information. (1) If this is a consolidated Statement 
of Record, state the number of lots being added, the number of lots in 
prior Statements of Record and the new total number of lots. The 
Director must be able to reconcile the numbers stated here with the 
title evidence; the plat maps and the disclosure in Sec. 1010.108.
    (2) State the number of acres represented by the lots in this 
Statement of Record. If this is a consolidated Statement of Record, 
state the number of acres being added, the number of acres in prior 
Statements of Record and the new total number of acres. State the total 
acreage owned in the subdivision, the number of acres under option or 
similar arrangement for acquisition of title to the land and the total 
acreage to be offered pursuant to the same common promotional plan.
    (3) State whether any lots have been sold in this subdivision since 
April 28, 1969, and prior to registration with ILSRP. If they were sold 
pursuant to an exemption, identify the exemption provision and state 
whether an advisory opinion, exemption order or exemption determination 
was obtained with respect to those lots sales. Give the ILSRP number 
assigned to the exemption, if any.
    (c) Developer information. (1) State the name, address, Internal 
Revenue Service number and telephone number of the owner of the land. If 
the owner is other than an individual, name the type of legal entity and 
list the interest, and extent thereof, of each principal. Identify the 
officers and directors.
    (2) If the developer is not the owner of the land, state the 
developer's name, address, Internal Revenue Service number and telephone 
number. If the developer is other than an individual, name the type of 
legal entity and list the interest, and the extent thereof, of each 
principal. Identify the officers and directors.
    (3) If you wish to appoint an authorized agent, state the agent's 
name, address and telephone number and scope of responsibility. This 
shall be the party designated by the developer to receive 
correspondence, service of process and notice of any action taken by 
ILSRP. In all Statements of Record, including those for foreign 
subdivisions, the authorized agent shall be a resident of the United 
States. A change of the authorized agent will require an appropriate 
amendment.
    (4) State whether the owner of the land, the developer, its parent, 
subsidiaries or any of the principals, officers or directors of any of 
them are directly or indirectly involved in any other subdivision 
containing 100 or more lots. If so, identify the subdivision by name, 
location, and ILSRP number, if any.
    (5) State whether the owner or developer is a subsidiary 
corporation. If either the owner or developer is a subsidiary 
corporation or if any of the principals of the owner or developer are 
corporate entities, name the parent and/or corporate entity and state 
the principals of each to the ultimate parent entity.
    (d) Documentation. (1) Submit a copy of the property report, 
subdivision report, offering statement or similar document filed with 
the state or states with which the subdivision has been registered.
    (2) Submit a copy of a general plan of the subdivision. This general 
plan must consist of a map, prepared to scale, and

[[Page 295]]

it must identify the various proposed sections or blocks within the 
subdivision, the existing or proposed roads or streets, and the location 
of the existing or proposed recreational and/or common facilities. In an 
initial filing, this map must at least show the area included in the 
Statement of Record. In a consolidated Statement of Record, show areas 
being added, as well as the areas previously registered. If a map of the 
entire subdivision is submitted with the initial Statement of Record, 
and if no substantial changes are made when material for a consolidated 
Statement of Record is submitted, the original map may be included by 
reference.
    (3)(i) If the developer is a corporation, submit a copy of the 
articles of incorporation, with all amendments; a copy of the 
certificate of incorporation or a certificate of a corporation in good 
standing and, if the subdivision is located in a state other than the 
one in which the original certificate of corporation was issued, a 
certificate of registration as a foreign corporation with the state 
where the subdivision is located.
    (ii) If the developer is a partnership, unincorporated association, 
joint stock company, joint venture or other form of organization, submit 
a copy of the articles of partnership or association and all other 
documents relating to its organization.
    (iii) If the developer is not the owner of the land, submit copies 
of the above documents for the owner.



Sec. 1010.209  Title and land use.

    (a) General information. (1) State whether the developer has 
reserved the right to exchange or withdraw lots after a purchaser has 
signed a sales contract (e.g., for prior sales, failure to pass credit 
check). If yes, indicate this authority and make reference to the 
applicable paragraph in the sales contract or other document.
    (2) State whether there is a provision giving purchasers an option 
to exchange lots. If yes, indicate this and make reference to the 
applicable paragraph in the sales contract or other document.
    (3) State whether the developer knows of any instruments not of 
record which, if recorded, would affect title to the subdivision. If 
yes, copies of these instruments shall be submitted, except that copies 
of unrecorded contracts for sales of lots in the subdivision need not be 
submitted.
    (4)(i) Identify the Federal, State, and local agencies or similar 
organizations which have the authority to regulate or issue permits, 
approvals or licenses which may have a material effect on the 
developer's plans with respect to the proposed division of the land, and 
any existing or proposed facilities, common areas or improvements to the 
subdivision.
    (ii) Describe or identify the land or facilities affected; the 
permit, approval or license required; and indicate whether the permit, 
approval or license has been obtained by the developer.
    (iii) If no agency regulates the division of the land or issues any 
permits, approvals or licenses with respect to improvements, so state.
    (iv) Answers must specifically cover the areas of environmental 
protection; environmental impact statements; and construction, dredging, 
bulkheading, etc. that affect bodies of water within or around the 
subdivision. Also include licenses or permits required by water 
resources boards, pollution control boards, river basin commissions, 
conservation agencies or similar organizations.
    (5) State whether it is unlawful to sell lots prior to the final 
approval and recording of a plat map in the jurisdiction where the 
subdivision is located.
    (b) Title evidence. (1) Submit title evidence that specifically 
states the status of the legal and equitable title to the land 
comprising the lots covered by the Statement of Record and any common 
areas or facilities disclosed in the Property Report. Title evidence 
need not be submitted for those common areas and facilities which are 
not owned by the developer.
    (2) Acceptable title evidence shall be dated no earlier than 20 
business days preceding the date of the filing of the Statement of 
Record with the Director. Previously issued title evidence may be 
updated to the date referred to in the preceding sentence by 
endorsements or attorneys' opinions of title.

[[Page 296]]

    (3) The developer shall amend the title evidence to reflect the 
change in status of title of any previously registered, reacquired lots 
unless their status is at least as marketable as they were when first 
offered for sale by the developer as registered lots.
    (c) Forms of acceptable title evidence. (1) An original or a copy of 
a signed owner's or mortgagee's policy of title insurance, title 
commitment, certificate of title or similar instrument issued by a title 
company authorized by law to issue such instruments in the state in 
which the subdivision is located. Title evidence that limits insurance 
or negligence liability to amounts less than the market value of the 
subject land at the time of its acquisition by the subdivision owner is 
not acceptable;
    (2) A legal opinion stating the condition of title, prepared and 
signed by an attorney at law experienced in the examination of titles 
and a member of the Bar in the state in which the property is located. 
The title opinion may be based on a Torrens land registration system 
certificate of title, or similar instrument, provided it meets all 
general title evidence requirements of this section and a copy of the 
registration certificate of title is submitted. Title opinions that 
limit negligence liability to amounts less than the market value of the 
subject land at the time of its acquisition by the subdivision owner are 
not acceptable.
    (d) Title searches. The required evidence of the status of title 
shall be based on a search of all public records which may contain 
documents affecting title to the land or the developer's ability to 
deliver marketable title. The search must cover a period which is 
required or generally considered adequate for insuring marketability of 
title in the jurisdiction in which the subdivision is located. Such 
search shall include an examination of at least the documents listed in 
paragraphs (d)(1) through (5) of this section. This search may be 
accomplished through the use of a title insurance company title plant, 
the information in which is based on current searches of the appropriate 
and necessary documents, including as a minimum those listed immediately 
above. For any attorney's title opinion based on Torrens certificates of 
title, the title search need only go beyond the original time of 
registration of the certificate of title for those types of encumbrances 
which were not conclusively settled by the proceedings at the time of 
such registration. In such cases, the required statement shall clearly 
reflect the documents and periods searched.
    (1) The records of the recorder of deeds or similar authority;
    (2) U.S. Internal Revenue Liens;
    (3) The records of the circuit, probate, or other courts including 
Federal courts and bankruptcy or reorganization proceedings which have 
jurisdiction to affect the title to the land;
    (4) The tax records;
    (5) Financing statements filed pursuant to the Uniform Commercial 
Code or similar law. If it is held that the financing statements do not 
affect the title of the land, include a statement of the legal authority 
for that opinion.
    (e) Items to be included in the title evidence. The acceptable title 
evidence must include the following information, instruments and 
statements and need not be repeated or duplicated elsewhere in the 
Statement of Record.
    (1) A legal description of the land on which the lots, common areas, 
and facilities covered by the title evidence are located. This legal 
description shall be adequate for conveying land in the jurisdiction in 
which the subdivision is located. If this legal description is based on 
a recorded plat, the lot numbers, recording place, book name, book 
number, and page number shall be stated in the description. If this 
legal description is given by metes and bounds, the title evidence shall 
include or be accompanied by a certified statement of the preparer of 
the title evidence, a licensed attorney, or an engineer or surveyor, 
indicating that all subject lots, common areas, and common facilities 
are encompassed within the metes and bounds description in the evidence. 
If at any time after the submission of the legal description required 
above, the description of the subject land is changed or found to be in 
error, a correcting amendment shall be made to the Statement of Record.

[[Page 297]]

    (2) The name of the person(s) or other legal entity(ies) holding fee 
title to the property described.
    (3) The name of any person(s) or other legal entity(ies) holding a 
leasehold estate or other interest of record in the property described.
    (4) A listing of any and all exceptions or objections to the title, 
estate or interest of the person(s) or legal entity(ies) referred to in 
paragraph (e)(2) or (3) of this section, including any encumbrances, 
easements, covenants, conditions, reservations, limitations or 
restrictions of record. Any reference to exceptions or objections to 
title shall include specific references to the instruments in the public 
records upon which they are based. When an objection or exception to 
title affects less than all of the property covered by this Statement of 
Record, the title evidence shall specifically note what portion of the 
property is so affected.
    (5) Copies of all instruments in the public records specifically 
referred to in paragraph (e)(4) of this section. Abstracts of such 
instruments are acceptable if prepared by an attorney or professional or 
official abstractor qualified and authorized by law to prepare and 
certify such abstracts and if the abstracts contain a material portion 
of the recorded instruments sufficient to determine the nature and 
effect of such instruments. Also include copies of any release 
provisions, relating to encumbrances on the property described, which 
are not included in the documents otherwise required by this section.
    (6) If an attorney's title opinion has been submitted pursuant to 
this section which has been based on a Torrens land registration 
certificate of title, submit a copy of such certificate.
    (f) Supplemental title information. (1) If there is a holder of an 
ownership interest in the land other than the developer, submit a copy 
of any documentation which evidences the developers' authorization to 
develop and/or sell the land.
    (2) Submit copies of any trust deeds, deeds in trust, escrow 
agreements or other instruments which purport to protect the purchaser 
in the event of default or bankruptcy by the developer on any instrument 
or instruments which create a blanket encumbrance upon the property 
unless they have been previously provided as part of ``title evidence'' 
submitted pursuant to paragraph (e) of this section.
    (3)(i) Submit copies of all forms of contracts or agreements and 
notes to be used in selling or leasing lots. The contracts or 
agreements, including promissory notes, must contain the following 
language in boldface type (which must be distinguished from the type 
used for the rest of the contract) on the face or signature page above 
all signatures: ``You have the option to cancel your contract or 
agreement of sale by notice to the seller until midnight of the seventh 
day following the signing of the contract or agreement. If you did not 
receive a Property Report prepared pursuant to the rules and regulations 
of the Bureau of Consumer Financial Protection, in advance of your 
signing the contract or agreement, the contract or agreement of sale may 
be cancelled at your option for two years from the date of signing.''
    (ii) If the purchaser is entitled to a longer revocation period by 
operation of state law or the Act, that period becomes the Federal 
revocation period and the contract or agreement must reflect the 
requirements of the longer period, rather than the seven days. This 
language shall be consistent with that shown on the cover page (see 
Sec. 1010.105).
    (iii) The revocation provisions may not be limited or qualified in 
the contract or other document by requiring a specific type of notice or 
by requiring that notice be given at a specified place.
    (iv) If it is represented that the developer will provide or 
complete roads or facilities for waters, sewer, gas, electric service or 
recreational amenities, the contract must contain a provision that the 
developer is obligated to provide or complete such roads, facilities and 
amenities (see Sec. 1011.15(f)).
    (4) Submit copies of deeds and leases by which the developer will 
lease or convey title to the lots to purchasers or lessees.
    (g) Plat maps, environmental studies and restrictions--(1) Plat 
maps. (i) In those jurisdictions where it is unlawful to sell lots prior 
to final approval and recording of the plat, and in those

[[Page 298]]

cases where a plat has been recorded, submit a copy of the recorded 
plat. This plat should be an exact copy of the recorded document. It 
should reflect the signatures of the approving authorities and bear a 
stamp or notation by the recorder of deeds, or similarly constituted 
officer, as to the recording data.
    (ii) If the plat has not been approved by the local authorities nor 
recorded, and if it is not unlawful to sell lots prior to final approval 
and recording, submit a map which has been prepared to scale and which 
shows the proposed division of the land, the lot dimensions and their 
relation to proposed or existing streets and roads. The map shall 
contain sufficient engineering data to enable a surveyor to locate the 
lots.
    (iii) Whether recorded or unrecorded, the plat or map should show:
    (A) The dimensions of each lot, stated in the standard unit of 
measure acceptable for such purposes in the political subdivision where 
the land is located.
    (B) A clear delineation of each of the lots and any common areas or 
facilities.
    (C) Any encroachments or rights-of-way on, over, or under the land, 
or a notation of these items together with the identity of the lots 
affected.
    (D) The courses, distances and monuments, natural or otherwise, of 
the land's boundaries; contiguous boundaries and identification or 
ownership of adjoining land and names of abutting streets, ways, etc.
    (E) The location of the section or unit encompassing the lots in 
relationship to the larger tract, or tracts, in the subdivision.
    (F) The delineation of any flood plains or flood control easements 
affecting any of the lots.
    (iv) The plat, or map shall be prepared by a licensed surveyor or 
engineer.
    (v) If all lots on each page of the plat are not included in the 
Statement of Record with which the plat or map is submitted, then the 
lots which are to be included in the Statement of Record shall be 
identified on the plat or map; a legend describing the method of 
identification shall be entered on the face of the plat or map and the 
number of lots so identified entered in the lower right hand corner of 
the plat map. The Director must be able to reconcile the totals of these 
numbers with the information given in Sec. Sec. 1010.108 and 1010.208 
of the Statement of Record and the title evidence.
    (2) Environmental impact study. If the developer is aware of any 
environmental impact study which considers the effect of the subdivision 
on the environment, submit a summary of that study.
    (3) Restrictions or covenants. Submit a copy of any recorded or 
proposed restrictions or covenants for the subdivision if not submitted 
elsewhere in this Statement of Record. A copy of these restrictions or 
covenants shall be delivered to a prospective purchaser upon request. A 
supply shall be maintained at whatever place or places as will be 
necessary to allow immediate delivery upon request.



Sec. 1010.210  Roads.

    (a) State the estimated cost to the developer of the proposed road 
system.
    (b) If the developer is to complete any roads providing access to 
the subdivision, submit copies of any bonds or escrow agreements which 
have been posted to guarantee completion thereof.
    (c) Submit copies of any bonds or escrow agreements which have been 
posted to assure completion of the roads within the subdivision.
    (d) If the interior roads are to be maintained by a public 
authority, submit a copy of a letter from that authority which states 
that the roads have been, or the conditions upon which they will be, 
accepted for maintenance and when.



Sec. 1010.211  Utilities.

    (a) Water. (1) State the estimated cost to the developer of the 
central water system.
    (2) If water is to be supplied by a central system, furnish a letter 
from the supplier that it will supply the water. If the system is 
operated by a governmental division or by an entity whose operations are 
regulated by a governmental agency but which is not affiliated with or 
under the control of the developer, the letter shall include a

[[Page 299]]

statement that the supply of water will be sufficient to serve the 
anticipated population of the subdivision or how many homes or 
connections it can and will serve and that the water is tested at 
regular intervals and has been found to meet all standards for a public 
water supply.
    (3) If the water is to be supplied by individual wells, by an entity 
which is not regulated by a governmental agency, by the developer or by 
an entity which is affiliated with or controlled by the developer, 
submit a copy of any engineers' reports or hydrological surveys which 
indicate there is a sufficient supply of water to serve the anticipated 
population of the subdivision.
    (4) If the supplier of water is not in one of the categories in 
paragraph (a)(2) of this section, submit a copy of a letter or report 
from a cognizant health officer, or from a private laboratory licensed 
by the state to perform tests and issue reports on water, to the effect 
that the water was found to meet all drinking water standards required 
by the state for a public water system.
    (5) If any bond, escrow agreement or other financial assurance of 
the completion of the central system, including any phases which are to 
be constructed in the future, has been posted by the developer or an 
entity not regulated by a government agency, furnish a copy of the 
document.
    (6) Furnish a copy of any permits which have been obtained by the 
developer or any entity affiliated with or under the control of the 
developer in connection with the construction and operation of the 
central system. If a permit is required to install individual wells, 
submit a letter from the proper authority which states the requirements 
for obtaining the permit and that there is no objection to the use of 
individual wells in the subdivision.
    (7) Furnish a copy of any membership agreement or contract which 
allows or requires lot owners to use the central water system. If this 
document is furnished elsewhere in the Statement of Record, reference to 
it may be made here.
    (b) Sewer. (1) State the estimated cost to the developer of the 
central sewer system.
    (2) If sewage disposal is to be by individual on-site systems, 
furnish a letter from the local health authorities giving general 
approval to the use of these systems in the subdivision or giving 
specific approval for each and every lot.
    (3) If sewage disposal is to be through a central system which is 
owned and operated by a governmental division, or by an entity whose 
operations are regulated by a governmental agency but which is not 
affiliated with, or under the control of, the developer, furnish a 
letter from the entity that it will provide this service and that its 
treatment facilities have the capacity to serve the anticipated 
population of the subdivision or how many homes or connections it can 
and will serve.
    (4) Furnish a copy of any permits obtained by the developer or any 
entity affiliated with or under the control of the developer, for the 
construction and operation of the central sewer system or construction 
and use of any other method of sewage disposal contemplated for the 
subdivision except those to be obtained by individual lot owners at a 
later date.
    (5) If any bond, escrow agreement or other financial assurance of 
the completion of the central system or other system for which the 
developer is responsible, and any future expansion, has been posted, 
furnish a copy of the document.
    (6) Furnish a copy of any membership agreement of contract which 
allows, or requires, the lot owners to use the central system. If this 
document is furnished elsewhere in the Statement of Record, it may be 
included here by reference.
    (c) Electricity. Give an estimate of the total construction cost to 
be expended by the developer and submit any instrument providing 
financial assurance of completion of the facilities which has been 
posted by the developer.
    (d) Telephone. Give an estimate of the total construction cost to be 
expended by the developer and submit a copy of any instrument providing 
financial assurance of the completion of the facilities which has been 
posted by the developer.

[[Page 300]]



Sec. 1010.212  Financial information.

    (a) Financing of improvements. Describe the financing plan that is 
to be used in financing on-site or off-site improvements proposed in the 
Statement of Record.
    (b) Complete the following format (If the subdivision or common 
promotional plan contains, or will contain, 1000 or more lots, furnish 
this information in its entirety. If the subdivision or common 
promotional plan contains, or will contain, less than 1,000 lots, only 
paragraphs (b)(3)(iii) and (iv) of this section need be completed.)
    (1) Estimated date for full completion of amenities
    (2) Projected date for complete sell out of subdivision
    (3) Cost and expense recap for lots included in this Statement of 
Record:
    (i) Land acquisition cost or current fair market value of land.
    (ii) Development and improvement costs (include the estimated cost 
of such items as roads, utilities, and amenities which the developer 
will incur).
    (iii) Estimated marketing and advertising costs.
    (iv) Estimated sales commission.
    (v) Interest (include cost in financing the land purchase, 
improvements, or other borrowings).
    (vi) Estimated other expenses (include general costs, administrative 
costs, profit, etc.).
    (vii) Total.
    (4) Total land sales revenue:
    (i) Estimated total land sales income.
    (ii) Estimated other income.
    (iii) Total income.
    (c) Financial statements. (1) Submit a copy of the developer's 
financial statements for the last full fiscal year. These statements 
shall be prepared in accordance with generally accepted accounting 
principles as prescribed by the Financial Accounting Standards Board and 
generally accepted auditing standards as prescribed by the American 
Institute of Certified Public Accountants, and shall be audited by an 
independent licensed public accountant. They shall include a balance 
sheet, a statement of profit and loss, a statement of changes in 
financial condition and a certified opinion by the accountant. The 
statements shall be no more than six months old on the date the 
Statement of Record is submitted.
    (2) If the audited statements are more than six months old at the 
date of submission of the Statement of Record, or if the last full 
fiscal year has ended within the last 90 days and audited Statements are 
not yet available, the developer may submit a copy of the audited 
statements for the previous full fiscal year and supplement them with 
unaudited, interim statements so that the financial information is no 
more than six months old on the date that the Statement of Record is 
submitted. The interim statements may be prepared by company personnel 
but must contain a balance sheet, a statement of profit and loss and a 
statement of changes in financial condition and be prepared in 
accordance with generally accepted accounting principles.
    (d) Annual report. (1) Each year after the initial effective date, 
the developer shall submit a copy of its latest financial statements. 
These statements must meet the standards set out in Sec. 
1010.212(c)(1), unless the developer has qualified for an exception 
under Sec. 1010.212(e), and must be submitted within 120 days after the 
close of the developer's fiscal year.
    (2) If a developer has submitted its latest statements with a 
consolidated filing since the close of its fiscal year and prior to the 
end of the 120 day period, a second submission of the statements to 
comply with this section is not necessary.
    (3) If the developer no longer has an active sales program on the 
date this report is due, the information set forth in Sec. 
1010.310(c)(7)(iii) may be furnished in lieu of this report.
    (e) Exceptions. (1) If the developer does not have audited financial 
statements and the criteria in one of the following exceptions are met, 
statements need not be audited and certified but must meet all of the 
other requirements set forth in paragraphs (c)(1) and (2) of this 
section.
    (2) The term ``conveys title free of any mortgage or lien'' in these 
exceptions is not intended to prohibit the taking of an instrument as 
security for

[[Page 301]]

the lot purchase price after title is conveyed. For the purposes of 
these exceptions, these definitions shall apply:
    (i) Deed shall mean a warranty deed, or its equivalent, which 
conveys title free and clear of liens and encumbrances.
    (ii) Assurance of Title Agreement shall mean a legal arrangement 
whereby the purchaser is guaranteed a deed upon payment of no more than 
the full purchase price of the lot (e.g. subdivision trust). In addition 
to a copy of any Assurance of Title Agreement, the Director may require 
additional documentation such as an attorney's opinion letter to assure 
that the purchaser's title is fully protected.
    (iii) Date of contract shall mean the date on which the contract or 
agreement is signed by the purchaser.
    (iv) Escrow or trust account as to down payments and deposits shall 
mean an account, established in accordance with local real estate laws 
or regulations, which assures the return to the purchaser of any monies 
paid in the event title is not delivered to the purchaser in accordance 
with the terms of the contract.
    (3) The exceptions are:
    (i) The aggregate sales price of all lots offered pursuant to a 
common promotional plan equals $500,000.00 or less; or
    (ii) Each of the following conditions of paragraphs (e)(3)(ii)(A) 
and (B) of this section are met, plus the conditions of one of 
paragraphs (e)(3)(ii)(C), (D), or (E) of this section:
    (A) Down payments and deposits are held in an escrow or trust 
account.
    (B) The contract provides for delivery of a deed which conveys title 
free of any mortgage or lien within 180 days of the signing of the 
contract. (In lieu of delivery of a deed, the developer may submit to 
ILSRP an Assurance of Title Agreement.)
    (C) The aggregate sales prices of all lots offered pursuant to a 
common promotional plan is at least $500,000 but less than $1,500,000.
    (D) All facilities, utilities and amenities proposed by the 
developer in the Property Report or sales contract have been completed 
so that the lots in the Statement of Record are immediately usable for 
the purpose for which they are sold.
    (E)(1) The developer is contractually obligated to the purchaser to 
complete all facilities, utilities and amenities proposed by the 
developer in the Property Report and sales contract so that all lots 
included in the Statement of Record will be usable for the purpose for 
which they are sold by the dates set out in the Property Report, and;
    (2) The developer has made financial arrangements, such as the 
posting of surety bonds (corporate bonds or individual notes or bonds 
are not acceptable), irrevocable letters of credit or the establishment 
of escrow or trust accounts, which assure completion of all facilities, 
utilities and amenities proposed by the developer in the Property Report 
or contract.
    (f) Newly-formed entity. If the developer is newly formed or has not 
had any significant operating experience, an audited or unaudited 
balance sheet and statements of receipts and disbursements of funds may 
be submitted.
    (g) Use of parent company statements. (1) If the developer is a 
subsidiary company and does not have audited financial statements, the 
Director may permit the use of the audited and certified statements of 
the parent company: Provided, That those statements are accompanied by 
an unconditional guaranty that the parent shall perform and fulfill the 
obligations of the subsidiary. If this procedure is adopted, the 
developer shall submit the following:
    (i) The audited and certified financial statements of the parent 
company, together with interim statements if necessary, which comply 
with Sec. 1010.212(c).
    (ii) A properly executed guaranty in a form acceptable to the 
Director.
    (2) In cases described in paragraph (g)(1) of this section, the 
disclosure information required in Sec. 1010.112 shall be appropriately 
amended to reference the parent company and not the developer and must 
include a statement to the effect that the developer's parent company 
(insert name) has entered into an unconditional guaranty to perform and 
fulfill the obligations of the developer.
    (h) Opinions. If the accountant qualifies or disclaims his opinion, 
the Director may accept the statements and require such additional 
disclosure as the

[[Page 302]]

Director deems necessary in the public interest or for the protection of 
purchasers.
    (i) Copies for prospective purchasers. Copies of the financial 
statements filed with the Statement of Record shall be made available to 
prospective purchasers upon request. A supply of the latest submitted 
statements shall be maintained at whatever place, or places, as is 
necessary to allow immediate delivery upon request by a prospective 
purchaser. These statements shall contain financial information only and 
shall not include any promotional material such as that usually set 
forth in annual reports.
    (j) Change from audited to unaudited statements. (1) Developers who 
file audited statements must continue with audited statements throughout 
the duration of the registration unless, at a later date, the developer 
submits amendments which demonstrate to the satisfaction of the Director 
that it then qualifies for an exception from audited statements under 
paragraph (e)(3)(ii) of this section. For purposes of paragraph 
(e)(3)(ii)(C) of this section, the Director will consider the aggregate 
sales prices of only the lots yet to be sold, and may consider whether 
any additions to the subdivisions or reacquisitions of lots already sold 
would be likely to cause the dollar limits to be exceeded.
    (i) The aggregate sales prices of the lots yet to be sold in the 
subdivision has been reduced to less than $1,500,000.00, and that it 
will not exceed this amount through further additions to the 
subdivision, or through the reacquisition of lots already sold, and;
    (ii) The sales contract provides for delivery of a deed within 120 
days of the date of the contract which conveys title free and clear of 
any mortgage or lien or the developer files an Assurance of Title 
Agreement with ILSRP, and;
    (iii) Any down payments or deposits are held in an escrow or trust 
account, or;
    (iv) The developer then qualifies for exception (e)(3)(iii) or (iv) 
of this section.
    (2) The Director may allow a developer, who has made sales prior to 
registration, to submit unaudited statements under the provisions of 
paragraph (j)(1)(i) of this section. The developer must demonstrate to 
the satisfaction of the Director that the acceptance of unaudited 
statements would not be a detriment to the public interest or to the 
protection of purchasers.



Sec. 1010.214  Recreational facilities.

    (a) Submit a synopsis of the proposed plans and estimated cost of 
any proposed or partially constructed recreational facility disclosed in 
Sec. 1010.114. This item should include the general dimensions and a 
brief description of the facility but it should not include blueprints 
or similar technical materials.
    (b) Submit a copy of any bond or escrow arrangements to assure 
completion of the recreational facilities disclosed in Sec. 1010.114 
which are not structurally complete.
    (c) Submit a copy of the lease for any leased recreational facility.



Sec. 1010.215  Subdivision characteristics and climate.

    (a) Submit two copies of a current geological survey topographic 
map, or maps, of the largest scale available from the U.S. Geological 
Survey with an outline of the entire subdivision and the area included 
in this Statement of Record clearly indicated. Photo copies made by the 
developer are not acceptable. Do not shade the areas on the maps which 
have been outlined.
    (b) If drainage facilities are proposed but not yet completed, 
submit a synopsis of the developer's proposed plans that includes a 
description of the system of collecting surface waters; a description of 
the steps to be taken to control erosion and sedimentation and the 
estimated cost of the drainage facilities.
    (c) Submit copies of any bonds, escrow or trust accounts or other 
financial assurance of completion of the drainage facilities.
    (d) State whether the jurisdiction in which the subdivision is 
located has a system for rating the land for fire hazards.



Sec. 1010.216  Additional information.

    (a) Property Owners' Association. (1) If the association has been 
formed as a

[[Page 303]]

legal entity, submit a copy of the articles of association, bylaws or 
similar documents, and a copy of the charter or certificate of 
incorporation.
    (2) If the developer exercises any control over the association, 
state whether any contracts have been executed between the association 
and the developer or any affiliate or principal of the developer. If 
there have been, briefly summarize the terms of the contracts, their 
purpose, their duration and the method and rate of payment required by 
the contract. State whether the association may modify or terminate the 
contracts after the owners assume control of the association.
    (3) State whether there is any agreement which would require the 
association to reimburse the developer, its affiliates or successors for 
any attorney's fees or costs arising from an action brought against them 
by the association or individual property owners regardless of the 
outcome of the action.
    (4) If the answer to paragraph (a)(2) or (a)(3) of this section is 
in the affirmative, disclosure may be required in Sec. 1010.116(a) at 
the discretion of the Director.
    (5) Submit a copy of any membership agreement or similar document.
    (b) Price range, type of sales and marketing. (1) State the price 
range of lots in the subdivision.
    (2) State the type of sales to be made, i.e., contract for deed, 
cash, deed with security instrument, etc.
    (3) Describe the methods of advertising and marketing to be used for 
the subdivision. The description should include, but need not be limited 
to, information on such matters as to:
    (i) Whether the developer will employ his own sales force or will 
contract with an outside group;
    (ii) Whether wide area telephone solicitation will be employed;
    (iii) Whether presentations will be made away from the immediate 
vicinity of the subdivision and/or if prospective purchasers will be 
furnished transportation from distant cities to the subdivision;
    (iv) Whether mass mailing techniques will be used and gifts offered 
to those who respond.
    (4) For any subdivision that meets any of the criteria in paragraphs 
(b)(4)(i) through (iii) of this section, submit a copy of any 
advertising or promotional material that is, or has been, used for the 
subdivision. Amendments to reflect changes in advertising or promotional 
material need be filed only when there is a material change related to 
one of the above factors. Depending upon the content of the material 
submitted, the Director may require additional warnings in the Property 
Report portion. This requirement applies to any subdivision that:
    (i) Mentions or refers to recreational facilities which are not 
disclosed in Sec. 1010.114, or;
    (ii) Promotes the sale of lots based on the investment potential or 
expected profits, or;
    (iii) Contains information which is in conflict with that disclosed 
in this Statement of Record.
    (c) Violations and litigation. (1) Submit a copy of the 
complaint(s), the answer(s) and the decision(s) for any litigation 
listed in Sec. 1010.116(c).
    (2) If it is indicated in Sec. 1010.116(c) that the developer or 
any of the parties involved in the subdivision are, or have been, the 
subject of any bankruptcy proceedings, furnish a copy of the schedules 
of liabilities and assets (or a recap of those schedules); the petition 
number; the date of the filing of the petition; names and addresses of 
the petitioners, trustee and counsel; the name and location of the court 
where the proceedings took place and the status or disposition of the 
petition. Explain, briefly, the cause of the action.
    (3) Furnish a copy of any orders issued in connection with any 
violations listed in Sec. 1010.116(c).
    (d) Resale or exchange program. (1) If it is stated in Sec. 
1010.116(d)(3) that there is an exchange program which provides 
sufficient lots to satisfy all requests for exchange, describe the 
method used to determine the number of lots required; state whether 
these lots have been reserved or set aside; whether additional lots will 
be provided if the lots available for exchange are exhausted and the 
source of any additional lots.
    (2) [Reserved]
    (e) Unusual situations--(1) Foreign subdivisions. If the subdivision 
is located outside the several States, the District of Columbia, the 
Commonwealth of

[[Page 304]]

Puerto Rico or the territories or possession of the United States, the 
Statement of Record shall be submitted in the English language and all 
supporting documents, including copies of any laws which restrict the 
ownership of land by aliens, shall be submitted in their original 
language and shall be accompanied by a translation into English.
    (2) [Reserved]



Sec. 1010.219  Affirmation.

    The affirmation set forth in section XXVIII of the appendix to this 
part: Affirmation of Senior Executive Officer shall be executed by the 
senior executive officer or a duly authorized agent:



Sec. 1010.310  Annual report of activity.

    (a) As an integral part of the Statement of Record, the developer 
shall file with the Director an Annual Report of Activity on any initial 
or consolidated registration not under suspension. For this purpose, 
only one Annual Report of Activity will be expected for subdivisions on 
which developers have filed consolidations. For registrations certified 
by a state as provided for in Sec. 1010.500, a developer need file only 
one Annual Report of Activity for any registration for which the ILSRP 
number is the same (alphabetic designators indicate that the 
registration has been treated as a consolidation).
    (b) The report shall be submitted within 30 days of the annual 
anniversary of the effective date of the initial Statement of Record.
    (c) The report shall contain the following information:
    (1) Subdivision name and address.
    (2) Developer's name, address and telephone number.
    (3) Agent's name, address and telephone number.
    (4) Interstate Land Sales Registration number.
    (5) The date on which the initial filing first became effective.
    (6) The number of registered lots, parcels or units which are unsold 
as of the date on which the report is due.
    (7) One of the following:
    (i) A statement that the developer is still engaged in land sales 
activity at the subject subdivision and that there have been no changes 
in material fact since the last effective date was issued which would 
require an amendment to the Statement of Record; or
    (ii) A statement that the developer is still engaged in land sales 
activity at the subject subdivision, that material changes have occurred 
since the last effective date, and that corrected pages to the Property 
Report portion or Additional Information and Documentation portion of 
the Statement accompany the report; or
    (iii) A statement that the developer is no longer engaged in land 
sales activity at the subject subdivision, together with the reason the 
developer is no longer selling (e.g., all lots sold to the public or the 
remaining lots sold to another developer, along with the date of sale 
and the new developer's name, address and telephone number). A request 
may be made that the Statement of Record be voluntarily suspended. The 
request should be submitted in duplicate and will become effective upon 
the counter-signature of the Director (or an authorized Designee) with 
the duplicate being returned to the developer.
    (8) The report shall be dated and shall be signed by the senior 
executive officer of the developer on a signature line above his typed 
name and title. The senior executive officer's acknowledgement shall be 
attested to or certified by a notary public or similar public official 
authorized to attest or certify acknowledgements in the jurisdiction in 
which the report is executed.
    (d) If the report indicates that there are 101 or more registered 
lots, parcels or units remaining for sale, the report shall be 
accompanied by an amendment fee in the amount and form prescribed in 
Sec. 1010.35.
    (e) Failure to submit the report when due shall be grounds for an 
action to suspend the effective Statement of Record.



      Subpart C_Certification of Substantially Equivalent State Law



Sec. 1010.500  General.

    (a) This subpart establishes procedures and criteria for certifying 
state land sale or lease disclosure programs and State state land 
development standards programs. The purpose of

[[Page 305]]

State Certification is to lessen the administrative burden on the 
individual developer, arising where there are duplicative state and 
federal Federal registration and disclosure requirements, without 
affecting the level of protection given to the individual purchaser or 
lessee. If the Director determines that a state has adopted and is 
effectively administering a program that gives purchasers and lessees 
the same level of protection given to them by the Interstate Land Sales 
Registration Program, then the Director shall certify that state. 
Developers who accomplish an effective registration with a state in 
which the land is located after the Director has certified the state may 
satisfy the registration requirements of the Director by filing with the 
Director materials designated by agreement with certified states in lieu 
of the federal Federal Statement of Record and Property Report.
    (b) A state that is certified by the Director shall be known as the 
situs certified state for all land located within its borders.
    (c) After a developer is effectively registered with the Director 
through a certified state, the Director has the same authority over that 
developer as the Director has over developers who file directly with the 
Director. This includes the authority to subpoena information and to 
examine, evaluate and suspend a developer's registration under sections 
1407(d) and (e) of the Act and Sec. 1010.45(b)(1) and (b)(2) of these 
regulations.
    (d) The prohibitions against the use of the Property Report 
contained in Sec. 1010.29 apply to state disclosure materials and 
substantive development standards. In addition, for purposes of this 
paragraph, references made to the Director, ILSRP and the Bureau in 
Sec. 1010.29 will include a reference to the equivalent state officer 
or agency.
    (e) The Purchaser's Revocation Rights, Sales Practices and Standards 
rules contained in part 1011 of these regulations apply to developers 
who register with the Director through certified States. All of the 
rules in part 1011 apply, excepting the disclaimer statement in Sec. 
1011.50(a) which is modified to read as follows: ``Obtain the Property 
Report or its equivalent, required by Federal and State law and read it 
before signing anything. No Federal or State agency has judged the 
merits or value, if any, of this property.''
    (f) Developers are obliged to pay filing fees as set forth in Sec. 
1010.35 of this part.



Sec. 1010.503  Notice of certification.

    (a) If the Director determines that a state qualifies for 
certification under Sec. 1010.501(a) or (b), the Director shall so 
notify the state in writing. The state will be effectively certified 
under the section and as of the date specified in the notice.
    (b) If the Director determines that a state does not meet the 
standards for certification, the Director shall so notify the state in 
writing. The notice will specify particular changes in state law, 
regulations or administration that are needed to obtain certification. 
The Director shall not be bound in advance to certify a state that makes 
the suggested changes if other deficiencies become apparent at a later 
time.
    (c) The Director's final determination to accept or reject a State's 
Application for Certification of Land Sales Program shall be published 
in the Federal Register.
    (d) A state's certification will remain in effect until it is 
voluntarily suspended by the state or withdrawn by the Director. A state 
can voluntarily suspend its certification by notifying the Director in 
writing. The suspension will take effect as of the date and time 
specified in the notice to the Director, or upon receipt by the Director 
if no date is specified. The Director may withdraw certification as 
provided in Sec. 1010.505.



Sec. 1010.504  Cooperation among certified states and between certified
states and the Director.

    (a) By filing an Application for Certification of State Land Sales 
Program pursuant to Sec. 1010.502, a state agrees that, if it is 
certified by the Director, it will:
    (1) Accept for filing and allow to be distributed as the sole 
disclosure document, a disclosure document currently in effect in the 
situs certified state. Only those documents filed with the

[[Page 306]]

situs state after certification by the Director must automatically be 
accepted by other certified states;
    (2) Certify copies of all disclosure documents, amendments and 
consolidations filed with it by developers of land located within its 
borders for and as needed by developers required to submit certified 
copies to the Director and all other certified states. The certification 
shall indicate whether the documents are currently in effect. The 
certification should be in the format set forth in section XXIX of the 
appendix to this part: Form for Certification for Disclosure Documents.
    (3) Assist and cooperate with the Director and other certified 
states by requiring that developers of land within its borders amend 
disclosure documents if any change occurs in any representation of 
material fact required to be stated in the disclosure documents, 
including a change resulting from the developer's compliance with the 
requirements of the law in another certified state. The state shall 
require developers to send certified copies of the amended documents to 
the Director and requesting certified states. All amendments to such 
materials, which reflect changes in material facts regarding the 
subdivision, shall be submitted to the situs certified state authorities 
within 15 days of the date on which the developer knows, or should have 
known, of such change. Certified copies of the disclosure documents 
shall be submitted by the developer to the Director and the other 
certified states within 15 days after it becomes effective under the 
situs certified state laws.
    (4) Continue to effectively operate its Land Sales Program as that 
Program is described in the Application for Certification and as it was 
certified by the Director.
    (5) Assist and cooperate with the Director by monitoring the sales 
practices of developers registered with it directly or through another 
certified state, and by reporting to the Director any violations of the 
Act, including but not limited to the required contract provisions, 
revocation rights and anti-fraud provisions of 15 U.S.C. 1703, or the 
regulations.
    (b) A state required to accept the disclosure documents of another 
situs certified state pursuant to paragraph (a)(1) of this section, may, 
in its discretion, require the developer to furnish it with copies 
certified pursuant to paragraph (a)(2) of this section.
    (c) No state shall be prevented from establishing substantive or 
disclosure requirements which exceed the federal Federal standard 
provided that such requirements are not in conflict with the Act or 
these regulations. For example, a certified state may impose additional 
disclosure requirements on developers of land located within its borders 
but may not impose additional disclosure requirements on developers 
whose disclosure documents it is required to accept pursuant to 
paragraph (a)(1) of this section. However, a certified state may impose 
additional nondisclosure requirements on out of state developers even 
though the developer is registered in the certified state in which the 
land is located.
    (d) After a developer is effectively registered with a certified 
state through a situs certified state, either or both certified states 
may exercise full enforcement authorities and powers over that developer 
according to applicable law and regulations.
    (e) The Director shall cooperate with the certified states by 
offering a forum for nonbinding arbitration of disputes between two or 
more certified States arising out of the State Certification Program.



Sec. 1010.505  Withdrawal of state certification.

    (a) The Director shall periodically review the laws, regulations and 
administration thereof, of a certified state. If the Director finds 
that, taken as a whole, the laws, regulations or administration thereof, 
no longer meet the requirements of subpart C, then the Director may 
issue a notice to withdraw the certification of that state.
    (b) The notice of proceedings to withdraw a state's certification 
will be issued to the state by the Director pursuant to Sec. 1012.236. 
The Director may, after notice and after an opportunity for a hearing, 
pursuant to Sec. 1012.237, issue an order withdrawing certification. In 
the event that a withdrawal

[[Page 307]]

order is issued, the order shall remain in effect until the state has 
amended its laws, regulations or the administration thereof or has 
otherwise complied with the requirements of the order. When the state 
has complied with the requirements of the order, the Director shall so 
declare and the withdrawal order shall cease to be effective.
    (c) Withdrawal orders issued pursuant to this subsection will be 
effective as of the date the order is received by the state. The 
withdrawal order shall be published in the Federal Register.
    (d) The rules of 12 CFR part 1080, unless otherwise specified in 12 
CFR part 1012, subpart D, will generally apply to hearings on withdrawal 
of a state's certification.



Sec. 1010.506  State/Federal filing requirements.

    (a)(1) If the Director has certified a state under Sec. 1010.501, 
the Director shall accept for filing disclosure materials or other 
acceptable documents which have been approved by the certified state 
within which the subdivision is located. Only those filings made by the 
developer with the state after the state was certified by the Director 
shall be automatically accepted by the Director.
    (2) Retroactive application of the effectiveness of state's 
certification to a specified date may be granted on a state-by-state 
basis, where the Director determines that retroactive application will 
not result in automatic federal Federal registration of any state filing 
that has not met the requirements of the certified state laws.
    (b) For a developer to be registered with the Director, the 
developer shall file with the Director a state certified copy of the 
Property Report or its equivalent, and any other documentation as 
stipulated in the Director's Notice of Certification to the state.
    (c) The documents and materials filed under paragraph (b) of this 
section will be automatically effective as the Federal Statement of 
Record and Property Report after these materials and the proper filing 
fee have been received by the Director.
    (d) The Director has authority pursuant to Sec. 1010.45(b)(1) and 
(b)(2) to suspend individual filings which fail to meet the requirements 
of the certified state's law or regulations or the standards in the 
certification agreement whether or not the state agency has initiated a 
similar action.
    (e)(1) State accepted materials filed with the Director pursuant to 
this section must be amended to reflect any amendment to such materials 
made effective by the state. All amendments to such materials must be 
submitted to the Director within 15 days after becoming effective under 
the applicable state laws. Amendments are automatically effective upon 
their receipt by the Director and the provisions of Sec. 1010.45(b)(1) 
and (2) apply to amendments filed under this section.
    (2) Amendments shall include or be accompanied by:
    (i) A letter from the developer giving a narrative statement fully 
explaining the purpose and significance of the amendment and referring 
to that section and page of the material which is being amended, and;
    (ii) A signed state acceptance certification substantially the same 
as that required by Sec. 1010.504(a)(2).
    (f) If a certified state suspends the registration of a particular 
subdivision for any reason, the subdivision's federal Federal 
registration with the Director shall be automatically suspended as a 
result of the state action. No action need be taken by the Director to 
effect the suspension.
    (g) A state is certified only with regard to land located within the 
state borders. The Director is not required to accept filings which have 
been accepted by a certified state if the land which is the subject of 
the filing is not located within that certified state. For example, if 
State A is certified by the Director and State B is not, the Director is 
not required to accept filings from State B simply because State A 
accepts filings from State B.



Sec. 1010.507  Effect of suspension or withdrawal of certification 
granted under Sec. 1010.501(a): Full disclosure requirement.

    (a) If a state certified under Sec. 1010.501(a) suspends its own 
certification or has its certification withdrawn under Sec. 1010.505, 
the Federal disclosure materials accepted and made

[[Page 308]]

effective by the Director, pursuant to Sec. 1010.506, prior to the 
suspension or withdrawal shall remain in effect unless otherwise 
suspended by the Director.
    (b) In the event that there is a change in a material fact with 
regard to a subdivision that remains registered under the provisions of 
paragraph (a) of this section, the developer shall file a new 
registration with the Director meeting the requirements of the then 
applicable Federal registration regulations. Modifications of the 
Federal format may be used as specified by the Director.



Sec. 1010.508  Effect of suspension of certification granted under 
Sec. 1010.501(b): Sufficient protection requirement.

    (a) If a state certified under Sec. 1010.501(b) suspends its own 
certification or has its certification withdrawn under Sec. 1010.505, 
the effectiveness of the Federal disclosure materials accepted and made 
effective by the Director, pursuant to Sec. 1010.506, prior to the 
suspension or withdrawal shall terminate ninety (90) days after the 
notice of withdrawal order is published in the Federal Register as 
provided in Sec. 1010.505(c).
    (b) At the end of the ninety day period, or during the ninety day 
period in the event that there is a change in material fact with regard 
to a subdivision that remains registered under the provisions of 
paragraph (a) of this section, the developer shall file a new 
registration with the Director meeting the requirements of the then 
applicable Federal registration regulations. Modifications of the 
Federal format may be used as specified by the Director.



Sec. 1010.552  Previously accepted state filings.

    (a) Materials filed with a state and accepted by the HUD Secretary 
as a Statement of Record prior to January 1, 1981, pursuant to 24 CFR 
1010.52 through 1010.59 (as published in the Federal Register on April 
10, 1979) may continue in effect. However, developers must comply with 
the applicable amendments to the Federal Act and the regulations 
thereunder. In particular, see Sec. Sec. 1010.558 and 1010.559, which 
require that the Property Report and contracts or agreements contain 
notice of purchaser's revocation rights. In addition see Sec. 
1011.15(f), which provides that it is unlawful to make any 
representations with regard to the developer's obligation to provide or 
complete roads, water, sewers, gas, electrical facilities or 
recreational amenities, unless the developer is obligated to do so in 
the contract.
    (b) If any such filing becomes inactive or suspended under the laws 
of the state, the registration with the Director shall be ineffective 
from that time.
    (c) Such Statement of Record may be suspended pursuant to Sec. 
1010.45.
    (d) The Director may refuse to accept any particular filing under 
this section when it is determined that acceptance is not in the public 
interest.
    (e) The Director may require such changes, additional information, 
documents or certification as the Director determines to be reasonably 
necessary or appropriate in the public interest.



Sec. 1010.556  Previously accepted state filings--amendments and
consolidations.

    (a) Amendments--(1) General requirements. State accepted materials, 
filed with the Director pursuant to Sec. 1010.552, shall be amended to 
reflect any amendment to such materials made effective by the state or 
any change of a material fact regarding the subdivision. All amendments 
to such materials, which reflect changes in material facts regarding the 
subdivision, shall be submitted to the state authorities within 15 days 
of the date on which the developer knows, or should have known, of such 
change and to the Director within 15 days after it becomes effective 
under the applicable State laws. However, such amendment shall not be 
effective as a Federal registration until the Director has determined 
that the amendment meets all applicable requirements of these 
regulations.
    (2) Amendments shall include or be accompanied by:
    (i) A letter from the developer giving a narrative statement fully 
explaining the purpose and significance of the amendment and referring 
to that section and page of the Statement of Record which is being 
amended, and;

[[Page 309]]

    (ii) All amended pages of the state accepted materials filed with 
the Director. These pages shall be copied together with their 
amendments. Each such page shall have its date of preparation in the 
lower right hand corner, and;
    (iii) A signed state acceptance certification, and;
    (iv) The appropriate fees as indicated in Sec. 1010.35.
    (b) Consolidations--(1) When consolidations allowed. If lots are to 
be registered pursuant to Sec. 1010.552 which are in the same common 
promotional plan with other lots already registered with the Director, 
then new consolidated state accepted materials including such lots may 
be filed with the Director as a Statement of Record following the format 
of the previously accepted filing.
    (2) Consolidated Statements of Record shall include or be 
accompanied by:
    (i) State accepted consolidation materials which are also acceptable 
to the Director as a Statement of Record (state property report 
inclusive). These state accepted consolidation materials shall cover all 
lots previously registered in the common promotional plan except those 
deleted pursuant to other provisions in these regulations. These 
materials shall also include information and items required for state 
accepted materials filed as an initial registration Statement of Record, 
except that, supporting documentation in materials previously made 
effective by the Director for other lots in the subject common 
promotional plan may be included incorporated by reference into the new 
consolidation materials submitted as a Statement of Record. However, 
such documentation may be incorporated by reference included only if it 
is applicable to the new consolidated lots as well as to the previously 
registered lots.
    (ii) A signed state acceptance certification.
    (iii) The appropriate fees as indicated in Sec. 1010.35.
    (c) Effective date; state filing. The effective dates of state 
materials filed as amendments and consolidated Statements of Record 
shall be determined in accordance with the provisions of Sec. 1010.21.



Sec. 1010.558  Previously accepted state filings--notice of revocation
rights on property report cover page.

    (a)(1) The cover page on Property Reports for filings made with the 
Director pursuant to Sec. 1010.552 shall be prepared in accordance with 
Sec. 1010.105 and shall include the paragraphs set forth in section XXX 
of the appendix to this part: Language to be Included on Property Report 
Cover Page.
    (2) If the purchaser is entitled to a longer revocation period by 
operation of State law, that period becomes the Federal revocation 
period and the cover page must reflect the longer period, rather than 
the seven days.
    (b)(1) If a deed is not delivered within 180 days of the signing of 
the contract or agreement of sale or unless certain provisions are 
included in the contract or agreement, the purchaser is entitled to 
cancel the contract within two years from the date of signing the 
contract or agreement.
    (2) The deed must be a warranty deed, or where such a deed is not 
commonly used, a similar deed legally acceptable in the jurisdiction 
where the lot is located. The deed must be free and clear of liens and 
encumbrances.
    (3) The contract provisions are:
    (i) A legally sufficient and recordable lot description, and;
    (ii) A provision that the seller will give the purchaser written 
notification of purchaser's default or breach of contract and the 
opportunity to remedy the default or breach within 20 days of the 
notice; and
    (iii) A provision that, if the purchaser loses rights and interest 
in the lot because of the purchaser's default or breach of contract 
after 15 percent of the purchase price, exclusive of interest, has been 
paid, the seller shall refund to the purchaser any amount which remains 
from the payments made after subtracting 15 percent of the purchase 
price, exclusive of interest, or the amount of the seller's actual 
damages, whichever is the greater.
    (4) If a deed is not delivered within 180 days of the signing of the 
contract or if the necessary provisions are not included in the 
contract, the following statement shall be used in place of any other 
rescission language: ``Under Federal law you may cancel your contract

[[Page 310]]

or agreement of sale any time within two years from the date of 
signing.''



Sec. 1010.559  Previously accepted state filings--notice of revocation
rights in contracts and agreements.

    (a)(1) All contracts or agreements, including promissory notes used 
in sale of lots for filings made with the Director pursuant to Sec. 
1010.552, must contain the language set forth in section XXXI of the 
appendix to this part: Notice of Revocation Rights in boldface type 
(which must be distinguished from the type used for the rest of the 
contract) on the face or signature page above all signatures:
    (2) If the purchaser is entitled to a longer revocation period by 
operation of State law or the Act, that period becomes the Federal 
revocation period and the contract or agreement must reflect the longer 
period, rather than the seven days. The language shall be consistent 
with that shown on the Cover Page (see Sec. 1010.558).
    (b) The above revocation provisions may not be limited or qualified 
in the contract or other document by requiring a specific type of notice 
or by requiring that notice be given at a specified place.



   Sec. Appendix A to Part 1010--Standard and Model Forms and Clauses

 I. Forms for Developer's Affirmation for Land Sale--Sec. 1010.13(a)(9)

Developer's Name________________________________________________________
Developer's Address_____________________________________________________
Purchaser's Name(s)_____________________________________________________
Purchaser's Address(es) (including county)______________________________
Name of Subdivision_____________________________________________________
Legal Description of Lot(s) Purchased___________________________________

    I hereby affirm that all of the requirements of the MSA exemption as 
set forth in 15 U.S.C. 1702(b)(8) and 12 CFR 1010.13 have been met in 
the sale or lease of the lot(s) described above.
    I also affirm that I submit to the jurisdiction of the Interstate 
Land Sales Full Disclosure Act with regard to the sale or lease cited 
above.

(Date)__________________________________________________________________
(Signature of Developer or Authorized Agent)____________________________
(Title)_________________________________________________________________

    II. Language Notifying Buyer of Option to Cancel Contract--Sec. 
                            1010.15(b)(5)(i)

    You have the option to cancel your contract or agreement of sale by 
notice to the seller until midnight of the seventh day following the 
date of signing of the contract or agreement.
    If you did not receive a Lot Information Statement prepared pursuant 
to the rules and regulations of the Bureau of Consumer Financial 
Protection in advance of your signing the contract or agreement, the 
contract or agreement of sale may be cancelled at your option for two 
years from the date of signing.

    III. Sample Lot Information Statement and Sample Receipt--Sec. 
                             1010.15(b)(11)

                              Sample Format

    (Use of the following headings and first paragraph are mandatory.)

                        Lot Information Statement

            Important: Read Carefully Before Signing Anything

    The developer has obtained a regulatory exemption from registration 
under the Interstate Land Sales Full Disclosure Act. One requirement of 
that exemption is that you must receive this Statement prior to the time 
you sign an agreement (contract) to purchase a lot.

                             Right To Cancel

    (Under this heading the developer is to state the specific 
rescission rights provided for in the contract pursuant to 
1010.15(b)(5)(i)).

                           Risk of Buying Land

    (Under this heading the developer is to list the following 
information:)
    There are certain risks in purchasing real estate that you should be 
aware of. The following are some of those risks:
    The future value of land is uncertain and dependent upon many 
factors. Do not expect all land to automatically increase in value.
    Any value which your lot may have will be affected if roads, 
utilities and/or amenities cannot be completed or maintained.
    Any development will likely have some impact on the surrounding 
environment. Development which adversely affects the environment may 
cause governmental agencies to impose restriction on the use of the 
land.
    In the purchase of real estate, many technical requirements must be 
met to assure that you receive proper title and that you will be able to 
use the land for its intended purpose. Since this purchase involves a 
major expenditure of money, it is recommended that you seek professional 
advice before you obligate yourself.
    If adequate provisions have not been made for maintenance of the 
roads or if the land is not served by publicly maintained roads, you

[[Page 311]]

may have to maintain the roads at your expense.
    If the land is not served by a central sewage system and/or water 
system, you should contact the local authorities to determine whether a 
permit will be given for an on-site sewage disposal system and/or well 
and whether there is an adequate supply of water. You should also become 
familiar with the requirements for, and the cost of, obtaining 
electrical service to the lot.

                          Developer Information

    (Under this heading the developer is to list the following 
information:)

Developer's Name:_______________________________________________________
Address:________________________________________________________________
Telephone Number:_______________________________________________________

                             Lot Information

    (Under this heading the developer is to list the following 
information:)

Lot Location:___________________________________________________________

    (Enter a statement disclosing all liens, reservations, taxes, 
assessments, easements and restrictions applicable to the lot. A copy of 
the restrictions may be attached in lieu of recitation.)

              Suppliers of Utilities and Issuers of Permits

    (Under this heading the developer is to list the name, address and 
phone number of the appropriate governmental agency or agencies, if any, 
that will provide information on permits or other requirements for 
water, sewer and electrical installations. The information will also 
contain the name, address and telephone number of the suppliers of such 
utilities which can provide information to the purchaser on costs and 
availability of such services. A chart similar to the one below may be 
used to supply this information).
    Listed below are contact points for determining permit requirements, 
if any, and to obtain information on approximate costs and availability 
for the listed services:

------------------------------------------------------------------------
                                            Name, address and telephone
                                                     number of
                                         -------------------------------
                                           Governmental
                                              agency         Supplier
------------------------------------------------------------------------
Water
Sewer
Electricity
------------------------------------------------------------------------

    If misrepresentations are made in the sale of this lot to you, you 
may have rights under the Interstate Land Sales Full Disclosure Act. If 
you have evidence of any scheme, artifice or device used to defraud you, 
you may wish to contact: Office of Nonbank Supervision, Interstate Land 
Sales Registration Program, Bureau of Consumer Financial Protection, 
1700 G Street NW., Washington, DC 20006.
    (The Receipt is to be in the following form:)

              Sample Receipt for Lot Information Statement

Purchaser (print or type):______________________________________________
Date:___________________________________________________________________
Signature of purchaser:_________________________________________________
________________________________________________________________________
Street Address:_________________________________________________________
City:___________________________________________________________________
State:__________________________________________________________________
Zip:____________________________________________________________________
Name of salesperson (print or type):____________________________________
Signature of salesperson:_______________________________________________

IV. Request for Multiple Site Subdivision Exemption--Sec. 1010.15(c)(1)

             Request for Multiple Site Subdivision Exemption

    Developer:

Name:___________________________________________________________________
Address:________________________________________________________________
Telephone No.:__________________________________________________________

    Agent:

Name:___________________________________________________________________
Address:________________________________________________________________
Telephone No.:__________________________________________________________


    (Insert a general description of the developer's method of 
operation.)
    I affirm that I am, or will be, the developer of the property and/or 
method of operation described above.
    I affirm that the lots in said property will be sold in compliance 
with all of the requirements of 12 CFR 1010.15.
    I further affirm that the statements contained in all documents 
submitted with this request for an Exemption Order are true and 
complete.

Date:___________________________________________________________________
Signature:______________________________________________________________
Title:__________________________________________________________________


    WARNING: 18 U.S.C. 1001 provides, among other things, that whoever 
knowingly and willingly makes or uses a document or writing containing 
any false, fictitious, or fraudulent statement or entry, in any matter 
within the jurisdiction of any department or agency of the United 
States, shall be fined not more than $10,000 or imprisoned for not more 
than 5 years or both.

       V. Request for Regulatory Exemption Order--Sec. 1010.16(c)

                       REQUEST FOR EXEMPTION ORDER

Subdivision_____________________________________________________________
Location (including county)_____________________________________________
Developer_______________________________________________________________
Address_________________________________________________________________
Authorized Agent or President of Developer

[[Page 312]]


________________________________________________________________________

Address_________________________________________________________________
Number of Lots Subject to Exemption Request_____________________________
Description of Lots (list lot and block number or other identifying 
designation)____________________________________________________________
________________________________________________________________________

    I affirm that I am the developer or owner of the property described 
above or will be the developer or owner at the time the lots are offered 
for sale to the public, or that I am the agent authorized by the 
developer or owner to complete this statement.
    I further affirm that the statements contained in all documents 
submitted with the request for an exemption order are true and complete.

________________________________________________________________________
(Date)

________________________________________________________________________
(Signature of Developer, Owner or Authorized Agent)

________________________________________________________________________
(Title)

    WARNING: Section 15 U.S.C. 1717 provides: ``Any person who willfully 
violates any of the provisions of this title or of the rules and 
regulations or any person who willfully, in a Statement of Record filed 
under, or in a Property Report issued pursuant to this title, makes any 
untrue statement of a material fact shall upon conviction be fined not 
more than $10,000.00 or imprisoned not more than 5 years, or both.''

  VI. Developer's Affirmation for Advisory Opinion--Sec. 1010.17(b)(3)

                         Developer's Affirmation

Name of Subdivision_____________________________________________________
Location (Including County and State)___________________________________
Name of Developer_______________________________________________________
Address of Developer____________________________________________________
Name of Agent___________________________________________________________
Address of Agent________________________________________________________
Number of Lots in Subdivision___________________________________________
Number of Acres in Subdivision__________________________________________


    I affirm that I am the developer or owner of the property described 
above or will be the developer or owner at the time the lots are offered 
for sale to the public, or that I am the agent authorized by the 
developer or owner to complete this statement.
    I further affirm that the statements contained in all documents 
submitted with the request for an Advisory Opinion are true and 
complete.

________________________________________________________________________
(Date)
________________________________________________________________________
(Signature)
________________________________________________________________________
(Title);

    WARNING: 15 U.S.C. 1717 provides: ``Any person who willfully 
violates any of the provisions of this title or of the rules and 
regulations or any person who willfully, in a Statement of Record filed 
under, or in a Property Report issued pursuant to this title, makes any 
untrue statement of a material fact shall upon conviction be fined not 
more than $10,000.00 or imprisoned not more than 5 years, or both.''

     VII. Initial and Consolidated Registration Fee Schedule--Sec. 
                               1010.35(b)

------------------------------------------------------------------------
                        Number of lots                            Fees
------------------------------------------------------------------------
200 or fewer lots............................................       $800
201 or more lots.............................................      1,000
------------------------------------------------------------------------

    VIII. Property Report for Statement of Record--Sec. 1010.100(b)

                             Property Report
                       Heading and Section Number
 
Cover Sheet..................................................   1010.105
Table of Contents............................................   1010.106
Risks of Buying Land, Warnings...............................   1010.107
General Information..........................................   1010.108
Title and Land Use...........................................   1010.109
 
  (a) General Instructions
  (b) Method of Sale
  (c) Encumbrances, Mortgages and Liens
  (d) Recording the Contract and Deed
  (e) Payments
  (f) Restrictions
  (g) Plats, Zoning, Surveying, Permits, Environment
 
Roads........................................................   1010.110
Utilities....................................................   1010.111
 
  (a) Water
  (b) Sewer
  (c) Electricity
  (d) Telephone
  (e) Fuel or other Energy Source
Financial Information........................................   1010.112
Local Services...............................................   1010.113
Recreational Facilities......................................   1010.114
Subdivision Characteristics and Climate......................   1010.115
 
  (a) General Topography
  (b) Water Coverage
  (c) Drainage and Fill
  (d) Flood Plain
  (e) Flooding and Soil Erosion
  (f) Nuisances
  (g) Hazards
  (h) Climate
  (i) Occupancy

[[Page 313]]

 
Additional Information.......................................   1010.116
 
  (a) Property Owners' Association
  (b) Taxes
  (c) Violations and Litigation
  (d) Resale or Exchange Program
  (e) Unusual Situations
  1. Leases
  2. Foreign Subdivision
  3. Time Sharing
  4. Membership
  (f) Equal Opportunity in Lot Sales
  (g) Listing of lots
 
Cost Sheet...................................................   1010.117
Receipt, Agent Certification and Cancellation Page...........   1010.118
 
                ADDITIONAL INFORMATION AND DOCUMENTATION
 
General Information..........................................   1010.208
Title and Land Use...........................................   1010.209
Roads........................................................   1010.210
Utilities....................................................   1010.211
Financial Information........................................   1010.212
Recreational Facilities......................................   1010.214
Subdivision Characteristics..................................   1010.215
Additional Information.......................................   1010.216
Affirmation..................................................   1010.219
 
The Bureau's OMB control number for this information collection is: 3170-
 0012.
 

          IX. Sample Page for Statement of Record--1010.102(e)

                               SAMPLE PAGE

                                  ROADS

    Here we discuss the roads that lead to the subdivision, those within 
the subdivision and the location of nearby communities.
    ACCESS TO THE SUBDIVISION.
    County road 43 leads to the subdivision. It has two lanes 
and the width of the wearing surface is 22 feet. It's paved with a 
macadam surface.
    This road is maintained by Bottineau County with County funds. No 
improvements are planned at this time.
    ACCESS WITHIN THE SUBDIVISION.
    The roads within the subdivision will be located on rights of way 
dedicated to the public.
    We are responsible for constructing the interior roads. There will 
be no additional cost to you for this construction.
    WE HAVE NOT SET ASIDE ANY FUNDS IN AN ESCROW OR TRUST ACCOUNT OR 
MADE ANY OTHER FINANCIAL ARRANGEMENTS TO ASSURE COMPLETION OF THE ROADS, 
SO THERE IS NO ASSURANCE WE WILL BE ABLE TO COMPLETE THE ROADS.
    At present, the roads are under construction and do not provide 
access to the lots in Units 2 and 3 during wet weather. The succeeding 
chart describes their present condition and estimated completion dates.

----------------------------------------------------------------------------------------------------------------
                        Estimated       Percentage of      Estimated
       UUnit          starting date     construction    completion date    Present  surface      Final surface
                     (month and year)   now complete    (month and year)
----------------------------------------------------------------------------------------------------------------
1.................  February 2010....              50  December 2010....  Gravel............  Asphalt.
2.................  August 2010......               0  June 2011........  Dirt..............  Do.
3.................  April 2011.......               0  October 2011.....  None..............  Do.
----------------------------------------------------------------------------------------------------------------

    X. Language for Warning on Cover Page of Property Report--Sec. 
                               1010.105(c)

    This Report is prepared and issued by the developer of this 
subdivision. It is not prepared or issued by the Federal Government.
    Federal law requires that you receive this Report prior to your 
signing a contract or agreement to buy or lease a lot in this 
subdivision. However, NO FEDERAL AGENCY HAS JUDGED THE MERITS OR VALUE, 
IF ANY, OF THIS PROPERTY.
    If you received this Report prior to signing a contract or 
agreement, you may cancel your contract or agreement by giving notice to 
the seller any time before midnight of the seventh day following the 
signing of the contract or agreement.
    If you did not receive this Report before you signed a contract or 
agreement, you may cancel the contract or agreement any time within two 
years from the date of signing.

Name of Subdivision_____________________________________________________
Name of Developer_______________________________________________________
Date of This Report_____________________________________________________

  XI. Sample Entry in Table of Contents for Statement of Record--Sec. 
                               1010.106(a)

    Title and Land Use  Page 
    Method of Sale
    Encumbrances, Mortgages and Liens
    Recording the Contract and Deed
    Payments
    Restrictions on the Use of Your Lot

[[Page 314]]

    Plat Maps, Zoning, Surveying, Permits and Environment

   XII. Required Language for Risks of Buying Land--Sec. 1010.107(a)

    (1) The future value of any land is uncertain and dependent upon 
many factors. DO NOT expect all land to increase in value.
    (2) Any value which your lot may have will be affected if the roads, 
utilities and all proposed improvements are not completed. This 
paragraph may be omitted if all improvements have been completed or if 
no improvements are proposed.
    (3) Resale of your lot may be difficult or impossible, since you may 
face the competition of our own sales program and local real estate 
brokers may not be interested in listing your lot.
    (4) Any subdivision will have an impact on the surrounding 
environment. Whether or not the impact is adverse and the degree of 
impact, will depend on the location, size, planning and extent of 
development. Subdivisions which adversely affect the environment may 
cause governmental agencies to impose restrictions on the use of the 
land. Changes in plant and animal life, air and water quality and noise 
levels may affect your use and enjoyment of your lot and your ability to 
sell it.
    (5) In the purchase of real estate, many technical requirements must 
be met to assure that you receive proper title. Since this purchase 
involves a major expenditure of money, it is recommended that you seek 
professional advice before you obligate yourself.

          XIII. Format for General Information--Sec. 1010.108

    ``This Report covers ---- lots located in ------------ County, 
(State ). See Page ---- for a listing of these lots. It is estimated 
that this subdivision will eventually contain ---- lots.''
    ``The developer of this subdivision is:

________________________________________________________________________
(Developer's Name)
________________________________________________________________________
(Developer's Address)
________________________________________________________________________
(Developer's telephone number)

    ``Answers to questions and information about this subdivision may be 
obtained by telephoning the developer at the number listed above.''

   XIV. Paragraphs to be included in the General Report--Title to the 
               Property and Land Use--Sec. 1010.109(a)(1)

    ``A person with legal title to property generally has the right to 
own, use and enjoy the property. A contract to buy a lot may give you 
possession but doesn't give you legal title. You won't have legal title 
until you receive a valid deed. A restriction or an encumbrance on your 
lot, or on the subdivision, could adversely affect your title.''
    ``Here we will discuss the sales contract you will sign and the deed 
you will receive. We will also provide you with information about any 
land use restrictions and encumbrances, mortgages, or liens affecting 
your lot and some important facts about payments, recording, and title 
insurance.''

     XV. Statement on Release Provisions--Sec. 1010.109(c)(2)(i)(A)

    ``The release provisions for the (indicate all or particular lots) 
have not been recorded. Therefore, they may not be honored by subsequent 
holders of the mortgage. If they are not honored, you may not be able to 
obtain clear title to a lot covered by this mortgage until we have paid 
the mortgage in full, even if you have paid the full purchase price of 
the lot. If we should default on the mortgage prior to obtaining a 
release of your lot, you may lose your lot and all monies paid.''

   XVI. Warning for Release Provisions--Sec. 1010.109(c)(2)(i)(C)(1)

    ``The (state type of encumbrance) on (indicate all or particular 
lots) in this subdivision does not contain any provisions for the 
release of an individual lot when the full purchase price of the lot has 
been paid. Therefore, if your lot is subject to this (state type of 
encumbrance), you may not be able to obtain clear title to your lot 
until we have paid the (state type of encumbrance) in full, even though 
you may have received a deed and paid the full purchase price of the 
lot. If we should default on the (state type of encumbrance) prior to 
obtaining a release, you may lose your lot and all monies paid.''

 XVII. Method and Purpose of Recording Warning--Sec. 1010.109(d)(1)(iv)

    ``Unless your contract or deed is recorded you may lose your lot 
through the claims of subsequent purchasers or subsequent creditors of 
anyone having an interest in the land''.

        XVIII. Escrow Statement--Disclosure Sec. 1010.109(e)(1)

    ``You may lose your (indicate deposit, down payment and/or 
installment payments) on your lot if we fail to deliver legal title to 
you as called for in the contract, because (they are/it is) not held in 
an escrow account which fully protects you.''

                  XIX. Road Chart--Sec. 1010.110(b)(3)

[[Page 315]]



----------------------------------------------------------------------------------------------------------------
                       Estimated        Percentage of        Estimated
      UUnit          starting date     construction now   completion date    Present  surface    Final surface
                      (month/year)         complete         (month/year)
----------------------------------------------------------------------------------------------------------------
                   .................
----------------------------------------------------------------------------------------------------------------

           XX. Nearby Communities Chart--Sec. 1010.110(b)(6)

 
 
 
Nearby Communities...........................................  .........
Population...................................................  .........
Distance Over Paved Roads....................................  .........
Distance Over Unpaved Roads..................................  .........
  Total......................................................
 

           XXI. Water Chart Form--Sec. 1010.111(a)(1)(ii)(B)

                                  Water
------------------------------------------------------------------------
                                                            Estimated
                       Estimated        Percentage of        service
      UUnit          starting date    construction now    availability
                    (month and year)       complete      date (month and
                                                              year)
------------------------------------------------------------------------
                   .................
------------------------------------------------------------------------

          XXII. Comfort Station Chart--Sec. 1010.111(b)(1)(ii)

                            Comfort Stations

Unit____________________________________________________________________
Estimated Starting Date (month-year)____________________________________
Percentage of Construction now complete_________________________________
Estimated Service Availability Date (month and year)____________________

            XXIII. Sewer Chart--Sec. 1010.111(b)(1)(iii)(B)

                                  Sewer

Unit Estimated Starting Date (month/year)_______________________________
Percentage of Construction now complete_________________________________
Estimated Service Availability Date (month/year)________________________

           XXIV. Electric Service Chart--Sec. 1010.111(c)(2)

                            Electric Service
------------------------------------------------------------------------
                                                            Estimated
                       Estimated        Percentage of        service
      UUnit          starting date      construction      availability
                    (month and year)      complete       date (month and
                                                              year)
------------------------------------------------------------------------
                   .................
------------------------------------------------------------------------

           XXV. Recreational Facility Chart--Sec. 1010.114(b)

----------------------------------------------------------------------------------------------------------------
                                      Estimated date of
                     Percentage of         start of        Estimated date       Financial        Buyer's annual
     Facility       construction now     construction    available for use     assurance of         cost or
                        complete         (month/year)       (month/year)        completion        assessments
----------------------------------------------------------------------------------------------------------------
                   .................
----------------------------------------------------------------------------------------------------------------

               XXVI. Cost Sheet Format--Sec. 1010.117(a)

                               Cost Sheet

    In addition to the purchase price of your lot, there are other 
expenditures which must be made.
    Listed below are the major costs. There may be other fees for use of 
the recreational facilities.
    All costs are subject to change.

                               Sales Price
Cash Price of lot.........................  $
Finance Charge............................  $
                                           -----------------------------
  Total...................................  $
 
                       Estimated one-time charges
 
1. Water connection fee/installation or     $
 private well.
2. Sewer connection fee/installation of     $
 private on-site sewer system.
3. Construction costs to extend electric    $
 and/or telephone services.
4. Other (Identify).......................  $
                                           -----------------------------
                                            $
  Total of estimated sales price and one-   $
   time charges.
 

[[Page 316]]

 
     Estimated monthly/annual charges, exclusive of utility use fees
 
1. Taxes--Average unimproved lot after      $
 sale to purchaser.
2. Dues and assessments...................  $
 

    The information contained in this Property Report is an accurate 
description of our subdivision and development plans.

________________________________________________________________________
Signature of Senior Executive Officer

XXVII. Sample Receipt, Agent Certification and Cancellation Page--Sec. 
                               1010.118(a)

  Receipt, Agent Certification and Cancellation Page purchaser receipt 
                        Important: Read Carefully

Name of subdivision_____________________________________________________
ILSRP number____________________________________________________________
Date of report__________________________________________________________

    We must give you a copy of this Property Report and give you an 
opportunity to read it before you sign any contract or agreement. By 
signing this receipt, you acknowledge that you have received a copy of 
our Property Report.

Received by_____________________________________________________________
Date____________________________________________________________________
Street address__________________________________________________________
City____________________________________________________________________
State___________________________________________________________________
Zip_____________________________________________________________________

    If any representations are made to you which are contrary to those 
in this Report, please notify the:

Bureau of Consumer Financial Protection
1700 G Street NW
Washington, DC 20006

                           Agent Certification

    I certify that I have made no representations to the person(s) 
receiving this Property Report which are contrary to the information 
contained in this Property Report.

Lot_____________________________________________________________________
Block___________________________________________________________________
Section_________________________________________________________________
Name of salesperson_____________________________________________________
Signature_______________________________________________________________
Date____________________________________________________________________

                          Purchase Cancellation

    If you are entitled to cancel your purchase contract, and wish to do 
so, you may cancel by personal notice, or in writing. If you cancel in 
person or by telephone, it is recommended that you immediately confirm 
the cancellation by certified mail. You may use the form below.

Name of subdivision_____________________________________________________
Date of contract________________________________________________________

    This will confirm that I/we wish to cancel our purchase contract.


Purchaser(s) signature__________________________________________________
Date____________________________________________________________________

     XXVIII. Affirmation of Senior Executive Officer--Sec. 1010.219

    I hereby affirm that I am the Senior Executive Officer of the 
developer of the lots herein described or will be the Senior Executive 
Officer of the developer at the time lots are offered for sale or lease 
to the public, or that I am the agent authorized by the Senior Executive 
Officer of such developer to complete this statement (if agent, submit 
written authorization to act as agent); and,
    That the statements contained in this Statement of Record and any 
supplement hereto, together with any documents submitted herein, are 
full, true, complete, and correct; and,
    That the developer is bound to carry out the promises and 
obligations set forth in this Statement of Record and Property Report or 
I have clearly stated who is or will be responsible; and
    That the fees accompanying this submission are in the amount 
required by the rules and regulations of the Bureau of Consumer 
Financial Protection.

________________________________________________________________________
(Date)
________________________________________________________________________
(Signature)
________________________________________________________________________
(Corporate seal if applicable)
________________________________________________________________________
(Title)

    WARNING: 15 U.S.C. 1717 provides: ``Any person who willfully 
violates any of the provisions of this title or of the rules and 
regulations or any person who willfully, in a Statement of Record filed 
under, or in a Property Report issued pursuant to this title, makes any 
untrue statement of a material fact shall upon conviction be fined not 
more than $10,000.00 or imprisoned not more than 5 years, or both.''

      XXIX. Form for Certification for Disclosure Documents--Sec. 
                             1010.504(a)(2)

    The (indicate the State Department of Real Estate or other 
appropriate entity) has reviewed the attached materials and finds they 
are true copies of (1) the (indicate Property Report or other similar 
state accepted document or amendment to such document) for (indicate the 
name of the subdivision), made effective by the state of ------------ on 
------------ (give date) and still in effect; and (2) the supporting 
documentation upon which such (indicate the document or amendment) is 
based.

________________________________________________________________________
Signature

[[Page 317]]

   XXX. Language to be Included on Property Report Cover Page--Sec. 
                             1010.558(a)(1)

    ``If you received this Report prior to signing a contract or 
agreement, you may cancel your contract or agreement by giving notice to 
the seller anytime before midnight of the seventh day following the 
signing of the contract or agreement.
    ``If you did not receive this Report before you signed a contract or 
agreement, you may cancel the contract or agreement anytime within two 
years from the date of signing.''

         XXXI. Notice of Revocation Rights--Sec. 1010.559(a)(1)

    You have the option to cancel your contract or agreement of sale by 
notice to the seller until midnight of the seventh day following the 
signing of the contract or agreement. If you did not receive a Property 
Report prepared pursuant to the rules and regulations of the Bureau of 
Consumer Financial Protection, in advance of your signing the contract 
or agreement, this contract or agreement may be revoked at your option 
for two years from the date of signing.



PART 1011_PURCHASERS' REVOCATION RIGHTS, SALES PRACTICES AND STANDARDS 
(REGULATION K)--Table of Contents



                 Subpart A_Purchasers' Revocation Rights

Sec.
1011.1 General.
1011.2 Revocation regardless of registration.
1011.4 Contract requirements and revocation.
1011.5 Reimbursement.

                 Subpart B_Sales Practices and Standards

1011.10 General.
1011.15 Unlawful sales practices--statutory provisions.
1011.20 Unlawful sales practices--regulatory provisions.
1011.25 Misleading sales practices.
1011.27 Fair housing.
1011.30 Persons to whom subpart B is inapplicable.

                    Subpart C_Advertising Disclaimers

1011.50 Advertising disclaimers; subdivisions registered and effective 
          with the Bureau.

    Authority: 12 U.S.C. 5512, 5581; 15 U.S.C. 1718.

    Source: 76 FR 79522, Dec. 21, 2011, unless otherwise noted.



                 Subpart A_Purchasers' Revocation Rights



Sec. 1011.1  General.

    The purpose of this subpart A is to elaborate on the revocation 
rights in 15 U.S.C. 1703, by enumerating certain conditions under which 
purchasers may exercise revocation rights. Generally, whenever 
revocation rights are available, they apply to promissory notes, as well 
as traditional agreements.



Sec. 1011.2  Revocation regardless of registration.

    All purchasers have the option to revoke a contract or lease with 
regard to a lot not exempt under Sec. Sec. 1010.5 through 1010.11 and 
1010.14 until midnight of the seventh day after the day that the 
purchaser signs a contract or lease. If a purchaser is entitled to a 
longer revocation period under state law, that period is deemed the 
Federal revocation period rather than the 7 days, and all contracts and 
agreements (including promissory notes) shall so state.



Sec. 1011.4  Contract requirements and revocation.

    (a) In accordance with 15 U.S.C. 1703(d)(3), the refund to the 
purchaser is calculated by subtracting from the amount described in 15 
U.S.C. 1703(d)(3)(B), the greater of:
    (1) Fifteen percent of the purchase or lease price of the lot 
(excluding interest owed) at the time of the default or breach of 
contract or agreement; or
    (2) The amount of damages incurred by the seller or lessor due to 
the default or breach of contract.
    (b) For the purposes of this section:
    Damages incurred by the seller or lessor means actual damages 
resulting from the default or breach, as determined by the law of the 
jurisdiction governing the contract. However, no damages may be 
specified in the contract or agreement, except a liquidated damages 
clause not exceeding 15 percent of the purchase price of the lot, 
excluding any interest owed.
    Purchase price means the cash sales price of the lot shown on the 
contract.
    (c) The contractual requirements of 15 U.S.C. 1703(d) do not apply 
to the sale of a lot for which, within 180 days after the signing of the 
sales contract,

[[Page 318]]

the purchaser receives a warranty deed or, where warranty deeds are not 
commonly used, its equivalent under state law.



Sec. 1011.5  Reimbursement.

    If a purchaser exercises rights under 15 U.S.C. 1703(b), (c), or 
(d), but cannot reconvey the lot in substantially similar condition, the 
developer may subtract from the amount paid by the purchaser, and 
otherwise due to the purchaser under 15 U.S.C. 1703, any diminished 
value in the lot caused by the acts of the purchaser.



                 Subpart B_Sales Practices and Standards



Sec. 1011.10  General.

    Sales practices means any conduct or advertising by a developer or 
its agents to induce a person to buy or lease a lot. This subpart 
describes certain unlawful sales practices and provides standards to 
illustrate what other sales practices are considered misleading in light 
of certain circumstances in which they are made and within the context 
of the overall offer and sale or lease.



Sec. 1011.15  Unlawful sales practices--statutory provisions.

    The statutory prohibitions against fraudulent or misleading sales 
practices are set forth at 15 U.S.C. 1703(a). With respect to the 
prohibitions against representing that certain facilities will be 
provided or completed unless there is a contractual obligation to do so 
by the developer:
    (a) The contractual covenant to provide or complete the services or 
amenities may be conditioned only upon grounds that are legally 
sufficient to establish impossibility of performance in the jurisdiction 
where the services or amenities are being provided or completed;
    (b) Contingencies such as acts of God, strikes, or material 
shortages are recognized as permissible to defer completion of services 
or amenities; and
    (c) In creating these contractual obligations developers have the 
option of incorporating by reference the Property Report in effect at 
the time of the sale or lease. If a developer chooses to incorporate the 
Property Report by reference, the effective date of the Property Report 
being included by reference must be specified in the contract of sale or 
lease.



Sec. 1011.20  Unlawful sales practices--regulatory provisions.

    In selling, leasing or offering to sell or lease any lot in a 
subdivision it is an unlawful sales practice for any developer or agent, 
directly or indirectly, to:
    (a) Give the Property Report to a purchaser along with other 
materials when done in such a manner so as to conceal the Property 
Report from the purchaser.
    (b) Give a contract to a purchaser or encourage him to sign anything 
before delivery of the Property Report.
    (c) Refer to the Property Report or Offering Statement as anything 
other than a Property Report or Offering Statement.
    (d) Use any misleading practice, device or representation which 
would deny a purchaser any cancellation or refund rights or privileges 
granted the purchaser by the terms of a contract or any other document 
used by the developer as a sales inducement.
    (e) Refuse to deliver a Property Report to any person who exhibits 
an interest in buying or leasing a lot in the subdivision and requests a 
copy of the Property Report.
    (f) Use a Property Report, note, contract, deed or other document 
prepared in a language other than that in which the sales campaign is 
conducted, unless an accurate translation is attached to the document.
    (g) Deliberately fail to maintain a sufficient supply of restrictive 
covenants and financial statements or to deliver a copy to a purchaser 
upon request as required by Sec. Sec. 1010.109(f), 1010.112(d), 
1010.209(g), and 1010.212(i).
    (h) Use, as a sales inducement, any representation that any lot has 
good investment potential or will increase in value unless it can be 
established, in writing, that:
    (1) Comparable lots or parcels in the subdivision have, in fact, 
been resold by their owners on the open market at a profit, or;

[[Page 319]]

    (2) There is a factual basis for the represented future increase in 
value and the factual basis is certain, and;
    (3) The sales price of the offered lot does not already reflect the 
anticipated increase in value due to any promised facilities or 
amenities. The burden of establishing the relevancy of any comparable 
sales and the certainty of the factual basis of the increase in value 
shall rest upon the developer.
    (i) Represent a lot as a homesite or building lot unless:
    (1) Potable water is available at a reasonable cost;
    (2) The lot is suitable for a septic tank operation or there is 
reasonable assurance that the lot can be served by a central sewage 
system;
    (3) The lot is legally accessible; and
    (4) The lot is free from periodic flooding.



Sec. 1011.25  Misleading sales practices.

    Generally, promotional statements or material will be judged on the 
basis of the affirmative representations contained therein and the 
reasonable inferences to be drawn therefrom, unless the contrary is 
affirmatively stated or appears in promotional material, or unless 
adequate safeguards have been provided by the seller to reasonably 
guarantee the occurrence of the thing inferred. For example, when a lot 
is represented as being sold by a warranty deed, the inference is that 
the seller can and will convey fee simple title free and clear of all 
liens, encumbrances, and defects except those which are disclosed in 
writing to the prospective purchaser prior to conveyance. The following 
advertising and promotional practices, while not all inclusive, are 
considered misleading, and are used to evaluate a developer's or agent's 
representations in determining possible violations of the Act or 
regulations. In this section ``represent'' carries its common meaning.
    (a) Proposed improvements. References to proposed improvements of 
any land unless it is clearly indicated that the improvements are only 
proposed or what the completion date is for the proposed improvement.
    (b) Off-premises representations. Representing scenes or proposed 
improvements other than those in the subdivision unless
    (1) It is clearly stated that the scenes or improvements are not 
related to the subdivision offered; or
    (2) In the case of drawings that the scenes or improvements are 
artists' renderings;
    (3) If the areas or improvements shown are available to purchasers, 
what the distance in road miles is to the scenes or improvements 
represented.
    (c) Land use representations. Representing uses to which the offered 
land can be put unless the land can be put to such use without 
unreasonable cost to the purchaser and unless no fact or circumstance 
exists which would prohibit the immediate use of the land for its 
represented use.
    (d) Use of ``road'' and ``street.'' Using the words ``road'' or 
``street'' unless the type of road surface is disclosed. All roads and 
streets shown on subdivision maps are presumed to be of an all-weather 
graded gravel quality or higher and are presumed to be traversable by 
conventional automobile under all normal weather conditions unless 
otherwise shown on the map.
    (e) Road access and use. Representing the existence of a road 
easement or right-of-way unless the easement or right-of-way is 
dedicated to the public, to property owners or to the appropriate 
property owners association.
    (f) Waterfront property. References to waterfront property, unless 
the property being offered actually fronts on a body of water. 
Representations which refer to ``canal'' or ``canals'' must state the 
specific use to which such canal or canals can be put.
    (g) Maps and distances. (1) The use of maps to show proximity to 
other communities, unless the maps are drawn to scale and scale 
included, or the specific road mileage appears in easily readable print.
    (2) The use of the terms such as ``minutes away,'' ``short 
distance,'' ``only miles,'' or ``near'' or similar terms to indicate 
distance unless the actual distance in road miles is used in conjunction 
with such terms. Road miles will be measured from the approximate 
geographical center of the subdivided lands to the approximate

[[Page 320]]

downtown or geographical center of the community.
    (h) Lot size. Representation of the size of a lot offered unless the 
lot size represented is exclusive of all easements to which the lot may 
be subject, except for those for providing utilities to the lot.
    (i) ``Free'' lots. Representing lots as ``free'' if the prospective 
purchaser is required to give any consideration whatsoever, offering 
lots for ``closing costs only'' when the closing costs are substantially 
more than customary, or when an additional lot must be purchased at a 
higher price.
    (j) Pre-development prices. References to pre-development sales at a 
lower price because the land has not yet been developed unless there are 
plans for development, and reasonable assurance is available that the 
plans will be completed.
    (k) False reports of lot sales. Repeatedly announcing that lots are 
being sold or to make repetitive announcements of the same lot being 
sold when in fact this is not the case.
    (l) Guaranteed refund. Use of the word ``guarantee'' or phrase 
``guaranteed refund'' or similar language implying a money-back 
guarantee unless the refund is unconditional.
    (m) Discount certificates. The use of discount certificates when in 
fact there is no actual price reduction or when a discount certificate 
is regularly used.
    (n) Lot exchanges. Representations regarding property exchange 
privileges unless any applicable conditions are clearly stated.
    (o) Resale program. Making any representation that implies that the 
developer or agent will resell or repurchase the property being offered 
at some future time unless the developer or agent has an ongoing program 
for doing so.
    (p) Symbols for conditions. The use of asterisks or any other 
reference symbol or oral parenthetical expression as a means of 
contradicting or substantially changing any previously made statement or 
as a means of obscuring material facts.
    (q) Proposed public facilities. References to a proposed public 
facility unless money has been budgeted for construction of the facility 
and is available to the public authority having the responsibility of 
construction, or unless disclosure of the existing facts concerning the 
public facility is made.
    (r) Non-profit or institutional name use. The use of names or trade 
styles which imply that the developer is a nonprofit research 
organization, public bureau, group, etc., when such is not the case.



Sec. 1011.27  Fair housing.

    Title VIII of the Civil Rights Act of 1968, 42 U.S.C. 3601, et seq., 
and its implementing regulations and guidelines apply to land sales 
transactions to the extent warranted by the facts of the transaction.



Sec. 1011.30  Persons to whom subpart B is inapplicable.

    Newspaper or periodical publishers, job printers, broadcasters, or 
telecasters, or any of the employees thereof, are not subject to this 
subpart unless the publishers, printers, broadcasters, or telecasters:
    (a) Have actual knowledge of the falsity of the advertisement or
    (b) Have any interest in the subdivision advertised or
    (c) Also serve directly or indirectly as the advertising agent or 
agency for the developer.



                    Subpart C_Advertising Disclaimers



Sec. 1011.50  Advertising disclaimers; subdivisions registered and 
effective with the Bureau.

    (a) The following disclaimer statement shall be displayed below the 
text of all printed material and literature used in connection with the 
sale or lease of lots in a subdivision for which an effective Statement 
or Record is on file with the Director: ``Obtain the Property Report 
required by Federal law and read it before signing anything. No Federal 
agency has judged the merits or value, if any, of this property.'' If 
the material or literature consists of more than one page, it shall 
appear at the bottom of the front page. The disclaimer statement shall 
be set in type of at least ten point font.
    (b) If the advertising is of a classified type; is not more than 
five inches long

[[Page 321]]

and not more than one column in print wide, the disclaimer statement may 
be set in type of at least six point font.
    (c) This disclaimer statement need not appear on billboards, on 
normal size matchbook folders or business cards which are used in 
advertising nor in advertising of a classified type which is less than 
one column in print wide and is less than five inches long.
    (d) A developer who is required by any state, or states, to display 
an advertising disclaimer in the same location, or one of equal 
prominence, as that of the Federal disclaimer, may combine the wording 
of the disclaimers. All of the wording of the Federal disclaimer must be 
included in the resulting combined disclaimer.



PART 1012_SPECIAL RULES OF PRACTICE (REGULATION J)--Table of Contents



Subpart A [Reserved]

                       Subpart B_Filing Assistance

Sec.
1012.30 Scope of this subpart.
1012.35 Prefiling assistance.
1012.40 Processing of filings.

Subpart C [Reserved]

                   Subpart D_Adjudicatory Proceedings

1012.105-1012.200 [Reserved]
1012.205 Suspension notice prior to effective date.
1012.210 Hearings--suspension notice prior to effective date.
1012.215 Notice of proceedings subsequent to effective date.
1012.220 Hearings--notice of proceedings subsequent to effective date.
1012.225 Suspension order for failure to cooperate.
1012.230 Suspension order pending amendments.
1012.235 Hearings--suspension orders for failure to cooperate and 
          pending amendments.
1012.236 Notice of proceedings to withdraw a State's certification.
1012.237 Hearings--notice of proceedings pursuant to withdrawal of state 
          certification.
1012.238 Notices of proceedings to terminate exemptions.
1012.239 Hearings--notice of proceedings pursuant to exemptions.

    Authority: 12 U.S.C. 5512, 5581; 15 U.S.C. 1718.

    Source: 76 FR 79524, Dec. 21, 2011, unless otherwise noted.

Subpart A [Reserved]



                       Subpart B_Filing Assistance



Sec. 1012.30  Scope of this subpart.

    This subpart applies to and governs procedures under which 
developers may obtain prefiling assistance and be notified of and 
permitted to correct deficiencies in the Statement of Record.



Sec. 1012.35  Prefiling assistance.

    Persons intending to file with the Bureau of Consumer Financial 
Protection, Office of Nonbank Supervision may receive advice of a 
general nature as to the preparation of the filing including information 
as to proper format to be used and the scope of the items to be included 
in the format. Inquiries and requests for informal discussions with 
staff members should be directed to the Office of Nonbank Supervision, 
Interstate Land Sales Registration Program, Bureau of Consumer Financial 
Protection, 1700 G Street NW., Washington, DC 20006.



Sec. 1012.40  Processing of filings.

    (a) Statements of Record and accompanying filing fees will be 
received on behalf of the Director by the Office of Nonbank Supervision, 
for determination of whether the criteria set forth in paragraphs (a)(1) 
through (3) of this section have been satisfied. Where it appears that 
all three criteria are satisfied and it is otherwise practicable, 
acceleration of the effectiveness of the Statement of Record will 
normally be granted.
    (1) Completeness of the statement
    (2) Adequacy of the filing fee, and
    (3) Adequacy of disclosure.
    (b) Filings intended as Statements of Record but which do not comply 
in form with Sec. Sec. 1010.105 and 1010.120 of this chapter, whichever 
is applicable, and Statements of Record accompanied by inadequate filing 
fees will not be effective to accomplish any purpose under the Act. At 
the discretion of the Interstate Land Sales Registration Program, such 
filings and any moneys accompanying them may be immediately

[[Page 322]]

returned to the sender or after notification may be held pending the 
sender's appropriate response.
    (c) Persons filing incomplete or inaccurate Statements of Record 
will be notified of the deficiencies therein by the Suspension Notice 
procedure described in Sec. 1010.45(a) of this chapter.

Subpart C [Reserved]



                   Subpart D_Adjudicatory Proceedings



Sec. Sec. 1012.105-1012.200  [Reserved]



Sec. 1012.205  Suspension notice prior to effective date.

    A suspension pursuant to Sec. 1010.45(a) of this chapter shall be 
effected by service of a suspension notice which shall contain:
    (a) An identification of the filing to which the notice applies.
    (b) A specification of the deficiencies of form, disclosure, 
accuracy, documentation or fee tender which constitute the grounds under 
Sec. 1010.45(a) of this chapter, of the suspension, and of the 
additional or corrective procedure, information, documentation, or 
tender which will satisfy the Director's requirements.
    (c) A notice of the hearing rights of the developer under Sec. 
1012.210 and of the procedures for invoking those rights.
    (d) A notice that, unless otherwise ordered, the suspension shall 
remain in effect until 30 days after the developer cures the specified 
deficiencies as required by the notice.



Sec. 1012.210  Hearings--suspension notice prior to effective date.

    (a) A developer, upon receipt of a suspension notice issued pursuant 
to Sec. 1010.45(a) of this chapter, may obtain a hearing by filing a 
written request in accordance with the instructions regarding such 
request contained in the suspension notice. Such a request must be filed 
within 15 days of receipt of the suspension notice and must be 
accompanied by an answer and 3 copies thereof signed by the respondent 
or the respondent's attorney conforming to the requirements of 
1081.201(b) and (c).
    (b) When a hearing is requested pursuant to paragraph (a) of this 
section, such hearing shall be held within 20 days of receipt of the 
request. The time and place for hearing shall be fixed with due regard 
for the public interest and the convenience and necessity of the parties 
or their representatives.
    (c) A request for hearing filed pursuant to paragraph (a) of this 
section shall not interrupt or annul the effectiveness of the suspension 
notice, and suspension of the effective date of the Statement or 
amendment shall continue until vacated by order of the Director or 
administrative law judge. Except in cases in which the developer shall 
waive or withdraw the request for such hearing, or shall fail to pursue 
the same by appropriate appearance at a hearing duly scheduled, noticed 
and convened, the suspended filing shall be reinstated in the event of 
failure of the Director to schedule, give notice of or hold a duly-
requested hearing within the time specified in paragraph (b) of this 
section, or in the event of a finding that the Director has failed to 
support at such hearing the propriety of the suspension with respect to 
the material issues of law and fact raised by the answer. Such 
reinstatement shall be effective on the date on which the filing would 
have become effective had no notice of suspension been issued with 
respect to it.
    (d) If there is an outstanding suspension notice under Sec. 
1010.45(a) with respect to the same matter for which a suspension order 
under Sec. 1010.45(b)(3) is issued, the notice and order shall be 
consolidated for the purposes of hearing. In the event that allegations 
upon which the suspension notice and suspension order are based are 
identical, only one answer need be filed.



Sec. 1012.215  Notice of proceedings subsequent to effective date.

    A proceeding pursuant to Sec. 1010.45(b)(1) of this chapter is 
commenced by issuance and service of a notice which shall contain:
    (a) A clear and accurate identification of the filing or filings to 
which the notice relates.
    (b) A clear and concise statement of material facts, sufficient to 
inform the

[[Page 323]]

respondent with reasonable definiteness of the statements, omissions, 
conduct, circumstances or practices alleged to constitute the grounds 
for the proposed suspension order under Sec. 1010.45(b)(1) of this 
chapter.
    (c) A notice of hearing rights of the developer under Sec. 1012.220 
and of the procedures for invoking those rights.
    (d) Designation of the administrative law judge appointed to preside 
over pre-hearing procedures and over the hearings.
    (e) A notice that failure to file an answer conforming to the 
requirements of Sec. 1081.201(b) and (c) will result in an order 
suspending the Statement of Record.



Sec. 1012.220  Hearings--notice of proceedings subsequent to effective 
date.

    (a) A developer, upon receipt of a notice of proceedings issued 
pursuant to Sec. 1010.45(b)(1) of this chapter, may obtain a hearing by 
filing a written request in accordance with the instructions regarding 
such request contained in the notice of proceedings. Such a request must 
be filed within 15 days of receipt of the notice of proceedings and must 
be accompanied by an answer conforming to the requirements of Sec. 
1081.201(b) and (c).
    (b) When a hearing is requested pursuant to paragraph (a) of this 
section, such hearing shall be held within 45 days of receipt of the 
request by the Director unless it is determined that it is not in the 
public interest. The time and place for hearing shall be fixed with due 
regard for the public interest and the convenience and necessity of the 
parties or their representatives.
    (c) Failure to answer within the time allowed by paragraph (a) of 
this section or failure of a developer to appear at a hearing duly 
scheduled shall result in an appropriate order under Sec. 1010.45(b)(1) 
of this chapter suspending the statement of record. Such order shall be 
effective as of the date of service or receipt.



Sec. 1012.225  Suspension order for failure to cooperate.

    A suspension pursuant to Sec. 1010.45(b)(2) of this chapter shall 
be effected by service of a suspension order which shall contain:
    (a) An identification of the filing to which the order applies.
    (b) Bases for issuance of order.
    (c) A notice of the hearing rights of the developer under Sec. 
1012.235 the procedures for invoking those rights.
    (d) A statement that the order shall remain in effect until the 
developer has complied with the Director's requirements.



Sec. 1012.230  Suspension order pending amendments.

    A suspension pursuant to paragraph (b)(3) of Sec. 1010.45 of this 
chapter shall be effected by service of a suspension order which shall 
contain:
    (a) An identification of the filing to which the order applies.
    (b) An identification of the amendment to the filing which generated 
the order.
    (c) A statement that the issuance of the order is necessary or 
appropriate in the public interest or for the protection of purchasers.
    (d) A statement that the order shall remain in effect until the 
amendment becomes effective.
    (e) A notice of the hearing rights of the developer under Sec. 
1012.235 and of the procedure for invoking those rights.



Sec. 1012.235  Hearings--suspension orders for failure to cooperate and
pending amendments.

    (a) A developer, upon receipt of a suspension order issued pursuant 
to Sec. 1010.45(b)(2) or Sec. 1010.45(b)(3) of this chapter, may 
obtain a hearing by filing a written request in accordance with the 
instructions regarding such request contained in the suspension order. 
Such request must be filed within 15 days of receipt of the suspension 
order and must be accompanied by an answer and 3 copies thereof signed 
by the respondent or respondent's attorney conforming to the 
requirements of Sec. 1081.201(b) and (c).
    (b) When a hearing is requested pursuant to paragraph (a) of this 
section, such hearing shall be held within 20 days of receipt of the 
request. The time and place for hearing shall be fixed with due regard 
for the public interest

[[Page 324]]

and the convenience and necessity of the parties or their 
representatives.
    (c) A request for hearing filed pursuant to paragraph (a) of this 
section shall not interrupt or annul the effectiveness of the suspension 
order.



Sec. 1012.236  Notice of proceedings to withdraw a State's certification.

    A proceeding pursuant to Sec. 1010.505 of this chapter is commenced 
by issuance and service of a notice which shall contain:
    (a) An identification of the state certification to which the notice 
applies.
    (b) A clear and concise statement of material facts, sufficient to 
inform the respondent with reasonable definiteness of the basis for the 
Director's determination, pursuant to Sec. 1010.505, that the State's 
laws, regulations and the administration thereof, taken as a whole, no 
longer meet the requirements of Sec. 1010.501.
    (c) A notice of hearing rights of the state under Sec. 1012.237 and 
of the procedures for invoking those rights.
    (d) A notice that failure to file an answer conforming to the 
requirements of Sec. 1081.201(b) and (c) will result in an order 
suspending the State's certification.



Sec. 1012.237  Hearings--notice of proceedings pursuant to withdrawal 
of state certification.

    (a) A State, upon receipt of a notice of proceedings issued pursuant 
to Sec. 1010.505 of this chapter, may obtain a hearing by filing a 
written request in accordance with the instructions regarding such 
request contained in the notice of proceedings. Such request must be 
filed within 15 days of receipt of the notice of proceedings and must be 
accompanied by an answer conforming to the requirements of Sec. 
1081.201(b) and (c).
    (b) When a hearing is requested pursuant to paragraph (a) of this 
section, such hearing shall be held within 45 days of receipt of this 
request. The time and place for the hearing shall be fixed with due 
regard for the public interest and the convenience and necessity of the 
parties or their representatives.
    (c) Failure to answer within the time allowed by paragraph (a) of 
this section or failure to appear at a hearing duly scheduled shall 
result in an appropriate order under Sec. 1010.505 of this chapter 
withdrawing the State's certification. Such order shall be effective as 
of the date of service or receipt.



Sec. 1012.238  Notices of proceedings to terminate exemptions.

    A proceeding to terminate a self-determining exemption under Sec. 
1010.14 or an exemption order under Sec. 1010.15 or Sec. 1010.16 is 
commenced by issuance and service of a notice which shall contain:
    (a) In the case of an exemption under Sec. 1010.14, an 
identification of the developer and subdivision to which this notice 
applies. In the case of an exemption under either Sec. 1010.15 or Sec. 
1010.16, an identification of the exemption order to which the notice 
applies.
    (b) A clear and concise statement of material facts, sufficient to 
inform the respondent with reasonable definiteness of the basis for the 
Director's determination that further exemption from the registration 
and disclosure requirements is not in the public interest or that the 
sales or leases do not meet the requirements for exemption, or both.
    (c) A notice of hearing rights of the respondent under Sec. 
1012.239 and of the procedures for invoking those rights.
    (d) A notice that failure to file an answer conforming to the 
requirements of Sec. 1081.201(b) and (c) will result, in the case of a 
notice issued under Sec. 1010.14, in an order terminating eligibility 
for the exemption, or, in the case of a notice issued under either Sec. 
1010.15 or Sec. 1010.16, in an order terminating the exemption order.



Sec. 1012.239  Hearings--notice of proceedings pursuant to exemptions.

    (a) A developer, upon receipt of a notice of proceedings issued 
under Sec. Sec. 1010.14, 1010.15, and 1010.16 of this chapter, may 
obtain a hearing by filing a written request contained in the notice of 
proceedings. The request must be filed within 15 days of receipt of the 
notice of proceedings and must be accompanied by an answer conforming to 
the requirements of Sec. 1081.201(b) and (c).
    (b) When a hearing is requested pursuant to paragraph (a) of this 
section, such hearing shall be held within 45

[[Page 325]]

days of receipt of this request. The time and place for the hearing 
shall be fixed with due regard for the public interest and the 
convenience and necessity of the parties of their representatives.
    (c) Failure to answer within the time allowed by paragraph (a) of 
this section, or failure to appear at a duly scheduled hearing shall 
result in an appropriate order under Sec. 1010.14, Sec. 1010.15, or 
Sec. 1010.16 of this chapter terminating the developer's exemption. The 
order shall be effective as of the date of service or receipt.



PART 1013_CONSUMER LEASING (REGULATION M)--Table of Contents



Sec.
1013.1 Authority, scope, purpose, and enforcement.
1013.2 Definitions.
1013.3 General disclosure requirements.
1013.4 Content of disclosures.
1013.5 Renegotiations, extensions, and assumptions.
1013.6 [Reserved]
1013.7 Advertising.
1013.8 Record retention.
1013.9 Relation to state laws.

Appendix A to Part 1013--Model Forms
Appendix B to Part 1013 [Reserved]
Appendix C to Part 1013--Issuance of Official Interpretations
Supplement I to Part 1013--Official Interpretations

    Authority: 12 U.S.C. 5512, 5581; 15 U.S.C. 1604, 1667f.

    Source: 76 FR 78502, Dec. 19, 2011, unless otherwise noted.



Sec. 1013.1  Authority, scope, purpose, and enforcement.

    (a) Authority. The regulation in this part, known as Regulation M, 
is issued by the Bureau of Consumer Financial Protection to implement 
the consumer leasing provisions of the Truth in Lending Act, which is 
Title I of the Consumer Credit Protection Act, as amended (15 U.S.C. 
1601 et seq.). Information collection requirements contained in this 
part have been approved by the Office of Management and Budget under the 
provisions of 44 U.S.C. 3501 et seq. and have been assigned OMB control 
number 3170-0006.
    (b) Scope and purpose. This part applies to all persons that are 
lessors of personal property under consumer leases as those terms are 
defined in Sec. 1013.2(e)(1) and (h), except persons excluded from 
coverage of this part by section 1029 of the Consumer Financial 
Protection Act of 2010, Title X of the Dodd-Frank Wall Street Reform and 
Consumer Protection Act (Dodd-Frank Act), Public Law 111-203, 124 Stat. 
1376. The purpose of this part is:
    (1) To ensure that lessees of personal property receive meaningful 
disclosures that enable them to compare lease terms with other leases 
and, where appropriate, with credit transactions;
    (2) To limit the amount of balloon payments in consumer lease 
transactions; and
    (3) To provide for the accurate disclosure of lease terms in 
advertising.
    (c) Enforcement and liability. Section 108 of the Act contains the 
administrative enforcement provisions. Sections 112, 130, 131, and 185 
of the Act contain the liability provisions for failing to comply with 
the requirements of the Act and this part.



Sec. 1013.2  Definitions.

    For the purposes of this part the following definitions apply:
    (a) Act means the Truth in Lending Act (15 U.S.C. 1601 et seq.) and 
the Consumer Leasing Act is Chapter 5 of the Truth in Lending Act.
    (b) Advertisement means a commercial message in any medium that 
directly or indirectly promotes a consumer lease transaction.
    (c) Bureau refers to the Bureau of Consumer Financial Protection.
    (d) Closed-end lease means a consumer lease other than an open-end 
lease as defined in this section.
    (e)(1) Consumer lease means a contract in the form of a bailment or 
lease for the use of personal property by a natural person primarily for 
personal, family, or household purposes, for a period exceeding four 
months and for a total contractual obligation not exceeding the 
applicable threshold amount, whether or not the lessee has the option to 
purchase or otherwise become the owner of the property at the expiration 
of the lease. The threshold amount is adjusted annually to reflect 
increases in the Consumer Price Index

[[Page 326]]

for Urban Wage Earners and Clerical Workers, as applicable. See the 
official commentary to this paragraph (e) for the threshold amount 
applicable to a specific consumer lease. Unless the context indicates 
otherwise, in this part ``lease'' means ``consumer lease.''
    (2) The term does not include a lease that meets the definition of a 
credit sale in Regulation Z (12 CFR 226.2(a)). It also does not include 
a lease for agricultural, business, or commercial purposes or a lease 
made to an organization.
    (3) This part does not apply to a lease transaction of personal 
property which is incident to the lease of real property and which 
provides that:
    (i) The lessee has no liability for the value of the personal 
property at the end of the lease term except for abnormal wear and tear; 
and
    (ii) The lessee has no option to purchase the leased property.
    (f) Gross capitalized cost means the amount agreed upon by the 
lessor and the lessee as the value of the leased property and any items 
that are capitalized or amortized during the lease term, including but 
not limited to taxes, insurance, service agreements, and any outstanding 
prior credit or lease balance. Capitalized cost reduction means the 
total amount of any rebate, cash payment, net trade-in allowance, and 
noncash credit that reduces the gross capitalized cost. The adjusted 
capitalized cost equals the gross capitalized cost less the capitalized 
cost reduction, and is the amount used by the lessor in calculating the 
base periodic payment.
    (g) Lessee means a natural person who enters into or is offered a 
consumer lease.
    (h) Lessor means a person who regularly leases, offers to lease, or 
arranges for the lease of personal property under a consumer lease. A 
person who has leased, offered, or arranged to lease personal property 
more than five times in the preceding calendar year or more than five 
times in the current calendar year is subject to the Act and this part.
    (i) Open-end lease means a consumer lease in which the lessee's 
liability at the end of the lease term is based on the difference 
between the residual value of the leased property and its realized 
value.
    (j) Organization means a corporation, trust, estate, partnership, 
cooperative, association, or government entity or instrumentality.
    (k) Person means a natural person or an organization.
    (l) Personal property means any property that is not real property 
under the law of the state where the property is located at the time it 
is offered or made available for lease.
    (m) Realized value means:
    (1) The price received by the lessor for the leased property at 
disposition;
    (2) The highest offer for disposition of the leased property; or
    (3) The fair market value of the leased property at the end of the 
lease term.
    (n) Residual value means the value of the leased property at the end 
of the lease term, as estimated or assigned at consummation by the 
lessor, used in calculating the base periodic payment.
    (o) Security interest and security mean any interest in property 
that secures the payment or performance of an obligation.
    (p) State means any state, the District of Columbia, the 
Commonwealth of Puerto Rico, and any territory or possession of the 
United States.



Sec. 1013.3  General disclosure requirements.

    (a) General requirements. A lessor shall make the disclosures 
required by Sec. 1013.4, as applicable. The disclosures shall be made 
clearly and conspicuously in writing in a form the consumer may keep, in 
accordance with this section. The disclosures required by this part may 
be provided to the lessee in electronic form, subject to compliance with 
the consumer consent and other applicable provisions of the Electronic 
Signatures in Global and National Commerce Act (E-Sign Act) (15 U.S.C. 
7001 et seq.). For an advertisement accessed by the consumer in 
electronic form, the disclosures required by Sec. 1013.7 may be 
provided to the consumer in electronic form in the advertisement, 
without regard to the consumer consent or other provisions of the E-Sign 
Act.
    (1) Form of disclosures. The disclosures required by Sec. 1013.4 
shall be given to the lessee together in a dated statement

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that identifies the lessor and the lessee; the disclosures may be made 
either in a separate statement that identifies the consumer lease 
transaction or in the contract or other document evidencing the lease. 
Alternatively, the disclosures required to be segregated from other 
information under paragraph (a)(2) of this section may be provided in a 
separate dated statement that identifies the lease, and the other 
required disclosures may be provided in the lease contract or other 
document evidencing the lease. In a lease of multiple items, the 
property description required by Sec. 1013.4(a) may be given in a 
separate statement that is included in the disclosure statement required 
by this paragraph.
    (2) Segregation of certain disclosures. The following disclosures 
shall be segregated from other information and shall contain only 
directly related information: Sec. Sec. 1013.4(b) through (f), (g)(2), 
(h)(3), (i)(1), (j), and (m)(1). The headings, content, and format for 
the disclosures referred to in this paragraph (a)(2) shall be provided 
in a manner substantially similar to the applicable model form in 
Appendix A of this part.
    (3) Timing of disclosures. A lessor shall provide the disclosures to 
the lessee prior to the consummation of a consumer lease.
    (4) Language of disclosures. The disclosures required by Sec. 
1013.4 may be made in a language other than English provided that they 
are made available in English upon the lessee's request.
    (b) Additional information; nonsegregated disclosures. Additional 
information may be provided with any disclosure not listed in paragraph 
(a)(2) of this section, but it shall not be stated, used, or placed so 
as to mislead or confuse the lessee or contradict, obscure, or detract 
attention from any disclosure required by this part.
    (c) Multiple lessors or lessees. When a transaction involves more 
than one lessor, the disclosures required by this part may be made by 
one lessor on behalf of all the lessors. When a lease involves more than 
one lessee, the lessor may provide the disclosures to any lessee who is 
primarily liable on the lease.
    (d) Use of estimates. If an amount or other item needed to comply 
with a required disclosure is unknown or unavailable after reasonable 
efforts have been made to ascertain the information, the lessor may use 
a reasonable estimate that is based on the best information available to 
the lessor, is clearly identified as an estimate, and is not used to 
circumvent or evade any disclosures required by this part.
    (e) Effect of subsequent occurrence. If a required disclosure 
becomes inaccurate because of an event occurring after consummation, the 
inaccuracy is not a violation of this part.
    (f) Minor variations. A lessor may disregard the effects of the 
following in making disclosures:
    (1) That payments must be collected in whole cents;
    (2) That dates of scheduled payments may be different because a 
scheduled date is not a business day;
    (3) That months have different numbers of days; and
    (4) That February 29 occurs in a leap year.



Sec. 1013.4  Content of disclosures.

    For any consumer lease subject to this part, the lessor shall 
disclose the following information, as applicable:
    (a) Description of property. A brief description of the leased 
property sufficient to identify the property to the lessee and lessor.
    (b) Amount due at lease signing or delivery. The total amount to be 
paid prior to or at consummation or by delivery, if delivery occurs 
after consummation, using the term ``amount due at lease signing or 
delivery.'' The lessor shall itemize each component by type and amount, 
including any refundable security deposit, advance monthly or other 
periodic payment, and capitalized cost reduction; and in motor vehicle 
leases, shall itemize how the amount due will be paid, by type and 
amount, including any net trade-in allowance, rebates, noncash credits, 
and cash payments in a format substantially similar to the model forms 
in Appendix A of this part.
    (c) Payment schedule and total amount of periodic payments. The 
number, amount, and due dates or periods of payments scheduled under the 
lease, and the total amount of the periodic payments.

[[Page 328]]

    (d) Other charges. The total amount of other charges payable to the 
lessor, itemized by type and amount, that are not included in the 
periodic payments. Such charges include the amount of any liability the 
lease imposes upon the lessee at the end of the lease term; the 
potential difference between the residual and realized values referred 
to in paragraph (k) of this section is excluded.
    (e) Total of payments. The total of payments, with a description 
such as ``the amount you will have paid by the end of the lease.'' This 
amount is the sum of the amount due at lease signing (less any 
refundable amounts), the total amount of periodic payments (less any 
portion of the periodic payment paid at lease signing), and other 
charges under paragraphs (b), (c), and (d) of this section. In an open-
end lease, a description such as ``you will owe an additional amount if 
the actual value of the vehicle is less than the residual value'' shall 
accompany the disclosure.
    (f) Payment calculation. In a motor vehicle lease, a mathematical 
progression of how the scheduled periodic payment is derived, in a 
format substantially similar to the applicable model form in appendix A 
of this part, which shall contain the following:
    (1) Gross capitalized cost. The gross capitalized cost, including a 
disclosure of the agreed upon value of the vehicle, a description such 
as ``the agreed upon value of the vehicle [state the amount] and any 
items you pay for over the lease term (such as service contracts, 
insurance, and any outstanding prior credit or lease balance),'' and a 
statement of the lessee's option to receive a separate written 
itemization of the gross capitalized cost. If requested by the lessee, 
the itemization shall be provided before consummation.
    (2) Capitalized cost reduction. The capitalized cost reduction, with 
a description such as ``the amount of any net trade-in allowance, 
rebate, noncash credit, or cash you pay that reduces the gross 
capitalized cost.''
    (3) Adjusted capitalized cost. The adjusted capitalized cost, with a 
description such as ``the amount used in calculating your base 
[periodic] payment.''
    (4) Residual value. The residual value, with a description such as 
``the value of the vehicle at the end of the lease used in calculating 
your base [periodic] payment.''
    (5) Depreciation and any amortized amounts. The depreciation and any 
amortized amounts, which is the difference between the adjusted 
capitalized cost and the residual value, with a description such as 
``the amount charged for the vehicle's decline in value through normal 
use and for any other items paid over the lease term.''
    (6) Rent charge. The rent charge, with a description such as ``the 
amount charged in addition to the depreciation and any amortized 
amounts.'' This amount is the difference between the total of the base 
periodic payments over the lease term minus the depreciation and any 
amortized amounts.
    (7) Total of base periodic payments. The total of base periodic 
payments with a description such as ``depreciation and any amortized 
amounts plus the rent charge.''
    (8) Lease payments. The lease payments with a description such as 
``the number of payments in your lease.''
    (9) Base periodic payment. The total of the base periodic payments 
divided by the number of payment periods in the lease.
    (10) Itemization of other charges. An itemization of any other 
charges that are part of the periodic payment.
    (11) Total periodic payment. The sum of the base periodic payment 
and any other charges that are part of the periodic payment.
    (g) Early termination--(1) Conditions and disclosure of charges. A 
statement of the conditions under which the lessee or lessor may 
terminate the lease prior to the end of the lease term; and the amount 
or a description of the method for determining the amount of any penalty 
or other charge for early termination, which must be reasonable.
    (2) Early termination notice. In a motor vehicle lease, a notice 
substantially similar to the following: ``Early Termination. You may 
have to pay a substantial charge if you end this lease early. The charge 
may be up to several thousand dollars. The actual charge

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will depend on when the lease is terminated. The earlier you end the 
lease, the greater this charge is likely to be.''
    (h) Maintenance responsibilities. The following provisions are 
required:
    (1) Statement of responsibilities. A statement specifying whether 
the lessor or the lessee is responsible for maintaining or servicing the 
leased property, together with a brief description of the 
responsibility;
    (2) Wear and use standard. A statement of the lessor's standards for 
wear and use (if any), which must be reasonable; and
    (3) Notice of wear and use standard. In a motor vehicle lease, a 
notice regarding wear and use substantially similar to the following: 
``Excessive Wear and Use. You may be charged for excessive wear based on 
our standards for normal use.'' The notice shall also specify the amount 
or method for determining any charge for excess mileage.
    (i) Purchase option. A statement of whether or not the lessee has 
the option to purchase the leased property, and:
    (1) End of lease term. If at the end of the lease term, the purchase 
price; and
    (2) During lease term. If prior to the end of the lease term, the 
purchase price or the method for determining the price and when the 
lessee may exercise this option.
    (j) Statement referencing nonsegregated disclosures. A statement 
that the lessee should refer to the lease documents for additional 
information on early termination, purchase options and maintenance 
responsibilities, warranties, late and default charges, insurance, and 
any security interests, if applicable.
    (k) Liability between residual and realized values. A statement of 
the lessee's liability, if any, at early termination or at the end of 
the lease term for the difference between the residual value of the 
leased property and its realized value.
    (l) Right of appraisal. If the lessee's liability at early 
termination or at the end of the lease term is based on the realized 
value of the leased property, a statement that the lessee may obtain, at 
the lessee's expense, a professional appraisal by an independent third 
party (agreed to by the lessee and the lessor) of the value that could 
be realized at sale of the leased property. The appraisal shall be final 
and binding on the parties.
    (m) Liability at end of lease term based on residual value. If the 
lessee is liable at the end of the lease term for the difference between 
the residual value of the leased property and its realized value:
    (1) Rent and other charges. The rent and other charges, paid by the 
lessee and required by the lessor as an incident to the lease 
transaction, with a description such as ``the total amount of rent and 
other charges imposed in connection with your lease [state the 
amount].''
    (2) Excess liability. A statement about a rebuttable presumption 
that, at the end of the lease term, the residual value of the leased 
property is unreasonable and not in good faith to the extent that the 
residual value exceeds the realized value by more than three times the 
base monthly payment (or more than three times the average payment 
allocable to a monthly period, if the lease calls for periodic payments 
other than monthly); and that the lessor cannot collect the excess 
amount unless the lessor brings a successful court action and pays the 
lessee's reasonable attorney's fees, or unless the excess of the 
residual value over the realized value is due to unreasonable or 
excessive wear or use of the leased property (in which case the 
rebuttable presumption does not apply).
    (3) Mutually agreeable final adjustment. A statement that the lessee 
and lessor are permitted, after termination of the lease, to make any 
mutually agreeable final adjustment regarding excess liability.
    (n) Fees and taxes. The total dollar amount for all official and 
license fees, registration, title, or taxes required to be paid in 
connection with the lease.
    (o) Insurance. A brief identification of insurance in connection 
with the lease including:
    (1) Through the lessor. If the insurance is provided by or paid 
through the lessor, the types and amounts of coverage and the cost to 
the lessee; or
    (2) Through a third party. If the lessee must obtain the insurance, 
the types and amounts of coverage required of the lessee.

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    (p) Warranties or guarantees. A statement identifying all express 
warranties and guarantees from the manufacturer or lessor with respect 
to the leased property that apply to the lessee.
    (q) Penalties and other charges for delinquency. The amount or the 
method of determining the amount of any penalty or other charge for 
delinquency, default, or late payments, which must be reasonable.
    (r) Security interest. A description of any security interest, other 
than a security deposit disclosed under paragraph (b) of this section, 
held or to be retained by the lessor; and a clear identification of the 
property to which the security interest relates.
    (s) Limitations on rate information. If a lessor provides a 
percentage rate in an advertisement or in documents evidencing the lease 
transaction, a notice stating that ``this percentage may not measure the 
overall cost of financing this lease'' shall accompany the rate 
disclosure. The lessor shall not use the term ``annual percentage 
rate,'' ``annual lease rate,'' or any equivalent term.
    (t) Non-motor vehicle open-end leases. Non-motor vehicle open-end 
leases remain subject to section 182(10) of the Act regarding end of 
term liability.



Sec. 1013.5  Renegotiations, extensions, and assumptions.

    (a) Renegotiation. A renegotiation occurs when a consumer lease 
subject to this part is satisfied and replaced by a new lease undertaken 
by the same consumer. A renegotiation requires new disclosures, except 
as provided in paragraph (d) of this section.
    (b) Extension. An extension is a continuation, agreed to by the 
lessor and the lessee, of an existing consumer lease beyond the 
originally scheduled end of the lease term, except when the continuation 
is the result of a renegotiation. An extension that exceeds six months 
requires new disclosures, except as provided in paragraph (d) of this 
section.
    (c) Assumption. New disclosures are not required when a consumer 
lease is assumed by another person, whether or not the lessor charges an 
assumption fee.
    (d) Exceptions. New disclosures are not required for the following, 
even if they meet the definition of a renegotiation or an extension:
    (1) A reduction in the rent charge;
    (2) The deferment of one or more payments, whether or not a fee is 
charged;
    (3) The extension of a lease for not more than six months on a 
month-to-month basis or otherwise;
    (4) A substitution of leased property with property that has a 
substantially equivalent or greater economic value, provided no other 
lease terms are changed;
    (5) The addition, deletion, or substitution of leased property in a 
multiple-item lease, provided the average periodic payment does not 
change by more than 25 percent; or
    (6) An agreement resulting from a court proceeding.



Sec. 1013.6  [Reserved]



Sec. 1013.7  Advertising.

    (a) General rule. An advertisement for a consumer lease may state 
that a specific lease of property at specific amounts or terms is 
available only if the lessor usually and customarily leases or will 
lease the property at those amounts or terms.
    (b) Clear and conspicuous standard. Disclosures required by this 
section shall be made clearly and conspicuously.
    (1) Amount due at lease signing or delivery. Except for the 
statement of a periodic payment, any affirmative or negative reference 
to a charge that is a part of the disclosure required under paragraph 
(d)(2)(ii) of this section shall not be more prominent than that 
disclosure.
    (2) Advertisement of a lease rate. If a lessor provides a percentage 
rate in an advertisement, the rate shall not be more prominent than any 
of the disclosures in Sec. 1013.4, with the exception of the notice in 
Sec. 1013.4(s) required to accompany the rate; and the lessor shall not 
use the term ``annual percentage rate,'' ``annual lease rate,'' or 
equivalent term.
    (c) Catalogs or other multipage advertisements; electronic 
advertisements. A catalog or other multipage advertisement, or an 
electronic advertisement

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(such as an advertisement appearing on an Internet Web site), that 
provides a table or schedule of the required disclosures shall be 
considered a single advertisement if, for lease terms that appear 
without all the required disclosures, the advertisement refers to the 
page or pages on which the table or schedule appears.
    (d) Advertisement of terms that require additional disclosure. (1) 
Triggering terms. An advertisement that states any of the following 
items shall contain the disclosures required by paragraph (d)(2) of this 
section, except as provided in paragraphs (e) and (f) of this section:
    (i) The amount of any payment; or
    (ii) A statement of any capitalized cost reduction or other payment 
(or that no payment is required) prior to or at consummation or by 
delivery, if delivery occurs after consummation.
    (2) Additional terms. An advertisement stating any item listed in 
paragraph (d)(1) of this section shall also state the following items:
    (i) That the transaction advertised is a lease;
    (ii) The total amount due prior to or at consummation or by 
delivery, if delivery occurs after consummation;
    (iii) The number, amounts, and due dates or periods of scheduled 
payments under the lease;
    (iv) A statement of whether or not a security deposit is required; 
and
    (v) A statement that an extra charge may be imposed at the end of 
the lease term where the lessee's liability (if any) is based on the 
difference between the residual value of the leased property and its 
realized value at the end of the lease term.
    (e) Alternative disclosures--merchandise tags. A merchandise tag 
stating any item listed in paragraph (d)(1) of this section may comply 
with paragraph (d)(2) of this section by referring to a sign or display 
prominently posted in the lessor's place of business that contains a 
table or schedule of the required disclosures.
    (f) Alternative disclosures--television or radio advertisements--(1) 
Toll-free number or print advertisement. An advertisement made through 
television or radio stating any item listed in paragraph (d)(1) of this 
section complies with paragraph (d)(2) of this section if the 
advertisement states the items listed in paragraphs (d)(2)(i) through 
(iii) of this section, and:
    (i) Lists a toll-free telephone number along with a reference that 
such number may be used by consumers to obtain the information required 
by paragraph (d)(2) of this section; or
    (ii) Directs the consumer to a written advertisement in a 
publication of general circulation in the community served by the media 
station, including the name and the date of the publication, with a 
statement that information required by paragraph (d)(2) of this section 
is included in the advertisement. The written advertisement shall be 
published beginning at least three days before and ending at least ten 
days after the broadcast.
    (2) Establishment of toll-free number. (i) The toll-free telephone 
number shall be available for no fewer than ten days, beginning on the 
date of the broadcast.
    (ii) The lessor shall provide the information required by paragraph 
(d)(2) of this section orally, or in writing upon request.



Sec. 1013.8  Record retention.

    A lessor shall retain evidence of compliance with the requirements 
imposed by this part, other than the advertising requirements under 
Sec. 1013.7, for a period of not less than two years after the date the 
disclosures are required to be made or an action is required to be 
taken.



Sec. 1013.9  Relation to state laws.

    (a) Inconsistent state law. A state law that is inconsistent with 
the requirements of the Act and this part is preempted to the extent of 
the inconsistency. If a lessor cannot comply with a state law without 
violating a provision of this part, the state law is inconsistent within 
the meaning of section 186(a) of the Act and is preempted, unless the 
state law gives greater protection and benefit to the consumer. A state, 
through an official having primary enforcement or interpretative 
responsibilities for the state consumer leasing law, may apply to the 
Bureau for a preemption determination.
    (b) Exemptions--(1) Application. A state may apply to the Bureau for 
an exemption from the requirements of

[[Page 332]]

the Act and this part for any class of lease transactions within the 
state. The Bureau will grant such an exemption if the Bureau determines 
that:
    (i) The class of leasing transactions is subject to state law 
requirements substantially similar to the Act and this part or that 
lessees are afforded greater protection under state law; and
    (ii) There is adequate provision for state enforcement.
    (2) Enforcement and liability. After an exemption has been granted, 
the requirements of the applicable state law (except for additional 
requirements not imposed by Federal law) will constitute the 
requirements of the Act and this part. No exemption will extend to the 
civil liability provisions of sections 130, 131, and 185 of the Act.



                Sec. Appendix A to Part 1013--Model Forms

A-1--Model Open-End or Finance Vehicle Lease Disclosures
A-2--Model Closed-End or Net Vehicle Lease Disclosures
A-3--Model Furniture Lease Disclosures

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                 Sec. Appendix B to Part 1013 [Reserved]



   Sec. Appendix C to Part 1013--Issuance of Official Interpretations

    Interpretations of this part issued by officials of the Bureau 
provide the formal protection afforded under section 130(f) of the Act. 
Except in unusual circumstances, interpretations will not be issued 
separately but will be incorporated in an official commentary to 
Regulation M (Supplement I of this part), which will be amended 
periodically. No official interpretations will be issued approving a 
lessor's forms, statements, or calculation tools or methods.



        Sec. Supplement I to Part 1013--Official Interpretations

                              Introduction

    1. Official status. The commentary in Supplement I is the vehicle by 
which the Bureau of Consumer Financial Protection issues official 
interpretations of Regulation M (12 CFR part 1013). Good faith 
compliance with this commentary affords protection from liability under 
section 130(f) of the Truth in Lending Act (15 U.S.C. 1640(f)). Section 
130(f) protects lessors from civil liability for any act done or omitted 
in good faith in conformity with any interpretation issued by the 
Bureau.
    2. Procedures for requesting interpretations. Under Appendix C of 
Regulation M, anyone may request an official interpretation. 
Interpretations that are adopted will be incorporated in this commentary 
following publication in the Federal Register. No official 
interpretations are expected to be issued other than by means of this 
commentary.
    3. Comment designations. Each comment in the commentary is 
identified by a number and the regulatory section or paragraph that it 
interprets. The comments are designated with as much specificity as 
possible according to the particular regulatory provision addressed. For 
example, some of the comments to Sec. 1013.4(f) are further divided by 
subparagraph, such as comment 4(f)(1)-1 and comment 4(f)(2)-1. In other 
cases, comments have more general application and are designated, for 
example, as comment 4(a)-1. This introduction may be cited as comments 
I-1 through I-4. An appendix may be cited as comment app. A-1.
    4. Illustrations. Lists that appear in the commentary may be 
exhaustive or illustrative; the appropriate construction should be clear 
from the context. Illustrative lists are introduced by phrases such as 
``including,'' ``such as,'' ``to illustrate,'' and ``for example.''

       Section 1013.1--Authority, Scope, Purpose, and Enforcement

    1. Foreign applicability. Regulation M applies to all persons 
(including branches of foreign banks or leasing companies located in the 
United States) that offer consumer leases to residents of any state 
(including foreign nationals) as defined in Sec. 1013.2(p), except 
persons excluded from coverage of this part by section 1029 of the 
Consumer Financial Protection Act of 2010, Title X of the Dodd-Frank 
Wall Street Reform and Consumer Protection Act, Pub. L. 111-203, 124 
Stat. 1376. The regulation does not apply to a foreign branch of a U.S. 
bank or to a leasing company leasing to a U.S. citizen residing or 
visiting abroad or to a foreign national abroad.

                       Section 1013.2--Definitions

                           2(b) Advertisement

    1. Coverage. The term advertisement includes messages inviting, 
offering, or otherwise generally announcing to prospective customers the 
availability of consumer leases, whether in visual, oral, print or 
electronic media. Examples include:
    i. Messages in newspapers, magazines, leaflets, catalogs, and 
fliers.
    ii. Messages on radio, television, and public address systems.
    iii. Direct mail literature.
    iv. Printed material on any interior or exterior sign or display, in 
any window display, in any point-of-transaction literature or price tag 
that is delivered or made available to a lessee or prospective lessee in 
any manner whatsoever.
    v. Telephone solicitations.
    vi. Online messages, such as those on the Internet.
    2. Exclusions. The term does not apply to the following:
    i. Direct personal contacts, including follow-up letters, cost 
estimates for individual lessees, or oral or written communications 
relating to the negotiation of a specific transaction.
    ii. Informational material distributed only to businesses.
    iii. Notices required by Federal or state law, if the law mandates 
that specific information be displayed and only the mandated information 
is included in the notice.
    iv. News articles controlled by the news medium.
    v. Market research or educational materials that do not solicit 
business.
    3. Persons covered. See the commentary to Sec. 1013.7(a).

                          2(d) Closed-End Lease

    1. General. In closed-end leases, sometimes referred to as ``walk-
away'' leases, the lessee is not responsible for the residual value of

[[Page 340]]

the leased property at the end of the lease term.

                           2(e) Consumer Lease

    1. Primary purposes. A lessor must determine in each case if the 
leased property will be used primarily for personal, family, or 
household purposes. If a question exists as to the primary purpose for a 
lease, the fact that a lessor gives disclosures is not controlling on 
the question of whether the transaction is covered. The primary purpose 
of a lease is determined before or at consummation and a lessor need not 
provide Regulation M disclosures where there is a subsequent change in 
the primary use.
    2. Period of time. To be a consumer lease, the initial term of the 
lease must be more than four months. Thus, a lease of personal property 
for four months, three months or on a month-to-month or week-to-week 
basis (even though the lease actually extends beyond four months) is not 
a consumer lease and is not subject to the disclosure requirements of 
the regulation. However, a lease that imposes a penalty for not 
continuing the lease beyond four months is considered to have a term of 
more than four months. To illustrate:
    i. A three-month lease extended on a month-to-month basis and 
terminated after one year is not subject to the regulation.
    ii. A month-to-month lease with a penalty, such as the forfeiture of 
a security deposit for terminating before one year, is subject to the 
regulation.
    3. Total contractual obligation. The total contractual obligation is 
not necessarily the same as the total of payments disclosed under Sec. 
1013.4(e). The total contractual obligation includes nonrefundable 
amounts a lessee is contractually obligated to pay to the lessor, but 
excludes items such as:
    i. Residual value amounts or purchase-option prices;
    ii. Amounts collected by the lessor but paid to a third party, such 
as taxes, licenses, and registration fees.
    4. Credit sale. The regulation does not cover a lease that meets the 
definition of a credit sale in Regulation Z, 12 CFR 226.2(a)(16), which 
is defined, in part, as a bailment or lease (unless terminable without 
penalty at any time by the consumer) under which the consumer:
    i. Agrees to pay as compensation for use a sum substantially 
equivalent to, or in excess of, the total value of the property and 
services involved; and
    ii. Will become (or has the option to become), for no additional 
consideration or for nominal consideration, the owner of the property 
upon compliance with the agreement.
    5. Agricultural purpose. Agricultural purpose means a purpose 
related to the production, harvest, exhibition, marketing, 
transportation, processing, or manufacture of agricultural products by a 
natural person who cultivates, plants, propagates, or nurtures those 
agricultural products, including but not limited to the acquisition of 
personal property and services used primarily in farming. Agricultural 
products include horticultural, viticultural, and dairy products, 
livestock, wildlife, poultry, bees, forest products, fish and shellfish, 
and any products thereof, including processed and manufactured products, 
and any and all products raised or produced on farms and any processed 
or manufactured products thereof.
    6. Organization or other entity. A consumer lease does not include a 
lease made to an organization such as a corporation or a government 
agency or instrumentality. Such a lease is not covered by the regulation 
even if the leased property is used (by an employee, for example) 
primarily for personal, family or household purposes, or is guaranteed 
by or subsequently assigned to a natural person.
    7. Leases of personal property incidental to a service. The 
following leases of personal property are deemed incidental to a service 
and thus are not subject to the regulation:
    i. Home entertainment systems requiring the consumer to lease 
equipment that enables a television to receive the transmitted 
programming.
    ii. Security alarm systems requiring the installation of leased 
equipment intended to monitor unlawful entries into a home and in some 
cases to provide fire protection.
    iii. Propane gas service where the consumer must lease a propane 
tank to receive the service.
    8. Safe deposit boxes. The lease of a safe deposit box is not a 
consumer lease under Sec. 1013.2(e).
    9. Threshold amount. A consumer lease is exempt from the 
requirements of this part if the total contractual obligation exceeds 
the threshold amount in effect at the time of consummation. The 
threshold amount in effect during a particular time period is the amount 
stated below for that period. The threshold amount is adjusted effective 
January 1 of each year by any annual percentage increase in the Consumer 
Price Index for Urban Wage Earners and Clerical Workers (CPI-W) that was 
in effect on the preceding June 1. This comment will be amended to 
provide the threshold amount for the upcoming year after the annual 
percentage change in the CPI-W that was in effect on June 1 becomes 
available. Any increase in the threshold amount will be rounded to the 
nearest $100 increment. For example, if the annual percentage increase 
in the CPI-W would result in a $950 increase in the threshold amount, 
the threshold amount will be increased by $1,000. However, if the annual 
percentage increase in the CPI-W would result in a $949 increase in the 
threshold amount, the threshold amount will be increased by

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$900. If a consumer lease is exempt from the requirements of this part 
because the total contractual obligation exceeds the threshold amount in 
effect at the time of consummation, the lease remains exempt regardless 
of a subsequent increase in the threshold amount.
    i. Prior to July 21, 2011, the threshold amount is $25,000.
    ii. From July 21, 2011 through December 31, 2011, the threshold 
amount is $50,000.
    iii. From January 1, 2012 through December 31, 2012, the threshold 
amount is $51,800.

                               2(g) Lessee

    1. Guarantors. Guarantors are not lessees for purposes of the 
regulation.

                               2(h) Lessor

    1. Arranger of a lease. To ``arrange'' for the lease of personal 
property means to provide or offer to provide a lease that is or will be 
extended by another person under a business or other relationship 
pursuant to which the person arranging the lease (a) receives or will 
receive a fee, compensation, or other consideration for the service or 
(b) has knowledge of the lease terms and participates in the preparation 
of the contract documents required in connection with the lease. To 
illustrate:
    i. An entity that, pursuant to a business relationship, completes 
the necessary lease agreement before forwarding it for execution to the 
leasing company (to whom the obligation is payable on its face) is 
``arranging'' for the lease.
    ii. An entity that, without receiving a fee for the service, refers 
a customer to a leasing company that will prepare all relevant contract 
documents is not ``arranging'' for the lease.
    2. Consideration. The term ``other consideration'' as used in 
comment 2(h)-1 refers to an actual payment corresponding to a fee or 
similar compensation and not to intangible benefits, such as the 
advantage of increased business, which may flow from the relationship 
between the parties.
    3. Assignees. An assignee may be a lessor for purposes of the 
regulation in circumstances where the assignee has substantial 
involvement in the lease transaction. See cf. Ford Motor Credit Co. v. 
Cenance, 452 U.S. 155 (1981) (held that an assignee was a creditor for 
purposes of the pre-1980 Truth in Lending Act and Regulation Z because 
of its substantial involvement in the credit transaction).
    4. Multiple lessors. See the commentary to Sec. 1013.3(c).

                            2(j) Organization

    1. Coverage. The term ``organization'' includes joint ventures and 
persons operating under a business name.

                         2(l) Personal Property

    1. Coverage. Whether property is personal property depends on state 
or other applicable law. For example, a mobile home or houseboat may be 
considered personal property in one state but real property in another.

                           2(m) Realized Value

    1. General. Realized value refers to either the retail or wholesale 
value of the leased property at early termination or at the end of the 
lease term. It is not a required disclosure. Realized value is relevant 
only to leases in which the lessee's liability at early termination or 
at the end of the lease term typically is based on the difference 
between the residual value (or the adjusted lease balance) of the leased 
property and its realized value.
    2. Options. Subject to the contract and to state or other applicable 
law, the lessor may calculate the realized value in determining the 
lessee's liability at the end of the lease term or at early termination 
in one of the three ways stated in Sec. 1013.2(m). If the lessor sells 
the property prior to making the determination about liability, the 
price received for the property (or the fair market value) is the 
realized value. If the lessor does not sell the property prior to making 
that determination, the highest offer or the fair market value is the 
realized value.
    3. Determination of realized value. Disposition charges are not 
subtracted in determining the realized value but amounts attributable to 
taxes may be subtracted.
    4. Offers. In determining the highest offer for disposition, the 
lessor may disregard offers that an offeror has withdrawn or is unable 
or unwilling to perform.
    5. Lessor's appraisal. See commentary to Sec. 1013.4(l).

                   2(o) Security Interest and Security

    1. Disclosable interests. For purposes of disclosure, a security 
interest is an interest taken by the lessor to secure performance of the 
lessee's obligation. For example, if a bank that is not a lessor makes a 
loan to a leasing company and takes assignments of consumer leases 
generated by that company to secure the loan, the bank's security 
interest in the lessor's receivables is not a security interest for 
purposes of this part.
    2. General coverage. An interest the lessor may have in leased 
property must be disclosed only if it is considered a security interest 
under state or other applicable law. The term includes, but is not 
limited to, security interests under the Uniform Commercial Code; real 
property mortgages, deeds of trust, and other consensual or confessed 
liens whether or not recorded; mechanic's, materialman's, artisan's, and 
other similar liens; vendor's liens in both real and personal

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property; liens on property arising by operation of law; and any 
interest in a lease when used to secure payment or performance of an 
obligation.
    3. Insurance exception. The lessor's right to insurance proceeds or 
unearned insurance premiums is not a security interest for purposes of 
this part.

             Section 1013.3--General Disclosure Requirements

                        3(a) General Requirements

    1. Basis of disclosures. Disclosures must reflect the terms of the 
legal obligation between the parties. For example:
    i. In a three-year lease with no penalty for termination after a 
one-year minimum term, disclosures are based on the full three-year term 
of the lease. The one-year minimum term is only relevant to the early 
termination provisions of Sec. Sec. 1013.4 (g)(1), (k) and (l).
    2. Clear and conspicuous standard. The clear and conspicuous 
standard requires that disclosures be reasonably understandable. For 
example, the disclosures must be presented in a way that does not 
obscure the relationship of the terms to each other; Appendix A of this 
part contains model forms that meet this standard. In addition, although 
no minimum typesize is required, the disclosures must be legible, 
whether typewritten, handwritten, or printed by computer.
    3. Multipurpose disclosure forms. A lessor may use a multipurpose 
disclosure form provided the lessor is able to designate the specific 
disclosures applicable to a given transaction, consistent with the 
requirement that disclosures be clearly and conspicuously provided.
    4. Number of transactions. Lessors have flexibility in handling 
lease transactions that may be viewed as multiple transactions. For 
example:
    i. When a lessor leases two items to the same lessee on the same 
day, the lessor may disclose the leases as either one or two lease 
transactions.
    ii. When a lessor sells insurance or other incidental services in 
connection with a lease, the lessor may disclose in one of two ways: As 
a single lease transaction (in which case Regulation M, not Regulation 
Z, disclosures are required) or as a lease transaction and a credit 
transaction.
    iii. When a lessor includes an outstanding lease or credit balance 
in a lease transaction, the lessor may disclose the outstanding balance 
as part of a single lease transaction (in which case Regulation M, not 
Regulation Z, disclosures are required) or as a lease transaction and a 
credit transaction.

                       3(a)(1) Form of Disclosures

    1. Cross-references. Lessors may include in the nonsegregated 
disclosures a cross-reference to items in the segregated disclosures 
rather than repeat those items. A lessor may include in the segregated 
disclosures numeric or alphabetic designations as cross-references to 
related information so long as such references do not obscure or detract 
from the segregated disclosures.
    2. Identification of parties. While disclosures must be made clearly 
and conspicuously, lessors are not required to use the word ``lessor'' 
and ``lessee'' to identify the parties to the lease transaction.
    3. Lessor's address. The lessor must be identified by name; an 
address (and telephone number) may be provided.
    4. Multiple lessors and lessees. In transactions involving multiple 
lessors and multiple lessees, a single lessor may make all the 
disclosures to a single lessee as long as the disclosure statement 
identifies all the lessors and lessees.
    5. Lessee's signature. The regulation does not require that the 
lessee sign the disclosure statement, whether disclosures are separately 
provided or are part of the lease contract. Nevertheless, to provide 
evidence that disclosures are given before a lessee becomes obligated on 
the lease transaction, the lessor may, for example, ask the lessee to 
sign the disclosure statement or an acknowledgement of receipt, may 
place disclosures that are included in the lease documents above the 
lessee's signature, or include instructions alerting a lessee to read 
the disclosures prior to signing the lease.

               3(a)(2) Segregation of Certain Disclosures

    1. Location. The segregated disclosures referred to in Sec. 
1013.3(a)(2) may be provided on a separate document and the other 
required disclosures may be provided in the lease contract, so long as 
all disclosures are given at the same time. Alternatively, all 
disclosures may be provided in a separate document or in the lease 
contract.
    2. Additional information among segregated disclosures. The 
disclosures required to be segregated may contain only the information 
required or permitted to be included among the segregated disclosures.
    3. Substantially similar. See commentary to Appendix A of this part.

                      3(a)(3) Timing of Disclosures

    1. Consummation. When a contractual relationship is created between 
the lessor and the lessee is a matter to be determined under state or 
other applicable law.

         3(b) Additional Information; Nonsegregated Disclosures

    1. State law disclosures. A lessor may include in the nonsegregated 
disclosures any state law disclosures that are not inconsistent with the 
Act and regulation under Sec. 1013.9 as long as, in accordance with the 
standard set forth in Sec. 1013.3(b) for additional

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information, the state law disclosures are not used or placed to mislead 
or confuse or detract from any disclosure required by the regulation.

                    3(c) Multiple Lessors or Lessees

    1. Multiple lessors. If a single lessor provides disclosures to a 
lessee on behalf of several lessors, all disclosures for the transaction 
must be given, even if the lessor making the disclosures would not 
otherwise have been obligated to make a particular disclosure.

                          3(d) Use of Estimates

    1. Time of estimated disclosure. The lessor may, after making a 
reasonable effort to obtain information, use estimates to make 
disclosures if necessary information is unknown or unavailable at the 
time the disclosures are made.
    2. Basis of estimates. Estimates must be made on the basis of the 
best information reasonably available at the time disclosures are made. 
The ``reasonably available'' standard requires that the lessor, acting 
in good faith, exercise due diligence in obtaining information. The 
lessor may rely on the representations of other parties. For example, 
the lessor might look to the consumer to determine the purpose for which 
leased property will be used, to insurance companies for the cost of 
insurance, or to an automobile manufacturer or dealer for the date of 
delivery. See commentary to Sec. 1013.4(n) for estimating official fees 
and taxes.
    3. Residual value of leased property at termination. In an open-end 
lease where the lessee's liability at the end of the lease term is based 
on the residual value of the leased property as determined at 
consummation, the estimate of the residual value must be reasonable and 
based on the best information reasonably available to the lessor (see 
Sec. 1013.4(m)). A lessor should generally use an accepted trade 
publication listing estimated current or future market prices for the 
leased property unless other information or a reasonable belief based on 
its experience provides the better information. For example:
    i. An automobile lessor offering a three-year open-end lease assigns 
a wholesale value to the vehicle at the end of the lease term. The 
lessor may disclose as an estimate a wholesale value derived from a 
generally accepted trade publication listing current wholesale values.
    ii. Same facts as above, except that the lessor discloses an 
estimated value derived by adjusting the residual value quoted in the 
trade publication because, in its experience, the trade publication 
values either understate or overstate the prices actually received in 
local used vehicle markets. The lessor may adjust estimated values 
quoted in trade publications if the lessor reasonably believes based on 
its experience that the values are understated or overstated.
    4. Retail or wholesale value. The lessor may choose either a retail 
or a wholesale value in estimating the value of leased property at 
termination of an open-end lease provided the choice is consistent with 
the lessor's general practice when determining the value of the property 
at the end of the lease term. The lessor should indicate whether the 
value disclosed is a retail or wholesale value.
    5. Labeling estimates. Generally, only the disclosure for which the 
exact information is unknown is labeled as an estimate. Nevertheless, 
when several disclosures are affected because of the unknown 
information, the lessor has the option of labeling as an estimate every 
affected disclosure or only the disclosure primarily affected.

                  3(e) Effect of Subsequent Occurrence

    1. Subsequent occurrences. Examples of subsequent occurrences 
include:
    i. An agreement between the lessee and lessor to change from a 
monthly to a weekly payment schedule.
    ii. An increase in official fees or taxes.
    iii. An increase in insurance premiums or coverage caused by a 
change in the law.
    iv. Late delivery of an automobile caused by a strike.
    2. Redisclosure. When a disclosure becomes inaccurate because of a 
subsequent occurrence, the lessor need not make new disclosures unless 
new disclosures are required under Sec. 1013.5.
    3. Lessee's failure to perform. The lessor does not violate the 
regulation if a previously given disclosure becomes inaccurate when a 
lessee fails to perform obligations under the contract and a lessor 
takes actions that are necessary and proper in such circumstances to 
protect its interest. For example, the addition of insurance or a 
security interest by the lessor because the lessee has not performed 
obligations contracted for in the lease is not a violation of the 
regulation.

                 Section 1013.4--Content of Disclosures

                      4(a) Description of Property

    1. Placement of description. Although the description of leased 
property may not be included among the segregated disclosures, a lessor 
may choose to place the description directly above the segregated 
disclosures.

              4(b) Amount Due at Lease Signing or Delivery

    1. Consummation. See commentary to Sec. 1013.3(a)(3).
    2. Capitalized cost reduction. A capitalized cost reduction is a 
payment in the nature of a downpayment on the leased property that 
reduces the amount to be capitalized over the term of the lease. This 
amount does not

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include any amounts included in a periodic payment paid at lease signing 
or delivery.
    3. ``Negative'' equity trade-in allowance. If an amount owed on a 
prior lease or credit balance exceeds the agreed upon value of a trade-
in, the difference is not reflected as a negative trade-in allowance 
under Sec. 1013.4(b). The lessor may disclose the trade-in allowance as 
zero or not applicable, or may leave a blank line.
    4. Rebates. Only rebates applied toward an amount due at lease 
signing or delivery are required to be disclosed under Sec. 1013.4(b).
    5. Balance sheet approach. In motor vehicle leases, the total for 
the column labeled ``total amount due at lease signing or delivery'' 
must equal the total for the column labeled ``how the amount due at 
lease signing or delivery will be paid.''
    6. Amounts to be paid in cash. The term cash is intended to include 
payments by check or other payment methods in addition to currency; 
however, a lessor may add a line item under the column ``how the amount 
due at lease signing or delivery will be paid'' for non-currency 
payments such as credit cards.

       4(c) Payment Schedule and Total Amount of Periodic Payments

    1. Periodic payments. The phrase ``number, amount, and due dates or 
periods of payments'' requires the disclosure of all payments that are 
made at regular or irregular intervals and generally derived from rent, 
capitalized or amortized amounts such as depreciation, and other amounts 
that are collected by the lessor at the same interval(s), including, for 
example, taxes, maintenance, and insurance charges. Other periodic 
payments may, but need not, be disclosed under Sec. 1013.4(c).

                           4(d) Other Charges

    1. Coverage. Section 1013.4(d) requires the disclosure of charges 
that are anticipated by the parties incident to the normal operation of 
the lease agreement. If a lessor is unsure whether a particular fee is 
an ``other charge,'' the lessor may disclose the fee as such without 
violating Sec. 1013.4(d) or the segregation rule under Sec. 
1013.3(a)(2).
    2. Excluded charges. This section does not require disclosure of 
charges that are imposed when the lessee terminates early, fails to 
abide by, or modifies the terms of the existing lease agreement, such as 
charges for:
    i. Late payment.
    ii. Default.
    iii. Early termination.
    iv. Deferral of payments.
    v. Extension of the lease.
    3. Third-party fees and charges. Third-party fees or charges 
collected by the lessor on behalf of third parties, such as taxes, are 
not disclosed under Sec. 1013.4(d).
    4. Relationship to other provisions. The other charges mentioned in 
this paragraph are charges that are not required to be disclosed under 
some other provision of Sec. 1013.4. To illustrate:
    i. The price of a mechanical breakdown protection (MBP) contract is 
sometimes disclosed as an ``other charge.'' Nevertheless, the price of 
MBP is sometimes reflected in the periodic payment disclosure under 
Sec. 1013.4(c) or in states where MBP is regarded as insurance, the 
cost is be disclosed in accordance with Sec. 1013.4(o).
    5. Lessee's liabilities at the end of the lease term. Liabilities 
that the lessor imposes upon the lessee at the end of the scheduled 
lease term and that must be disclosed under Sec. 1013.4(d) include 
disposition and ``pick-up'' charges.
    6. Optional ``disposition'' charges. Disposition and similar charges 
that are anticipated by the parties as an incident to the normal 
operation of the lease agreement must be disclosed under Sec. 
1013.4(d). If, under a lease agreement, a lessee may return leased 
property to various locations, and the lessor charges a disposition fee 
depending upon the location chosen, under Sec. 1013.4(d), the lessor 
must disclose the highest amount charged. In such circumstances, the 
lessor may also include a brief explanation of the fee structure in the 
segregated disclosure. For example, if no fee or a lower fee is imposed 
for returning a leased vehicle to the originating dealer as opposed to 
another location, that fact may be disclosed. By contrast, if the terms 
of the lease treat the return of the leased property to a location 
outside the lessor's service area as a default, the fee imposed is not 
disclosed as an ``other charge,'' although it may be required to be 
disclosed under Sec. 1013.4(q).

                         4(e) Total of Payments

    1. Open-end lease. The additional statement is required under Sec. 
1013.4(e) for open-end leases because, with some limitations, a lessee 
is liable at the end of the lease term for the difference between the 
residual and realized values of the leased property.

                        4(f) Payment Calculation

    1. Motor vehicle lease. Whether leased property is a motor vehicle 
is determined by state or other applicable law.
    2. Multiple items. If a lease transaction involves multiple items of 
leased property, one of which is not a motor vehicle under state law, at 
their option, lessors may include all items in the disclosures required 
under Sec. 1013.4(f). See comment 3(a)-4 regarding disclosure of 
multiple transactions.

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                     4(f)(1) Gross Capitalized Cost

    1. Agreed upon value of the vehicle. The agreed upon value of a 
motor vehicle includes the amount of capitalized items such as charges 
for vehicle accessories and options, and delivery or destination 
charges. The lessor may also include taxes and fees for title, licenses, 
and registration that are capitalized. Charges for service or 
maintenance contracts, insurance products, guaranteed automobile 
protection, or an outstanding balance on a prior lease or credit 
transaction are not included in the agreed upon value.
    2. Itemization of the gross capitalized cost. The lessor may choose 
to provide the itemization of the gross capitalized cost only on request 
or may provide the itemization as a matter of course. In the latter 
case, the lessor need not provide a statement of the lessee's option to 
receive an itemization. The gross capitalized cost must be itemized by 
type and amount. The lessor may include in the itemization an 
identification of the items and amounts of some or all of the items 
contained in the agreed upon value of the vehicle. The itemization must 
be provided at the same time as the other disclosures required by Sec. 
1013.4, but it may not be included among the segregated disclosures.

                 4(f)(7) Total of Base Periodic Payments

    1. Accuracy of disclosure. If the periodic payment calculation under 
Sec. 1013.4(f) has been calculated correctly, the amount disclosed 
under Sec. 1013.4(f)(7)--the total of base periodic payments--is 
correct for disclosure purposes even if that amount differs from the 
base periodic payment disclosed under Sec. 1013.4(f)(9) multiplied by 
the number of lease payments disclosed under Sec. 1013.4(f)(8), when 
the difference is due to rounding.

                         4(f)(8) Lease Payments

    1. Lease Term. The lease term may be disclosed among the segregated 
disclosures.

                         4(g) Early Termination

              4(g)(1) Conditions and Disclosure of Charges

    1. Reasonableness of charges. See the commentary to Sec. 1013.4(q).
    2. Description of the method. Section 1013.4(g)(1) requires a full 
description of the method of determining an early termination charge. 
The lessor should attempt to provide consumers with clear and 
understandable descriptions of its early termination charges. 
Descriptions that are full, accurate, and not intended to be misleading 
will comply with Sec. 1013.4(g)(1), even if the descriptions are 
complex. In providing a full description of an early termination method, 
a lessor may use the name of a generally accepted method of computing 
the unamortized cost portion (also known as the ``adjusted lease 
balance'') of its early termination charges. For example, a lessor may 
state that the ``constant yield'' method will be utilized in obtaining 
the adjusted lease balance, but must specify how that figure, and any 
other term or figure, is used in computing the total early termination 
charge imposed upon the consumer. Additionally, if a lessor refers to a 
named method in this manner, the lessor must provide a written 
explanation of that method if requested by the consumer. The lessor has 
the option of providing the explanation as a matter of course in the 
lease documents or on a separate document.
    3. Timing of written explanation of a named method. While a lessor 
may provide an address or telephone number for the consumer to request a 
written explanation of the named method used to calculate the adjusted 
leased balance, if at consummation a consumer requests such an 
explanation, the lessor must provide a written explanation at that time. 
If a consumer requests an explanation after consummation, the lessor 
must provide a written explanation within a reasonable time after the 
request is made.
    4. Default. When default is a condition for early termination of a 
lease, default charges must be disclosed under Sec. 1013.4(g)(1). See 
the commentary to Sec. 1013.4(q).
    5. Lessee's liability at early termination. When the lessee is 
liable for the difference between the unamortized cost and the realized 
value at early termination, the method of determining the amount of the 
difference must be disclosed under Sec. 1013.4(g)(1).

                    4(h) Maintenance Responsibilities

    1. Standards for wear and use. No disclosure is required if a lessor 
does not set standards or impose charges for wear and use (such as 
excess mileage).

                          4(i) Purchase Option

    1. Mandatory disclosure of no purchase option. Generally the lessor 
need only make the specific required disclosures that apply to a 
transaction. In the case of a purchase option disclosure, however, a 
lessor must disclose affirmatively that the lessee has no option to 
purchase the leased property if the purchase option is inapplicable.
    2. Existence of purchase option. Whether a purchase option exists 
under the lease is determined by state or other applicable law. The 
lessee's right to submit a bid to purchase property at termination of 
the lease is not an option to purchase under Sec. 1013.4(i) if the 
lessor is not required to accept the lessee's bid and the lessee does 
not receive preferential treatment.
    3. Purchase-option fee. A purchase-option fee is disclosed under 
Sec. 1013.4(i), not Sec. 1013.4(d). The fee may be separately itemized 
or disclosed as part of the purchase-option price.

[[Page 346]]

    4. Official fees and taxes. Official fees such as those for taxes, 
licenses, and registration charged in connection with the exercise of a 
purchase option may be disclosed under Sec. 1013.4(i) as part of the 
purchase-option price (with or without a reference to their inclusion in 
that price) or may be separately disclosed and itemized by category. 
Alternatively, a lessor may provide a statement indicating that the 
purchase-option price does not include fees for tags, taxes, and 
registration.
    5. Purchase-option price. Lessors must disclose the purchase-option 
price as a sum certain or as a sum certain to be determined at a future 
date by reference to a readily available independent source. The 
reference should provide sufficient information so that the lessee will 
be able to determine the actual price when the option becomes available. 
Statements of a purchase price as the ``negotiated price'' or the ``fair 
market value'' do not comply with the requirements of Sec. 1013.4(i).

          4(j) Statement Referencing Nonsegregated Disclosures

    1. Content. A lessor may delete inapplicable items from the 
disclosure. For example, if a lease contract does not include a security 
interest, the reference to a security interest may be omitted.

                         4(l) Right of Appraisal

    1. Disclosure inapplicable. The lessee does not have the right to an 
independent appraisal merely because the lessee is liable at the end of 
the lease term or at early termination for unreasonable wear or use. 
Thus, the disclosure under Sec. 1013.4(l) does not apply. For example:
    i. The automobile lessor might expect a lessee to return an undented 
car with four good tires at the end of the lease term. Even though it 
may hold the lessee liable for the difference between a dented car with 
bald tires and the value of a car in reasonably good repair, the 
disclosure under Sec. 1013.4(l) is not required.
    2. Lessor's appraisal. If the lessor obtains an appraisal of the 
leased property to determine its realized value, that appraisal does not 
suffice for purposes of section 183(c) of the Act; the lessor must 
disclose the lessee's right to an independent appraisal under Sec. 
1013.4(l).
    3. Retail or wholesale. In providing the disclosures in Sec. 
1013.4(l), a lessor must indicate whether the wholesale or retail 
appraisal value will be used.
    4. Time restriction on appraisal. The regulation does not specify a 
time period in which the lessee must exercise the appraisal right. The 
lessor may require a lessee to obtain the appraisal within a reasonable 
time after termination of the lease.

       4(m) Liability at End of Lease Term Based on Residual Value

    1. Open-end leases. Section 1013.4(m) applies only to open-end 
leases.
    2. Lessor's payment of attorney's fees. Section 183(a) of the Act 
requires that the lessor pay the lessee's attorney's fees in all actions 
under Sec. 1013.4(m), whether successful or not.

                     4(m)(1) Rent and Other Charges

    1. General. This disclosure is intended to represent the cost of 
financing an open-end lease based on charges and fees that the lessor 
requires the lessee to pay. Examples of disclosable charges, in addition 
to the rent charge, include acquisition, disposition, or assignment 
fees. Charges imposed by a third party whose services are not required 
by the lessor (such as official fees and voluntary insurance) are not 
included in the Sec. 1013.4(m)(1) disclosure.

                        4(m)(2) Excess Liability

    1. Coverage. The disclosure limiting the lessee's liability for the 
value of the leased property does not apply in the case of early 
termination.
    2. Leases with a minimum term. If a lease has an alternative minimum 
term, the disclosures governing the liability limitation are not 
applicable for the minimum term.
    3. Charges not subject to rebuttable presumption. The limitation on 
liability applies only to liability at the end of the lease term that is 
based on the difference between the residual value of the leased 
property and its realized value. The regulation does not preclude a 
lessor from recovering other charges from the lessee at the end of the 
lease term. Examples of such charges include:
    i. Disposition charges.
    ii. Excess mileage charges.
    iii. Late payment and default charges.
    iv. In simple-interest accounting leases, amount by which the 
unamortized cost exceeds the residual value because the lessee has not 
made timely payments.

                           4(n) Fees and Taxes

    1. Treatment of certain taxes. Taxes paid in connection with the 
lease are generally disclosed under Sec. 1013.4(n), but there are 
exceptions. To illustrate:
    i. Taxes paid by lease signing or delivery are disclosed under Sec. 
1013.4(b) and Sec. 1013.4(n).
    ii. Taxes that are part of the scheduled payments are reflected in 
the disclosure under Sec. 1013.4(c), (f), and (n).
    iii. A tax payable by the lessor that is passed on to the consumer 
and is reflected in the lease documentation must be disclosed under 
Sec. 1013.4(n). A tax payable by the lessor and absorbed as a cost of 
doing business need not be disclosed.

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    iv. Taxes charged in connection with the exercise of a purchase 
option are disclosed under Sec. 1013.4(i), not Sec. 1013.4(n).
    2. Estimates. In disclosing the total amount of fees and taxes under 
Sec. 1013.4(n), lessors may need to base the disclosure on estimated 
tax rates or amounts and are afforded great flexibility in doing so. 
Where a rate is applied to the future value of leased property, lessors 
have flexibility in estimating that value, including, but not limited 
to, using the mathematical average of the agreed upon value and the 
residual value or published valuation guides; or a lessor could prepare 
estimates using the agreed upon value and disclose a reasonable estimate 
of the total fees and taxes. Lessors may include a statement that the 
actual total of fees and taxes may be higher or lower depending on the 
tax rates in effect or the value of the leased property at the time a 
fee or tax is assessed.

                             4(o) Insurance

    1. Coverage. If insurance is obtained through the lessor, 
information on the type and amount of insurance coverage (whether 
voluntary or required) as well as the cost, must be disclosed.
    2. Lessor's insurance. Insurance purchased by the lessor primarily 
for its own benefit, and absorbed as a business expense and not 
separately charged to the lessee, need not be disclosed under Sec. 
1013.4(o) even if it provides an incidental benefit to the lessee.
    3. Mechanical breakdown protection and other products. Whether 
products purchased in conjunction with a lease, such as mechanical 
breakdown protection (MBP) or guaranteed automobile protection (GAP), 
should be treated as insurance is determined by state or other 
applicable law. In states that do not treat MBP or GAP as insurance, 
Sec. 1013.4(o) disclosures are not required. In such cases the lessor 
may, however, disclose this information in accordance with the 
additional information provision in Sec. 1013.3(b). For MBP insurance 
contracts not capped by a dollar amount, lessors may describe coverage 
by referring to a limitation by mileage or time period, for example, by 
indicating that the mechanical breakdown contract insures parts of the 
automobile for up to 100,000 miles.

                      4(p) Warranties or Guarantees

    1. Brief identification. The statement identifying warranties may be 
brief and need not describe or list all warranties applicable to 
specific parts such as for air conditioning, radio, or tires in an 
automobile. For example, manufacturer's warranties may be identified 
simply by a reference to the standard manufacturer's warranty. If a 
lessor provides a comprehensive list of warranties that may not all 
apply, to comply with Sec. 1013.4(p) the lessor must indicate which 
warranties apply or, alternatively, which warranties do not apply.
    2. Warranty disclaimers. Although a disclaimer of warranties is not 
required by the regulation, the lessor may give a disclaimer as 
additional information in accordance with Sec. 1013.3(b).
    3. State law. Whether an express warranty or guaranty exists is 
determined by state or other law.

            4(q) Penalties and Other Charges for Delinquency

    1. Collection costs. The automatic imposition of collection costs or 
attorney fees upon default must be disclosed under Sec. 1013.4(q). 
Collection costs or attorney fees that are not imposed automatically, 
but are contingent upon expenditures in conjunction with a collection 
proceeding or upon the employment of an attorney to effect collection, 
need not be disclosed.
    2. Charges for early termination. When default is a condition for 
early termination of a lease, default charges must also be disclosed 
under Sec. 1013.4(g)(1). The Sec. 1013.4(q) and (g)(1) disclosures 
may, but need not, be combined. Examples of combined disclosures are 
provided in the model lease disclosure forms in Appendix A.
    3. Simple-interest leases. In a simple-interest accounting lease, 
the additional rent charge that accrues on the lease balance when a 
periodic payment is made after the due date does not constitute a 
penalty or other charge for late payment. Similarly, continued accrual 
of the rent charge after termination of the lease because the lessee 
fails to return the leased property does not constitute a default 
charge. But in either case, if the additional charge accrues at a rate 
higher than the normal rent charge, the lessor must disclose the amount 
of or the method of determining the additional charge under Sec. 
1013.4(q).
    4. Extension charges. Extension charges that exceed the rent charge 
in a simple-interest accounting lease or that are added separately are 
disclosed under Sec. 1013.4(q).
    5. Reasonableness of charges. Pursuant to section 183(b) of the Act, 
penalties or other charges for delinquency, default, or early 
termination may be specified in the lease but only in an amount that is 
reasonable in light of the anticipated or actual harm caused by the 
delinquency, default, or early termination, the difficulties of proof of 
loss, and the inconvenience or nonfeasibility of otherwise obtaining an 
adequate remedy.

                         4(r) Security Interest

    1. Disclosable security interests. See Sec. 1013.2(o) and 
accompanying commentary to determine what security interests must be 
disclosed.

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                  4(s) Limitations on Rate Information

    1. Segregated disclosures. A lease rate may not be included among 
the segregated disclosures referenced in Sec. 1013.3(a)(2).

       Section 1013.5--Renegotiations, Extensions, and Assumptions

    1. Coverage. Section 1013.5 applies only to existing leases that are 
covered by the regulation. It does not apply to the renegotiation or 
extension of leases with an initial term of four months or less, because 
such leases are not covered by the definition of consumer lease in Sec. 
1013.2(e). Whether and when a lease is satisfied and replaced by a new 
lease is determined by state or other applicable law.

                           5(a) Renegotiation

    1. Basis of disclosures. Lessors have flexibility in making 
disclosures so long as they reflect the legal obligation under the 
renegotiated lease. For example, assume that a 24-month lease is 
replaced by a 36-month lease. The initial lease began on January 1, 
1998, and was renegotiated and replaced on July 1, 1998, so that the new 
lease term ends on January 1, 2001.
    i. If the renegotiated lease covers the 36-month period beginning 
January 1, 1998, the new disclosures would reflect all payments made by 
the lessee on the initial lease and all payments on the renegotiated 
lease. In this example, since the renegotiated lease covers a 36-month 
period beginning January 1, 1998, the disclosures must reflect payments 
made since that date. On the model form, the ``total of base periodic 
payments'' disclosed under Sec. 1013.4(f)(7) should reflect periodic 
payments to be made over the entire 36-month term. Payments received 
since January 1, 1998, are added as a new line item disclosed as ``total 
of payments received'' and are subtracted from the ``total of base 
periodic payments'' in calculating a new item disclosed as the ``total 
of base periodic payments remaining.'' For example, if 6 monthly 
payments of $300 were received since January 1, 1998, the disclosure 
form should include a ``total of base periodic payments'' line from 
which $1,800 is subtracted to arrive at the ``total of base periodic 
payments remaining.'' The remainder of the disclosures would not change.
    ii. If the renegotiated lease covers only the remaining 30 months, 
from July 1, 1998, to January 1, 2001, the disclosures would reflect 
only the charges incurred in connection with the renegotiation and the 
payments for the remaining period.

                             5(b) Extension

    1. Time of extension disclosures. If a consumer lease is extended 
for a specified term greater than six months, new disclosures are 
required at the time the extension is agreed upon. If the lease is 
extended on a month-to-month basis and the cumulative extensions exceed 
six months, new disclosures are required at the commencement of the 
seventh month and at the commencement of each seventh month thereafter 
for as long as the extensions continue. If a consumer lease is extended 
for terms of varying durations, one of which will exceed six months 
beyond the originally scheduled termination date of the lease, new 
disclosures are required at the commencement of the term that will 
exceed six months beyond the originally scheduled termination date.
    2. Content of disclosures for month-to-month extensions. The 
disclosures for a lease extended on a month-to-month basis for more than 
six months should reflect the month-to-month nature of the transaction.
    3. Basis of disclosures. The disclosures should be based on the 
extension period, including any upfront costs paid in connection with 
the extension. For example, assume that initially a lease ends on March 
1, 1999. In January 1999, agreement is reached to extend the lease until 
October 1, 1999. The disclosure would include any extension fee paid in 
January and the periodic payments for the seven-month extension period 
beginning in March.

                        Section 1013.6 [Reserved]

                       Section 1013.7--Advertising

                            7(a) General Rule

    1. Persons covered. All ``persons'' must comply with the advertising 
provisions in this section, not just those that meet the definition of a 
lessor in Sec. 1013.2(h). Thus, automobile dealers (to the extent they 
are not excluded from the Bureau's rulemaking authority by section 1029 
of the Dodd-Frank Act), merchants, and others who are not themselves 
lessors must comply with the advertising provisions of the regulation if 
they advertise consumer lease transactions. Pursuant to section 184(b) 
of the Act, however, owners and personnel of the media in which an 
advertisement appears or through which it is disseminated are not 
subject to civil liability for violations under section 185(b) of the 
Act.
    2. ``Usually and customarily.'' Section 1013.7(a) does not prohibit 
the advertising of a single item or the promotion of a new leasing 
program, but prohibits the advertising of terms that are not and will 
not be available. Thus, an advertisement may state terms that will be 
offered for only a limited period or terms that will become available at 
a future date.
    3. Total contractual obligation of advertised lease. Section 1013.7 
applies to advertisements for consumer leases, as defined in Sec. 
1013.2(e). Under Sec. 1013.2(e), a consumer lease is exempt from the 
requirements of this part if the total contractual obligation exceeds

[[Page 349]]

the threshold amount in effect at the time of consummation. See comment 
2(e)-9. Accordingly, Sec. 1013.7 does not apply to an advertisement for 
a specific consumer lease if the total contractual obligation for that 
lease exceeds the threshold amount in effect when the advertisement is 
made. If a lessor promotes multiple consumer leases in a single 
advertisement, the entire advertisement must comply with Sec. 1013.7 
unless all of the advertised leases are exempt under Sec. 1013.2(e). 
For example:
    i. Assume that, in an advertisement, a lessor states that certain 
terms apply to a consumer lease for a specific automobile. The total 
contractual obligation of the advertised lease exceeds the threshold 
amount in effect when the advertisement is made. Although the 
advertisement does not refer to any other lease, some or all of the 
advertised terms for the exempt lease also apply to other leases offered 
by the lessor with total contractual obligations that do not exceed the 
applicable threshold amount. The advertisement is not required to comply 
with Sec. 1013.7 because it refers only to an exempt lease.
    ii. Assume that, in an advertisement, a lessor states certain terms 
(such as the amount due at lease signing) that will apply to consumer 
leases for automobiles of a particular brand. However, the advertisement 
does not refer to a specific lease. The total contractual obligations of 
the leases for some of the automobiles will exceed the threshold amount 
in effect when the advertisement is made, but the total contractual 
obligations of the leases for other automobiles will not exceed the 
threshold. The entire advertisement must comply with Sec. 1013.7 
because it refers to terms for consumer leases that are not exempt.
    iii. Assume that, in a single advertisement, a lessor states that 
certain terms apply to consumer leases for two different automobiles. 
The total contractual obligation of the lease for the first automobile 
exceeds the threshold amount in effect when the advertisement is made, 
but the total contractual obligation of the lease for the second 
automobile does not exceed the threshold. The entire advertisement must 
comply with Sec. 1013.7 because it refers to a consumer lease that is 
not exempt.

                   7(b) Clear and Conspicuous Standard

    1. Standard. The disclosures in an advertisement in any media must 
be reasonably understandable. For example, very fine print in a 
television advertisement or detailed and very rapidly stated information 
in a radio advertisement does not meet the clear and conspicuous 
standard if consumers cannot see and read or hear, and cannot 
comprehend, the information required to be disclosed.

             7(b)(1) Amount Due at Lease Signing or Delivery

    1. Itemization not required. Only a total of amounts due at lease 
signing or delivery is required to be disclosed, not an itemization of 
its component parts. Such an itemization is provided in any transaction-
specific disclosures provided under Sec. 1013.4.
    2. Prominence rule. Except for a periodic payment, oral or written 
references to components of the total due at lease signing or delivery 
(for example, a reference to a capitalized cost reduction, where 
permitted) may not be more prominent than the disclosure of the total 
amount due at lease signing or delivery.

                  7(b)(2) Advertisement of a Lease Rate

    1. Location of statement. The notice required to accompany a 
percentage rate stated in an advertisement must be placed in close 
proximity to the rate without any other intervening language or symbols. 
For example, a lessor may not place an asterisk next to the rate and 
place the notice elsewhere in the advertisement. In addition, with the 
exception of the notice required by Sec. 1013.4(s), the rate cannot be 
more prominent than any other Sec. 1013.4 disclosure stated in the 
advertisement.

      7(c) Catalogs or Other Multi-Page Advertisements; Electronic 
                             Advertisements

    1. General rule. The multiple-page advertisements referred to in 
Sec. 1013.7(c) are advertisements consisting of a series of numbered 
pages--for example, a supplement to a newspaper. A mailing comprising 
several separate flyers or pieces of promotional material in a single 
envelope is not a single multiple-page advertisement.
    2. Cross references. A catalog or other multiple-page advertisement 
or an electronic advertisement (such as an advertisement appearing on an 
internet Web site) is a single advertisement (requiring only one set of 
lease disclosures) if it contains a table, chart, or schedule with the 
disclosures required under Sec. 1013.7(d)(2)(i) through (v). If one of 
the triggering terms listed in Sec. 1013.7(d)(1) appears in a catalog, 
or in a multiple-page or electronic advertisement, it must clearly 
direct the consumer to the page or location where the table, chart, or 
schedule begins. For example, in an electronic advertisement, a term 
triggering additional disclosures may be accompanied by a link that 
directly connects the consumer to the additional information.

                        7(d)(1) Triggering Terms

    1. Typical example. When any triggering term appears in a lease 
advertisement, the additional terms enumerated in Sec. 1013.7(d)(2)(i) 
through (v) must also appear. In a multi-lease advertisement, an example

[[Page 350]]

of one or more typical leases with a statement of all the terms 
applicable to each may be used. The examples must be labeled as such and 
must reflect representative lease terms that are made available by the 
lessor to consumers.

                        7(d)(2) Additional Terms

    1. Third-party fees that vary by state or locality. The disclosure 
of a periodic payment or total amount due at lease signing or delivery 
may:
    i. Exclude third-party fees, such as taxes, licenses, and 
registration fees and disclose that fact; or
    ii. Provide a periodic payment or total that includes third-party 
fees based on a particular state or locality as long as that fact and 
the fact that fees may vary by state or locality are disclosed.

             7(e) Alternative Disclosures--Merchandise Tags

    1. Multiple-item leases. Multiple-item leases that utilize 
merchandise tags requiring additional disclosures may use the alternate 
disclosure rule.

    7(f) Alternative Disclosures--Television or Radio Advertisements

             7(f)(1) Toll-Free Number or Print Advertisement

    1. Publication in general circulation. A reference to a written 
advertisement appearing in a newspaper circulated nationally, for 
example, USA Today or the Wall Street Journal, may satisfy the general 
circulation requirement in Sec. 1013.7(f)(1)(ii).
    2. Toll-free number, local or collect calls. In complying with the 
disclosure requirements of Sec. 1013.7(f)(1)(i), a lessor must provide 
a toll-free number for nonlocal calls made from an area code other than 
the one used in the lessor's dialing area. Alternatively, a lessor may 
provide any telephone number that allows a consumer to reverse the phone 
charges when calling for information.
    3. Multi-purpose number. When an advertised toll-free number 
responds with a recording, lease disclosures must be provided early in 
the sequence to ensure that the consumer receives the required 
disclosures. For example, in providing several dialing options--such as 
providing directions to the lessor's place of business--the option 
allowing the consumer to request lease disclosures should be provided 
early in the telephone message to ensure that the option to request 
disclosures is not obscured by other information.
    4. Statement accompanying toll free number. Language must accompany 
a telephone and television number indicating that disclosures are 
available by calling the toll-free number, such as ``call 1-(800) 000-
0000 for details about costs and terms.''

                    Section 1013.8--Record Retention

    1. Manner of retaining evidence. A lessor must retain evidence of 
having performed required actions and of having made required 
disclosures. Such records may be retained in paper form, on microfilm, 
microfiche, or computer, or by any other method designed to reproduce 
records accurately. The lessor need retain only enough information to 
reconstruct the required disclosures or other records.

                 Section 1013.9--Relation to State Laws

    1. Exemptions granted. The Bureau recognizes exemptions granted by 
the Board of Governors of the Federal Reserve System prior to July 21, 
2011, until and unless the Bureau makes and publishes any contrary 
determination. Effective October 1, 1982, the Board of Governors of the 
Federal Reserve System granted the following exemptions from portions of 
the Consumer Leasing Act:
    i. Maine. Lease transactions subject to the Maine Consumer Credit 
Code and its implementing regulations are exempt from Chapters 2, 4, and 
5 of the Federal act. (The exemption does not apply to transactions in 
which a federally chartered institution is a lessor.)
    ii. Oklahoma. Lease transactions subject to the Oklahoma Consumer 
Credit Code are exempt from Chapters 2 and 5 of the Federal act. (The 
exemption does not apply to sections 132 through 135 of the Federal act, 
nor does it apply to transactions in which a federally chartered 
institution is a lessor.)

                         Appendix A--Model Forms

    1. Permissible changes. Although use of the model forms is not 
required, lessors using them properly will be deemed to be in compliance 
with the regulation. Generally, lessors may make certain changes in the 
format or content of the forms and may delete any disclosures that are 
inapplicable to a transaction without losing the Act's protection from 
liability. For example, the model form based on monthly periodic 
payments may be modified for single-payment lease transactions or for 
quarterly or other regular or irregular periodic payments. The model 
form may also be modified to reflect that a transaction is an extension. 
The content, format, and headings for the segregated disclosures must be 
substantially similar to those contained in the model forms; therefore, 
any changes should be minimal. The changes to the model forms should not 
be so extensive as to affect the substance and the clarity of the 
disclosures.
    2. Examples of acceptable changes.
    i. Using the first person, instead of the second person, in 
referring to the lessee.
    ii. Using ``lessee,'' ``lessor,'' or names instead of pronouns.

[[Page 351]]

    iii. Rearranging the sequence of the nonsegregated disclosures.
    iv. Incorporating certain state ``plain English'' requirements.
    v. Deleting or blocking out inapplicable disclosures, filling in 
``N/A'' (not applicable) or ``0,'' crossing out, leaving blanks, 
checking a box for applicable items, or circling applicable items (this 
should facilitate use of multipurpose standard forms).
    vi. Adding language or symbols to indicate estimates.
    vii. Adding numeric or alphabetic designations.
    viii. Rearranging the disclosures into vertical columns, except for 
Sec. 1013.4(b) through (e) disclosures.
    ix. Using icons and other graphics.
    3. Model closed-end or net vehicle lease disclosure. Model A-2 is 
designed for a closed-end or net vehicle lease. Under the ``Early 
Termination and Default'' provision a reference to the lessee's right to 
an independent appraisal of the leased vehicle under Sec. 1013.4(l) is 
included for those closed-end leases in which the lessee's liability at 
early termination is based on the vehicle's realized value.
    4. Model furniture lease disclosures. Model A-3 is a closed-end 
lease disclosure statement designed for a typical furniture lease. It 
does not include a disclosure of the appraisal right at early 
termination required under Sec. 1013.4(l) because few closed-end 
furniture leases base the lessee's liability at early termination on the 
realized value of the leased property. The disclosure should be added if 
it is applicable.

[76 FR 78502, Dec. 19, 2011, as amended at 76 FR 81790, Dec. 29, 2011]



PART 1014_MORTGAGE ACTS AND PRACTICES_ADVERTISING (REGULATION N)--Table 
of Contents



Sec.
1014.1 Scope of regulations in this part.
1014.2 Definitions.
1014.3 Prohibited representations.
1014.4 Waiver not permitted.
1014.5 Recordkeeping requirements.
1014.6 Actions by states.
1014.7 Severability.

    Authority: 12 U.S.C. 5512, 5581; 15 U.S.C. 1638 note.

    Source: 76 FR 78133, Dec. 16, 2011, unless otherwise noted.



Sec. 1014.1  Scope of regulations in this part.

    This part, known as Regulation N, is issued by the Bureau of 
Consumer Financial Protection to implement the 2009 Omnibus 
Appropriations Act, Public L. 111-8, section 626, 123 Stat. 524 (Mar. 
11, 2009), as amended by the Credit Card Accountability Responsibility 
and Disclosure Act of 2009, Public Law 111-24, section 511, 123 Stat. 
1734 (May 22, 2009), and as amended by the Dodd-Frank Wall Street Reform 
and Consumer Financial Protection Act of 2010, Public Law 111-203, 
section 1097, 124 Stat. 1376 (July 21, 2010). This part applies to 
persons over which the Federal Trade Commission has jurisdiction under 
the Federal Trade Commission Act.



Sec. 1014.2  Definitions.

    For the purposes of this part:
    Commercial communication means any written or oral statement, 
illustration, or depiction, whether in English or any other language, 
that is designed to effect a sale or create interest in purchasing goods 
or services, whether it appears on or in a label, package, package 
insert, radio, television, cable television, brochure, newspaper, 
magazine, pamphlet, leaflet, circular, mailer, book insert, free 
standing insert, letter, catalogue, poster, chart, billboard, public 
transit card, point of purchase display, film, slide, audio program 
transmitted over a telephone system, telemarketing script, on-hold 
script, upsell script, training materials provided to telemarketing 
firms, program-length commercial (``infomercial''), the internet, 
cellular network, or any other medium. Promotional materials and items 
and Web pages are included in the term commercial communication.
    Consumer means a natural person to whom a mortgage credit product is 
offered or extended.
    Credit means the right to defer payment of debt or to incur debt and 
defer its payment.
    Dwelling means a residential structure that contains one to four 
units, whether or not that structure is attached to real property. The 
term includes any of the following if used as a residence: an individual 
condominium unit, cooperative unit, mobile home, manufactured home, or 
trailer.
    Mortgage credit product means any form of credit that is secured by 
real

[[Page 352]]

property or a dwelling and that is offered or extended to a consumer 
primarily for personal, family, or household purposes.
    Person means any individual, group, unincorporated association, 
limited or general partnership, corporation, or other business entity.
    Term means any of the fees, costs, obligations, or characteristics 
of or associated with the product. It also includes any of the 
conditions on or related to the availability of the product.



Sec. 1014.3  Prohibited representations.

    It is a violation of this part for any person to make any material 
misrepresentation, expressly or by implication, in any commercial 
communication, regarding any term of any mortgage credit product, 
including but not limited to misrepresentations about:
    (a) The interest charged for the mortgage credit product, including 
but not limited to misrepresentations concerning:
    (1) The amount of interest that the consumer owes each month that is 
included in the consumer's payments, loan amount, or total amount due, 
or
    (2) Whether the difference between the interest owed and the 
interest paid is added to the total amount due from the consumer;
    (b) The annual percentage rate, simple annual rate, periodic rate, 
or any other rate;
    (c) The existence, nature, or amount of fees or costs to the 
consumer associated with the mortgage credit product, including but not 
limited to misrepresentations that no fees are charged;
    (d) The existence, cost, payment terms, or other terms associated 
with any additional product or feature that is or may be sold in 
conjunction with the mortgage credit product, including but not limited 
to credit insurance or credit disability insurance;
    (e) The terms, amounts, payments, or other requirements relating to 
taxes or insurance associated with the mortgage credit product, 
including but not limited to misrepresentations about:
    (1) Whether separate payment of taxes or insurance is required; or
    (2) The extent to which payment for taxes or insurance is included 
in the loan payments, loan amount, or total amount due from the 
consumer;
    (f) Any prepayment penalty associated with the mortgage credit 
product, including but not limited to misrepresentations concerning the 
existence, nature, amount, or terms of such penalty;
    (g) The variability of interest, payments, or other terms of the 
mortgage credit product, including but not limited to misrepresentations 
using the word ``fixed'';
    (h) Any comparison between:
    (1) Any rate or payment that will be available for a period less 
than the full length of the mortgage credit product; and
    (2) Any actual or hypothetical rate or payment;
    (i) The type of mortgage credit product, including but not limited 
to misrepresentations that the product is or involves a fully amortizing 
mortgage;
    (j) The amount of the obligation, or the existence, nature, or 
amount of cash or credit available to the consumer in connection with 
the mortgage credit product, including but not limited to 
misrepresentations that the consumer will receive a certain amount of 
cash or credit as part of a mortgage credit transaction;
    (k) The existence, number, amount, or timing of any minimum or 
required payments, including but not limited to misrepresentations about 
any payments or that no payments are required in a reverse mortgage or 
other mortgage credit product;
    (l) The potential for default under the mortgage credit product, 
including but not limited to misrepresentations concerning the 
circumstances under which the consumer could default for nonpayment of 
taxes, insurance, or maintenance, or for failure to meet other 
obligations;
    (m) The effectiveness of the mortgage credit product in helping the 
consumer resolve difficulties in paying debts, including but not limited 
to misrepresentations that any mortgage credit product can reduce, 
eliminate, or restructure debt or result in a waiver or forgiveness, in 
whole or in part, of the consumer's existing obligation with any person;

[[Page 353]]

    (n) The association of the mortgage credit product or any provider 
of such product with any other person or program, including but not 
limited to misrepresentations that:
    (1) The provider is, or is affiliated with, any governmental entity 
or other organization; or
    (2) The product is or relates to a government benefit, or is 
endorsed, sponsored by, or affiliated with any government or other 
program, including but not limited to through the use of formats, 
symbols, or logos that resemble those of such entity, organization, or 
program;
    (o) The source of any commercial communication, including but not 
limited to misrepresentations that a commercial communication is made by 
or on behalf of the consumer's current mortgage lender or servicer;
    (p) The right of the consumer to reside in the dwelling that is the 
subject of the mortgage credit product, or the duration of such right, 
including but not limited to misrepresentations concerning how long or 
under what conditions a consumer with a reverse mortgage can stay in the 
dwelling;
    (q) The consumer's ability or likelihood to obtain any mortgage 
credit product or term, including but not limited to misrepresentations 
concerning whether the consumer has been preapproved or guaranteed for 
any such product or term;
    (r) The consumer's ability or likelihood to obtain a refinancing or 
modification of any mortgage credit product or term, including but not 
limited to misrepresentations concerning whether the consumer has been 
preapproved or guaranteed for any such refinancing or modification; and
    (s) The availability, nature, or substance of counseling services or 
any other expert advice offered to the consumer regarding any mortgage 
credit product or term, including but not limited to the qualifications 
of those offering the services or advice.



Sec. 1014.4  Waiver not permitted.

    It is a violation of this part for any person to obtain, or attempt 
to obtain, a waiver from any consumer of any protection provided by or 
any right of the consumer under this part.



Sec. 1014.5  Recordkeeping requirements.

    (a) Any person subject to this part shall keep, for a period of 
twenty-four months from the last date the person made or disseminated 
the applicable commercial communication regarding any term of any 
mortgage credit product, the following evidence of compliance with this 
part:
    (1) Copies of all materially different commercial communications as 
well as sales scripts, training materials, and marketing materials, 
regarding any term of any mortgage credit product, that the person made 
or disseminated during the relevant time period;
    (2) Documents describing or evidencing all mortgage credit products 
available to consumers during the time period in which the person made 
or disseminated each commercial communication regarding any term of any 
mortgage credit product, including but not limited to the names and 
terms of each such mortgage credit product available to consumers; and
    (3) Documents describing or evidencing all additional products or 
services (such as credit insurance or credit disability insurance) that 
are or may be offered or provided with the mortgage credit products 
available to consumers during the time period in which the person made 
or disseminated each commercial communication regarding any term of any 
mortgage credit product, including but not limited to the names and 
terms of each such additional product or service available to consumers.
    (b) Any person subject to this part may keep the records required by 
paragraph (a) of this section in any legible form, and in the same 
manner, format, or place as they keep such records in the ordinary 
course of business. Failure to keep all records required under paragraph 
(a) of this section shall be a violation of this part.



Sec. 1014.6  Actions by states.

    Any attorney general or other officer of a state authorized by the 
state to bring an action under this part may do so pursuant to section 
626(b) of the 2009 Omnibus Appropriations Act, Public Law 111-8, section 
626, 123 Stat. 524 (Mar. 11, 2009), as amended by the Credit Card 
Accountability Responsibility and Disclosure Act of 2009, Public Law

[[Page 354]]

111-24, section 511, 123 Stat. 1734 (May 22, 2009), and as amended by 
Public Law 111-203, section 1097, 124 Stat. 2102 (July 21, 2010).



Sec. 1014.7  Severability.

    The provisions of this part are separate and severable from one 
another. If any provision is stayed or determined to be invalid, it is 
the Bureau of Consumer Financial Protection's intention that the 
remaining provisions shall continue in effect.



PART 1015_MORTGAGE ASSISTANCE RELIEF SERVICES (REGULATION O)--Table of 
Contents



Sec.
1015.1 Scope of regulations in this part.
1015.2 Definitions.
1015.3 Prohibited representations.
1015.4 Disclosures required in commercial communications.
1015.5 Prohibition on collection of advance payments and related 
          disclosures.
1015.6 Assisting and facilitating.
1015.7 Exemptions.
1015.8 Waiver not permitted.
1015.9 Recordkeeping and compliance requirements.
1015.10 Actions by states.
1015.11 Severability.

    Authority: 12 U.S.C. 5512, 5581; 15 U.S.C. 1638 note.

    Source: 76 FR 78133, Dec. 16, 2011, unless otherwise noted.



Sec. 1015.1  Scope of regulations in this part.

    This part, known as Regulation O, is issued by the Bureau of 
Consumer Financial Protection to implement the 2009 Omnibus 
Appropriations Act, Public Law 111-8, section 626, 123 Stat. 524 (Mar. 
11, 2009), as clarified by the Credit Card Accountability Responsibility 
and Disclosure Act of 2009, Public Law 111-24, section 511, 123 Stat. 
1734 (May 22, 2009), and as amended by the Dodd-Frank Wall Street Reform 
and Consumer Financial Protection Act of 2010, Public Law 111-203, 
section 1097, 124 Stat. 1376 (July 21, 2010). This part applies to 
persons over which the Federal Trade Commission has jurisdiction under 
the Federal Trade Commission Act.



Sec. 1015.2  Definitions.

    For the purposes of this part:
    Clear and prominent means:
    (1) In textual communications, the required disclosures shall be 
easily readable; in a high degree of contrast from the immediate 
background on which it appears; in the same languages that are 
substantially used in the commercial communication; in a format so that 
the disclosure is distinct from other text, such as inside a border; in 
a distinct type style, such as bold; parallel to the base of the 
commercial communication, and, except as otherwise provided in this 
rule, each letter of the disclosure shall be, at a minimum, the larger 
of 12-point type or one-half the size of the largest letter or numeral 
used in the name of the advertised Web site or telephone number to which 
consumers are referred to receive information relating to any mortgage 
assistance relief service. Textual communications include any 
communications in a written or printed form such as print publications 
or words displayed on the screen of a computer;
    (2) In communications disseminated orally or through audible means, 
such as radio or streaming audio, the required disclosures shall be 
delivered in a slow and deliberate manner and in a reasonably 
understandable volume and pitch;
    (3) In communications disseminated through video means, such as 
television or streaming video, the required disclosures shall appear 
simultaneously in the audio and visual parts of the commercial 
communication and be delivered in a manner consistent with paragraphs 
(1) and (2) of this definition. The visual disclosure shall be at least 
four percent of the vertical picture or screen height and appear for the 
duration of the oral disclosure;
    (4) In communications made through interactive media, such as the 
internet, online services, and software, the required disclosures shall:
    (i) Be consistent with paragraphs (1) through (3) of this 
definition;
    (ii) Be made on, or immediately prior to, the page on which the 
consumer takes any action to incur any financial obligation;
    (iii) Be unavoidable, i.e., visible to consumers without requiring 
them to scroll down a Web page; and

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    (iv) Appear in type at least the same size as the largest character 
of the advertisement;
    (5) In all instances, the required disclosures shall be presented in 
an understandable language and syntax, and with nothing contrary to, 
inconsistent with, or in mitigation of the disclosures used in any 
communication of them; and
    (6) For program-length television, radio, or internet-based 
multimedia commercial communications, the required disclosures shall be 
made at the beginning, near the middle, and at the end of the commercial 
communication.
    Client trust account means a separate account created by a licensed 
attorney for the purpose of holding client funds, which is:
    (1) Maintained in compliance with all applicable state laws and 
regulations, including licensing regulations; and
    (2) Located in the state where the attorney's office is located, or 
elsewhere in the United States with the consent of the consumer on whose 
behalf the funds are held.
    Commercial communication means any written or oral statement, 
illustration, or depiction, whether in English or any other language, 
that is designed to effect a sale or create interest in purchasing any 
service, plan, or program, whether it appears on or in a label, package, 
package insert, radio, television, cable television, brochure, 
newspaper, magazine, pamphlet, leaflet, circular, mailer, book insert, 
free standing insert, letter, catalogue, poster, chart, billboard, 
public transit card, point of purchase display, film, slide, audio 
program transmitted over a telephone system, telemarketing script, 
onhold script, upsell script, training materials provided to 
telemarketing firms, program-length commercial (``infomercial''), the 
internet, cellular network, or any other medium. Promotional materials 
and items and Web pages are included in the term ``commercial 
communication.''
    (1) General Commercial Communication means a commercial 
communication that occurs prior to the consumer agreeing to permit the 
provider to seek offers of mortgage assistance relief on behalf of the 
consumer, or otherwise agreeing to use the mortgage assistance relief 
service, and that is not directed at a specific consumer.
    (2) Consumer-Specific Commercial Communication means a commercial 
communication that occurs prior to the consumer agreeing to permit the 
provider to seek offers of mortgage assistance relief on behalf of the 
consumer, or otherwise agreeing to use the mortgage assistance relief 
service, and that is directed at a specific consumer.
    Consumer means any natural person who is obligated under any loan 
secured by a dwelling.
    Dwelling means a residential structure containing four or fewer 
units, whether or not that structure is attached to real property, that 
is primarily for personal, family, or household purposes. The term 
includes any of the following if used as a residence: An individual 
condominium unit, cooperative unit, mobile home, manufactured home, or 
trailer.
    Dwelling loan means any loan secured by a dwelling, and any 
associated deed of trust or mortgage.
    Dwelling Loan Holder means any individual or entity who holds the 
dwelling loan that is the subject of the offer to provide mortgage 
assistance relief services.
    Material means likely to affect a consumer's choice of, or conduct 
regarding, any mortgage assistance relief service.
    Mortgage Assistance Relief Service means any service, plan, or 
program, offered or provided to the consumer in exchange for 
consideration, that is represented, expressly or by implication, to 
assist or attempt to assist the consumer with any of the following:
    (1) Stopping, preventing, or postponing any mortgage or deed of 
trust foreclosure sale for the consumer's dwelling, any repossession of 
the consumer's dwelling, or otherwise saving the consumer's dwelling 
from foreclosure or repossession;
    (2) Negotiating, obtaining, or arranging a modification of any term 
of a dwelling loan, including a reduction in the amount of interest, 
principal balance, monthly payments, or fees;
    (3) Obtaining any forbearance or modification in the timing of 
payments from any dwelling loan holder or servicer on any dwelling loan;

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    (4) Negotiating, obtaining, or arranging any extension of the period 
of time within which the consumer may:
    (i) Cure his or her default on a dwelling loan,
    (ii) Reinstate his or her dwelling loan,
    (iii) Redeem a dwelling, or
    (iv) Exercise any right to reinstate a dwelling loan or redeem a 
dwelling;
    (5) Obtaining any waiver of an acceleration clause or balloon 
payment contained in any promissory note or contract secured by any 
dwelling; or
    (6) Negotiating, obtaining or arranging:
    (i) A short sale of a dwelling,
    (ii) A deed-in-lieu of foreclosure, or
    (iii) Any other disposition of a dwelling other than a sale to a 
third party who is not the dwelling loan holder.
    Mortgage Assistance Relief Service Provider or Provider means any 
person that provides, offers to provide, or arranges for others to 
provide, any mortgage assistance relief service. This term does not 
include:
    (1) The dwelling loan holder, or any agent or contractor of such 
individual or entity.
    (2) The servicer of a dwelling loan, or any agent or contractor of 
such individual or entity.
    Person means any individual, group, unincorporated association, 
limited or general partnership, corporation, or other business entity, 
except to the extent that any person is specifically excluded from the 
Federal Trade Commission's jurisdiction pursuant to 15 U.S.C. 44 and 
45(a)(2).
    Servicer means the individual or entity responsible for:
    (1) Receiving any scheduled periodic payments from a consumer 
pursuant to the terms of the dwelling loan that is the subject of the 
offer to provide mortgage assistance relief services, including amounts 
for escrow accounts under section 10 of the Real Estate Settlement 
Procedures Act (12 U.S.C. 2609); and
    (2) Making the payments of principal and interest and such other 
payments with respect to the amounts received from the consumer as may 
be required pursuant to the terms of the mortgage servicing loan 
documents or servicing contract.
    Telemarketing means a plan, program, or campaign which is conducted 
to induce the purchase of any service, by use of one or more telephones 
and which involves more than one interstate telephone call.



Sec. 1015.3  Prohibited representations.

    It is a violation of this rule for any mortgage assistance relief 
service provider to engage in the following conduct:
    (a) Representing, expressly or by implication, in connection with 
the advertising, marketing, promotion, offering for sale, sale, or 
performance of any mortgage assistance relief service, that a consumer 
cannot or should not contact or communicate with his or her lender or 
servicer.
    (b) Misrepresenting, expressly or by implication, any material 
aspect of any mortgage assistance relief service, including but not 
limited to:
    (1) The likelihood of negotiating, obtaining, or arranging any 
represented service or result, such as those set forth in the definition 
of Mortgage Assistance Relief Service in Sec. 1015.2;
    (2) The amount of time it will take the mortgage assistance relief 
service provider to accomplish any represented service or result, such 
as those set forth in the definition of Mortgage Assistance Relief 
Service in Sec. 1015.2;
    (3) That a mortgage assistance relief service is affiliated with, 
endorsed or approved by, or otherwise associated with:
    (i) The United States government,
    (ii) Any governmental homeowner assistance plan,
    (iii) Any Federal, State, or local government agency, unit, or 
department,
    (iv) Any nonprofit housing counselor agency or program,
    (v) The maker, holder, or servicer of the consumer's dwelling loan, 
or
    (vi) Any other individual, entity, or program;
    (4) The consumer's obligation to make scheduled periodic payments or 
any other payments pursuant to the terms of the consumer's dwelling 
loan;
    (5) The terms or conditions of the consumer's dwelling loan, 
including but not limited to the amount of debt owed;

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    (6) The terms or conditions of any refund, cancellation, exchange, 
or repurchase policy for a mortgage assistance relief service, including 
but not limited to the likelihood of obtaining a full or partial refund, 
or the circumstances in which a full or partial refund will be granted, 
for a mortgage assistance relief service;
    (7) That the mortgage assistance relief service provider has 
completed the represented services or has a right to claim, demand, 
charge, collect, or receive payment or other consideration;
    (8) That the consumer will receive legal representation;
    (9) The availability, performance, cost, or characteristics of any 
alternative to for-profit mortgage assistance relief services through 
which the consumer can obtain mortgage assistance relief, including 
negotiating directly with the dwelling loan holder or servicer, or using 
any nonprofit housing counselor agency or program;
    (10) The amount of money or the percentage of the debt amount that a 
consumer may save by using the mortgage assistance relief service;
    (11) The total cost to purchase the mortgage assistance relief 
service; or
    (12) The terms, conditions, or limitations of any offer of mortgage 
assistance relief the provider obtains from the consumer's dwelling loan 
holder or servicer, including the time period in which the consumer must 
decide to accept the offer;
    (c) Making a representation, expressly or by implication, about the 
benefits, performance, or efficacy of any mortgage assistance relief 
service unless, at the time such representation is made, the provider 
possesses and relies upon competent and reliable evidence that 
substantiates that the representation is true. For the purposes of this 
paragraph, competent and reliable evidence means tests, analyses, 
research, studies, or other evidence based on the expertise of 
professionals in the relevant area, that have been conducted and 
evaluated in an objective manner by individuals qualified to do so, 
using procedures generally accepted in the profession to yield accurate 
and reliable results.



Sec. 1015.4  Disclosures required in commercial communications.

    It is a violation of this rule for any mortgage assistance relief 
service provider to engage in the following conduct:
    (a) Disclosures in All General Commercial Communications--Failing to 
place the following statements in every general commercial communication 
for any mortgage assistance relief service:
    (1) ``(Name of company) is not associated with the government, and 
our service is not approved by the government or your lender.''
    (2) In cases where the mortgage assistance relief service provider 
has represented, expressly or by implication, that consumers will 
receive any service or result set forth in paragraphs (2) through (6) of 
the definition of Mortgage Assistance Relief Service in Sec. 1015.2, 
``Even if you accept this offer and use our service, your lender may not 
agree to change your loan.''
    (3) The disclosures required by this paragraph must be made in a 
clear and prominent manner, and--
    (i) In textual communications the disclosures must appear together 
and be preceded by the heading ``IMPORTANT NOTICE,'' which must be in 
bold face font that is two point-type larger than the font size of the 
required disclosures; and
    (ii) In communications disseminated orally or through audible means, 
wholly or in part, the audio component of the required disclosures must 
be preceded by the statement ``Before using this service, consider the 
following information.''
    (b) Disclosures in All Consumer-Specific Commercial Communications--
Failing to disclose the following information in every consumer-specific 
commercial communication for any mortgage assistance relief service:
    (1) ``You may stop doing business with us at any time. You may 
accept or reject the offer of mortgage assistance we obtain from your 
lender [or servicer]. If you reject the offer, you do not have to pay 
us. If you accept the offer, you will have to pay us (insert amount or 
method for calculating the amount) for our services.'' For the purposes 
of this paragraph (b)(1), the amount ``you will have to pay'' shall

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consist of the total amount the consumer must pay to purchase, receive, 
and use all of the mortgage assistance relief services that are the 
subject of the sales offer, including, but not limited to, all fees and 
charges.
    (2) ``(Name of company) is not associated with the government, and 
our service is not approved by the government or your lender.''
    (3) In cases where the mortgage assistance relief service provider 
has represented, expressly or by implication, that consumers will 
receive any service or result set forth in paragraphs (2) through (6) of 
the definition of Mortgage Assistance Relief Service in Sec. 1015.2, 
``Even if you accept this offer and use our service, your lender may not 
agree to change your loan.''
    (4) The disclosures required by this paragraph must be made in a 
clear and prominent manner, and--
    (i) In textual communications the disclosures must appear together 
and be preceded by the heading ``IMPORTANT NOTICE,'' which must be in 
bold face font that is two point-type larger than the font size of the 
required disclosures; and
    (ii) In communications disseminated orally or through audible means, 
wholly or in part, the audio component of the required disclosures must 
be preceded by the statement ``Before using this service, consider the 
following information'' and, in telephone communications, must be made 
at the beginning of the call.
    (c) Disclosures in All General Commercial Communications, Consumer-
Specific Commercial Communications, and Other Communications--In cases 
where the mortgage assistance relief service provider has represented, 
expressly or by implication, in connection with the advertising, 
marketing, promotion, offering for sale, sale, or performance of any 
mortgage assistance relief service, that the consumer should temporarily 
or permanently discontinue payments, in whole or in part, on a dwelling 
loan, failing to disclose, clearly and prominently, and in close 
proximity to any such representation that ``If you stop paying your 
mortgage, you could lose your home and damage your credit rating.''



Sec. 1015.5  Prohibition on collection of advance payments and related
disclosures.

    It is a violation of this rule for any mortgage assistance relief 
service provider to:
    (a) Request or receive payment of any fee or other consideration 
until the consumer has executed a written agreement between the consumer 
and the consumer's dwelling loan holder or servicer incorporating the 
offer of mortgage assistance relief the provider obtained from the 
consumer's dwelling loan holder or servicer;
    (b) Fail to disclose, at the time the mortgage assistance relief 
service provider furnishes the consumer with the written agreement 
specified in paragraph (a) of this section, the following information: 
``This is an offer of mortgage assistance we obtained from your lender 
[or servicer]. You may accept or reject the offer. If you reject the 
offer, you do not have to pay us. If you accept the offer, you will have 
to pay us [same amount as disclosed pursuant to Sec. 1015.4(b)(1)] for 
our services.'' The disclosure required by this paragraph must be made 
in a clear and prominent manner, on a separate written page, and 
preceded by the heading: ``IMPORTANT NOTICE: Before buying this service, 
consider the following information.'' The heading must be in bold face 
font that is two point-type larger than the font size of the required 
disclosure; or
    (c)(1) Fail to provide, at the time the mortgage assistance relief 
service provider furnishes the consumer with the written agreement 
specified in paragraph (a) of this section, a notice from the consumer's 
dwelling loan holder or servicer that describes all material differences 
between the terms, conditions, and limitations associated with the 
consumer's current mortgage loan and the terms, conditions, and 
limitations associated with the consumer's mortgage loan if he or she 
accepts the dwelling loan holder's or servicer's offer, including but 
not limited to differences in the loan's:
    (i) Principal balance;
    (ii) Contract interest rate, including the maximum rate and any 
adjustable rates, if applicable;

[[Page 359]]

    (iii) Amount and number of the consumer's scheduled periodic 
payments on the loan;
    (iv) Monthly amounts owed for principal, interest, taxes, and any 
mortgage insurance on the loan;
    (v) Amount of any delinquent payments owing or outstanding;
    (vi) Assessed fees or penalties; and
    (vii) Term.
    (2) The notice must be made in a clear and prominent manner, on a 
separate written page, and preceded by heading: ``IMPORTANT INFORMATION 
FROM YOUR [name of lender or servicer] ABOUT THIS OFFER.'' The heading 
must be in bold face font that is two-point-type larger than the font 
size of the required disclosure.
    (d) Fail to disclose in the notice specified in paragraph (c) of 
this section, in cases where the offer of mortgage assistance relief the 
provider obtained from the consumer's dwelling loan holder or servicer 
is a trial mortgage loan modification, the terms, conditions, and 
limitations of this offer, including but not limited to:
    (1) The fact that the consumer may not qualify for a permanent 
mortgage loan modification; and
    (2) The likely amount of the scheduled periodic payments and any 
arrears, payments, or fees that the consumer would owe in failing to 
qualify.



Sec. 1015.6  Assisting and facilitating.

    It is a violation of this rule for a person to provide substantial 
assistance or support to any mortgage assistance relief service provider 
when that person knows or consciously avoids knowing that the provider 
is engaged in any act or practice that violates this rule.



Sec. 1015.7  Exemptions.

    (a) An attorney is exempt from this part, with the exception of 
Sec. 1015.5, if the attorney:
    (1) Provides mortgage assistance relief services as part of the 
practice of law;
    (2) Is licensed to practice law in the state in which the consumer 
for whom the attorney is providing mortgage assistance relief services 
resides or in which the consumer's dwelling is located; and
    (3) Complies with state laws and regulations that cover the same 
type of conduct the rule requires.
    (b) An attorney who is exempt pursuant to paragraph (a) of this 
section is also exempt from Sec. 1015.5 if the attorney:
    (1) Deposits any funds received from the consumer prior to 
performing legal services in a client trust account; and
    (2) Complies with all state laws and regulations, including 
licensing regulations, applicable to client trust accounts.



Sec. 1015.8  Waiver not permitted.

    It is a violation of this rule for any person to obtain, or attempt 
to obtain, a waiver from any consumer of any protection provided by or 
any right of the consumer under this rule.



Sec. 1015.9  Recordkeeping and compliance requirements.

    (a) Any mortgage assistance relief provider must keep, for a period 
of twenty-four (24) months from the date the record is created, the 
following records:
    (1) All contracts or other agreements between the provider and any 
consumer for any mortgage assistance relief service;
    (2) Copies of all written communications between the provider and 
any consumer occurring prior to the date on which the consumer entered 
into an agreement with the provider for any mortgage assistance relief 
service;
    (3) Copies of all documents or telephone recordings created in 
connection with compliance with paragraph (b) of this section;
    (4) All consumer files containing the names, phone numbers, dollar 
amounts paid, and descriptions of mortgage assistance relief services 
purchased, to the extent the mortgage assistance relief service provider 
keeps such information in the ordinary course of business;
    (5) Copies of all materially different sales scripts, training 
materials, commercial communications, or other marketing materials, 
including Web sites and weblogs, for any mortgage assistance relief 
service; and

[[Page 360]]

    (6) Copies of the documentation provided to the consumer as 
specified in Sec. 1015.5 of this rule;
    (b) A mortgage assistance relief service provider also must:
    (1) Take reasonable steps sufficient to monitor and ensure that all 
employees and independent contractors comply with this rule. Such steps 
shall include the monitoring of communications directed at specific 
consumers, and shall also include, at a minimum, the following:
    (i) If the mortgage assistance relief service provider is engaged in 
the telemarketing of mortgage assistance relief services, performing 
random, blind recording and testing of the oral representations made by 
individuals engaged in sales or other customer service functions;
    (ii) Establishing a procedure for receiving and responding to all 
consumer complaints; and
    (iii) Ascertaining the number and nature of consumer complaints 
regarding transactions in which all employees and independent 
contractors are involved;
    (2) Investigate promptly and fully each consumer complaint received;
    (3) Take corrective action with respect to any employee or 
contractor whom the mortgage assistance relief service provider 
determines is not complying with this rule, which may include training, 
disciplining, or terminating such individual; and
    (4) Maintain any information and material necessary to demonstrate 
its compliance with paragraphs (b)(1) through (3) of this section.
    (c) A mortgage assistance relief provider may keep the records 
required by paragraphs (a) and (b) of this section in any form, and in 
the same manner, format, or place as it keeps such records in the 
ordinary course of business.
    (d) It is a violation of this rule for a mortgage assistance relief 
service provider not to comply with this section.



Sec. 1015.10  Actions by states.

    Any attorney general or other officer of a state authorized by the 
state to bring an action under this part may do so pursuant to section 
626(b) of the 2009 Omnibus Appropriations Act, Public Law 111-8, section 
626, 123 Stat. 524 (Mar. 11, 2009), as amended by Public Law 111-24, 
section 511, 123 Stat. 1734 (May 22, 2009), and as amended by Public Law 
111-203, section 1097, 124 Stat. 2102 (July 21, 2010).



Sec. 1015.11  Severability.

    The provisions of this rule are separate and severable from one 
another. If any provision is stayed or determined to be invalid, it is 
the Bureau of Consumer Financial Protection's intention that the 
remaining provisions shall continue in effect.



PART 1016_PRIVACY OF CONSUMER FINANCIAL INFORMATION
(REGULATION P)--Table of Contents



Sec.
1016.1 Purpose and scope.
1016.2 Model privacy form and examples.
1016.3 Definitions.

                  Subpart A_Privacy and Opt Out Notices

1016.4 Initial privacy notice to consumers required.
1016.5 Annual privacy notice to customers required.
1016.6 Information to be included in privacy notices.
1016.7 Form of opt out notice to consumers; opt out methods.
1016.8 Revised privacy notices.
1016.9 Delivering privacy and opt out notices.

                     Subpart B_Limits on Disclosures

1016.10 Limits on disclosure of nonpublic personal information to 
          nonaffiliated third parties.
1016.11 Limits on redisclosure and reuse of information.
1016.12 Limits on sharing account number information for marketing 
          purposes.

                          Subpart C_Exceptions

1016.13 Exception to opt out requirements for service providers and 
          joint marketing.
1016.14 Exceptions to notice and opt out requirements for processing and 
          servicing transactions.
1016.15 Other exceptions to notice and opt out requirements.

                    Subpart D_Relation to Other Laws

1016.16 Protection of Fair Credit Reporting Act.
1016.17 Relation to state laws.

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Appendix to Part 1016--Model Privacy Form

    Authority: 12 U.S.C. 5512, 5581; 15 U.S.C. 6804.

    Source: 76 FR 79028, Dec. 21, 2011, unless otherwise noted.



Sec. 1016.1  Purpose and scope.

    (a) Purpose. This part governs the treatment of nonpublic personal 
information about consumers by the financial institutions listed in 
paragraph (b) of this section. This part:
    (1) Requires a financial institution to provide notice to customers 
about its privacy policies and practices;
    (2) Describes the conditions under which a financial institution may 
disclose nonpublic personal information about consumers to nonaffiliated 
third parties; and
    (3) Provides a method for consumers to prevent a financial 
institution from disclosing that information to most nonaffiliated third 
parties by ``opting out'' of that disclosure, subject to the exceptions 
in Sec. Sec. 1016.13, 1016.14, and 1016.15.
    (b) Scope. (1) This part applies only to nonpublic personal 
information about individuals who obtain financial products or services 
primarily for personal, family, or household purposes from the 
institutions listed below. This part does not apply to information about 
companies or about individuals who obtain financial products or services 
for business, commercial, or agricultural purposes. This part applies to 
those financial institutions and other persons for which the Bureau of 
Consumer Financial Protection (Bureau) has rulemaking authority pursuant 
to section 504(a)(1)(A) of the Gramm-Leach-Bliley Act (GLB Act) (12 
U.S.C. 6804(a)(1)(A)). Specifically, this part applies to any financial 
institution and other covered person or service provider that is subject 
to Subtitle A of Title V of the GLB Act, including third parties that 
are not financial institutions but that receive nonpublic personal 
information from financial institutions with whom they are not 
affiliated. This part does not apply to certain motor vehicle dealers 
described in 12 U.S.C. 5519 or to entities for which the Securities and 
Exchange Commission or the Commodity Futures Trading Commission has 
rulemaking authority pursuant to sections 504(a)(1)(A)-(B) of the GLB 
Act (12 U.S.C. 6804(a)(1)(A)-(B)). Except as otherwise specifically 
provided herein, entities to which this part applies are referred to in 
this part as ``you.''
    (2)(i) Nothing in this part modifies, limits, or supersedes the 
standards governing individually identifiable health information 
promulgated by the Secretary of Health and Human Services under the 
authority of sections 262 and 264 of the Health Insurance Portability 
and Accountability Act of 1996 (42 U.S.C. 1320d-1320d-8).
    (ii) Any institution of higher education that complies with the 
Federal Educational Rights and Privacy Act (FERPA), 20 U.S.C. 1232g, and 
its implementing regulations, 34 CFR part 99, and that is also a 
financial institution described in Sec. 1016.3(l)(3) of this part, 
shall be deemed to be in compliance with this part if it is in 
compliance with FERPA.
    (3) Nothing in this part shall apply to:
    (i) A financial institution that is a person described in section 
1029(a) of the Consumer Financial Protection Act of 2010, Title X of the 
Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank 
Act), Public Law 111-203, 124 Stat. 1376 (12 U.S.C. 5519(a));
    (ii) A financial institution or other person subject to the 
jurisdiction on the Commodity Futures Trading Commission under 7 U.S.C. 
7b-2;
    (iii) A broker or dealer that is registered under the Securities 
Exchange Act of 1934 (15 U.S.C. 78a et seq.);
    (iv) A registered investment adviser, properly registered by or on 
behalf of either the Securities Exchange Commission or any state, with 
respect to its investment advisory activities and its activities 
incidental to those investment advisory activities;
    (v) An investment company that is registered under the Investment 
Company Act of 1940 (15 U.S.C. 80a-1 et seq.); or
    (vi) An insurance company, with respect to its insurance activities 
and its activities incidental to those insurance activities, that is 
subject to supervision by a state insurance regulator.

[[Page 362]]



Sec. 1016.2  Model privacy form and examples.

    (a) Model privacy form. Use of the model privacy form in the 
appendix to this part, consistent with the instructions in the appendix 
constitutes compliance with the notice content requirements of 
Sec. Sec. 1016.6 and 1016.7 of this part, although use of the model 
privacy form is not required.
    (b) Examples. The examples in this part are not exclusive. 
Compliance with an example, to the extent applicable, constitutes 
compliance with this part.



Sec. 1016.3  Definitions.

    As used in this part, unless the context requires otherwise:
    (a)(1) Affiliate means any company that controls, is controlled by, 
or is under common control with another company.
    (2) Examples in the case of a credit union. (i) An affiliate of a 
Federal credit union is a credit union service organization (CUSO), as 
provided in 12 CFR part 712, that is controlled by the Federal credit 
union.
    (ii) An affiliate of a federally-insured, state-chartered credit 
union is a company that is controlled by the credit union.
    (b)(1) Clear and conspicuous means that a notice is reasonably 
understandable and designed to call attention to the nature and 
significance of the information in the notice.
    (2) Examples--(i) Reasonably understandable. You make your notice 
reasonably understandable if you:
    (A) Present the information in the notice in clear, concise 
sentences, paragraphs, and sections;
    (B) Use short explanatory sentences or bullet lists whenever 
possible;
    (C) Use definite, concrete, everyday words and active voice whenever 
possible;
    (D) Avoid multiple negatives;
    (E) Avoid legal and highly technical business terminology whenever 
possible; and
    (F) Avoid explanations that are imprecise and readily subject to 
different interpretations.
    (ii) Designed to call attention. You design your notice to call 
attention to the nature and significance of the information in it if 
you:
    (A) Use a plain-language heading to call attention to the notice;
    (B) Use a typeface and type size that are easy to read;
    (C) Provide wide margins and ample line spacing;
    (D) Use boldface or italics for key words; and
    (E) In a form that combines your notice with other information, use 
distinctive type size, style, and graphic devices, such as shading or 
sidebars, when you combine your notice with other information.
    (iii) Notices on Web sites. If you provide a notice on a Web site, 
you design your notice to call attention to the nature and significance 
of the information in it if you use text or visual cues to encourage 
scrolling down the page if necessary to view the entire notice and 
ensure that other elements on the Web site (such as text, graphics, 
hyperlinks, or sound) do not distract attention from the notice, and you 
either:
    (A) Place the notice on a screen that consumers frequently access, 
such as a page on which transactions are conducted; or
    (B) Place a link on a screen that consumers frequently access, such 
as a page on which transactions are conducted, that connects directly to 
the notice and is labeled appropriately to convey the importance, 
nature, and relevance of the notice.
    (c) Collect means to obtain information that you organize or can 
retrieve by the name of an individual or by identifying number, symbol, 
or other identifying particular assigned to the individual, irrespective 
of the source of the underlying information.
    (d) Company means any corporation, limited liability company, 
business trust, general or limited partnership, association, or similar 
organization.
    (e)(1) Consumer means an individual who obtains or has obtained a 
financial product or service from you that is to be used primarily for 
personal, family, or household purposes, or that individual's legal 
representative.
    (2) Examples in the case of a financial institution other than a 
credit union. For purposes of this paragraph (e)(2), ``you''

[[Page 363]]

is limited to financial institutions other than credit unions.
    (i) An individual who applies to you for credit for personal, 
family, or household purposes is a consumer of a financial service, 
regardless of whether the credit is extended.
    (ii) An individual who provides nonpublic personal information to 
you in order to obtain a determination about whether he or she may 
qualify for a loan to be used primarily for personal, family, or 
household purposes is a consumer of a financial service, regardless of 
whether the loan is extended.
    (iii) An individual who provides nonpublic personal information to 
you in connection with obtaining or seeking to obtain financial, 
investment, or economic advisory services is a consumer regardless of 
whether you establish a continuing advisory relationship.
    (iv) If you hold ownership or servicing rights to an individual's 
loan that is used primarily for personal, family, or household purposes, 
the individual is your consumer, even if you hold those rights in 
conjunction with one or more other institutions. (The individual is also 
a consumer with respect to the other financial institutions involved.) 
An individual who has a loan in which you have ownership or servicing 
rights is your consumer, even if you, or another institution with those 
rights, hire an agent to collect on the loan.
    (v) An individual who is a consumer of another financial institution 
is not your consumer solely because you act as agent for, or provide 
processing or other services to, that financial institution.
    (vi) An individual is not your consumer solely because he or she has 
designated you as trustee for a trust.
    (vii) An individual is not your consumer solely because he or she is 
a beneficiary of a trust for which you are a trustee.
    (viii) An individual is not your consumer solely because he or she 
is a participant or a beneficiary of an employee benefit plan that you 
sponsor or for which you act as a trustee or fiduciary.
    (3) Examples in the case of a credit union. For purposes of this 
paragraph (e)(3), ``you'' is limited to credit unions.
    (i) An individual who provides nonpublic personal information to you 
in connection with obtaining or seeking to obtain credit union 
membership is your consumer regardless of whether you establish a 
customer relationship.
    (ii) An individual who provides nonpublic personal information to 
you in connection with using your ATM is your consumer.
    (iii) If you hold ownership or servicing rights to an individual's 
loan, the individual is your consumer, even if you hold those rights in 
conjunction with one or more financial institutions. The individual is 
also a consumer with respect to the other financial institutions 
involved. This applies even if you, or another financial institution 
with those rights, hire an agent to collect on the loan or to provide 
processing or other services.
    (iv) An individual who is a consumer of another financial 
institution is not your consumer solely because you act as agent for, or 
provide processing or other services to, that financial institution.
    (v) An individual is not your consumer solely because he or she is a 
participant or a beneficiary of an employee benefit plan that you 
sponsor or for which you act as a trustee or fiduciary.
    (f) Consumer reporting agency has the same meaning as in section 
603(f) of the Fair Credit Reporting Act (15 U.S.C. 1681a(f)).
    (g) Control of a company means:
    (1) Ownership, control, or power to vote 25 percent or more of the 
outstanding shares of any class of voting security of the company, 
directly or indirectly, or acting through one or more other persons;
    (2) Control in any manner over the election of a majority of the 
directors, trustees, or general partners (or individuals exercising 
similar functions) of the company; or
    (3) The power to exercise, directly or indirectly, a controlling 
influence over the management or policies of the company as determined 
by the applicable prudential regulator (as defined in 12 U.S.C. 
5481(24)), if any.
    (4) Example in the case of credit unions. A credit union is presumed 
to have a

[[Page 364]]

controlling influence over the management or policies of a CUSO, if the 
CUSO is 67% owned by credit unions.
    (h) Credit union means a Federal or state-chartered credit union 
that the National Credit Union Share Insurance Fund insures.
    (i) Customer means a consumer who has a customer relationship with 
you.
    (j)(1) Customer relationship means a continuing relationship between 
a consumer and you under which you provide one or more financial 
products or services to the consumer that are to be used primarily for 
personal, family, or household purposes. As noted in the examples, and 
for purposes of this part only, in the case of a credit union, a 
customer relationship will exist between a credit union and certain 
consumers that are not the credit union's members.
    (2) Examples in the case of financial institutions other than credit 
unions and covered entities subject to FTC enforcement jurisdiction. For 
purposes of this paragraph (j)(2), ``you'' is limited to financial 
institutions other than credit unions and financial institutions 
described in paragraph (l)(3) of this section.
    (i) Continuing relationship. A consumer has a continuing 
relationship with you if the consumer:
    (A) Has a deposit or investment account with you;
    (B) Obtains a loan from you;
    (C) Has a loan for which you own the servicing rights;
    (D) Purchases an insurance product from you;
    (E) Holds an investment product through you, such as when you act as 
a custodian for securities or for assets in an Individual Retirement 
Arrangement;
    (F) Enters into an agreement or understanding with you whereby you 
undertake to arrange or broker a home mortgage loan for the consumer;
    (G) Enters into a lease of personal property with you; or
    (H) Obtains financial, investment, or economic advisory services 
from you for a fee.
    (ii) No continuing relationship. A consumer does not, however, have 
a continuing relationship with you if:
    (A) The consumer obtains a financial product or service only in 
isolated transactions, such as using your ATM to withdraw cash from an 
account at another financial institution or purchasing a cashier's check 
or money order;
    (B) You sell the consumer's loan and do not retain the rights to 
service that loan; or
    (C) You sell the consumer airline tickets, travel insurance, or 
traveler's checks in isolated transactions.
    (3) Examples in the case of covered entities subject to FTC 
enforcement jurisdiction. For purposes of this paragraph (j)(3), ``you'' 
is limited to financial institutions described in paragraph (l)(3) of 
this section.
    (i) Continuing relationship. A consumer has a continuing 
relationship with you if the consumer:
    (A) Has a credit or investment account with you;
    (B) Obtains a loan from you;
    (C) Purchases an insurance product from you;
    (D) Holds an investment product through you, such as when you act as 
a custodian for securities or for assets in an Individual Retirement 
Arrangement;
    (E) Enters into an agreement or understanding with you whereby you 
undertake to arrange or broker a home mortgage loan, or credit to 
purchase a vehicle, for the consumer;
    (F) Enters into a lease of personal property on a non-operating 
basis with you;
    (G) Obtains financial, investment, or economic advisory services 
from you for a fee;
    (H) Becomes your client for the purpose of obtaining tax preparation 
or credit counseling services from you;
    (I) Obtains career counseling while seeking employment with a 
financial institution or the finance, accounting, or audit department of 
any company (or while employed by such a financial institution or 
department of any company);
    (J) Is obligated on an account that you purchase from another 
financial institution, regardless of whether the account is in default 
when purchased, unless you do not locate the consumer

[[Page 365]]

or attempt to collect any amount from the consumer on the account;
    (K) Obtains real estate settlement services from you; or
    (L) Has a loan for which you own the servicing rights.
    (ii) No continuing relationship. A consumer does not, however, have 
a continuing relationship with you if:
    (A) The consumer obtains a financial product or service from you 
only in isolated transactions, such as using your ATM to withdraw cash 
from an account at another financial institution; purchasing a money 
order from you; cashing a check with you; or making a wire transfer 
through you;
    (B) You sell the consumer's loan and do not retain the rights to 
service that loan;
    (C) You sell the consumer airline tickets, travel insurance, or 
traveler's checks in isolated transactions;
    (D) The consumer obtains one-time personal or real property 
appraisal services from you; or
    (E) The consumer purchases checks for a personal checking account 
from you.
    (4) Examples in the case of a credit union. (i) Continuing 
relationship. A consumer has a continuing relationship with a credit 
union if the consumer:
    (A) Is a member as defined in the credit union's bylaws;
    (B) Is a nonmember who has a share, share draft, or credit card 
account with the credit union jointly with a member;
    (C) Is a nonmember who has a loan that the credit union services;
    (D) Is a nonmember who has an account with a credit union that has 
been designated as a low-income credit union; or
    (E) Is a nonmember who has an account in a federally-insured, state-
chartered credit union pursuant to state law.
    (ii) No continuing relationship. A consumer does not, however, have 
a continuing relationship with a credit union if the consumer is a 
nonmember and:
    (A) The consumer only obtains a financial product or service in 
isolated transactions, such as using the credit union's ATM to withdraw 
cash from an account maintained at another financial institution or 
purchasing travelers checks; or
    (B) The credit union sells the consumer's loan and does not retain 
the rights to service that loan.
    (k) Federal functional regulator means:
    (1) The Board of Governors of the Federal Reserve System;
    (2) The Office of the Comptroller of the Currency;
    (3) The Board of Directors of the Federal Deposit Insurance 
Corporation;
    (4) The National Credit Union Administration Board; and
    (5) The Securities and Exchange Commission.
    (l)(1) Except for entities described in paragraph (l)(3) of this 
section, financial institution means any institution the business of 
which is engaging in activities that are financial in nature or 
incidental to such financial activities as described in section 4(k) of 
the Bank Holding Company Act of 1956 (12 U.S.C. 1843(k)).
    (2) For purposes of paragraph (l)(1) of this section, financial 
institution does not include:
    (i) Any person or entity with respect to any financial activity that 
is subject to the jurisdiction of the Commodity Futures Trading 
Commission under the Commodity Exchange Act (7 U.S.C. 1 et seq.);
    (ii) The Federal Agricultural Mortgage Corporation or any entity 
chartered and operating under the Farm Credit Act of 1971 (12 U.S.C. 
2001 et seq.); or
    (iii) Institutions chartered by Congress specifically to engage in 
securitizations, secondary market sales (including sales of servicing 
rights), or similar transactions related to a transaction of a consumer, 
as long as such institutions do not sell or transfer nonpublic personal 
information to a nonaffiliated third party.
    (3)(i) Special definition for entities subject to the Federal Trade 
Commission's enforcement jurisdiction. In the case of an entity 
described in section 505(a)(7) of the GLB Act (other than such an entity 
described in section 504(a)(1)(C) of that Act), financial institution 
means any institution the business of which is engaging in financial 
activities as described in section 4(k) of the Bank Holding Company Act 
of 1956 (12 U.S.C.

[[Page 366]]

1843(k)). For purposes of this paragraph (l)(3), an institution that is 
significantly engaged in financial activities is a financial 
institution.
    (ii) Examples of financial institution. For purposes of this 
paragraph (l)(3):
    (A) A retailer that extends credit by issuing its own credit card 
directly to consumers is a financial institution because extending 
credit is a financial activity listed in 12 CFR 225.28(b)(1) and 
referenced in section 4(k)(4)(F) of the Bank Holding Company Act and 
issuing that extension of credit through a proprietary credit card 
demonstrates that a retailer is significantly engaged in extending 
credit.
    (B) A personal property or real estate appraiser is a financial 
institution because real and personal property appraisal is a financial 
activity listed in 12 CFR 225.28(b)(2)(i) and referenced in section 
4(k)(4)(F) of the Bank Holding Company Act.
    (C) An automobile dealership that is not described in section 
1029(a) of the Dodd-Frank Act (12 U.S.C. 5519(a)) and that, as a usual 
part of its business, leases automobiles on a nonoperating basis for 
longer than 90 days is a financial institution with respect to its 
leasing business because leasing personal property on a nonoperating 
basis where the initial term of the lease is at least 90 days is a 
financial activity listed in 12 CFR 225.28(b)(3) and referenced in 
section 4(k)(4)(F) of the Bank Holding Company Act.
    (D) A career counselor that specializes in providing career 
counseling services to individuals currently employed by or recently 
displaced from a financial organization, individuals who are seeking 
employment with a financial organization, or individuals who are 
currently employed by or seeking placement with the finance, accounting 
or audit departments of any company is a financial institution because 
such career counseling activities are financial activities listed in 12 
CFR 225.28(b)(9)(iii) and referenced in section 4(k)(4)(F) of the Bank 
Holding Company Act.
    (E) A business that prints and sells checks for consumers, either as 
its sole business or as one of its product lines, is a financial 
institution because printing and selling checks is a financial activity 
that is listed in 12 CFR 225.28(b)(10)(ii) and referenced in section 
4(k)(4)(F) of the Bank Holding Company Act.
    (F) A business that regularly wires money to and from consumers is a 
financial institution because transferring money is a financial activity 
referenced in section 4(k)(4)(A) of the Bank Holding Company Act and 
regularly providing that service demonstrates that the business is 
significantly engaged in that activity.
    (G) A check cashing business is a financial institution because 
cashing a check is exchanging money, which is a financial activity 
listed in section 4(k)(4)(A) of the Bank Holding Company Act.
    (H) An accountant or other tax preparation service that is in the 
business of completing income tax returns is a financial institution 
because tax preparation services is a financial activity listed in 12 
CFR 225.28(b)(6)(vi) and referenced in section 4(k)(4)(G) of the Bank 
Holding Company Act.
    (I) A business that operates a travel agency in connection with 
financial services is a financial institution because operating a travel 
agency in connection with financial services is a financial activity 
listed in 12 CFR 211.5(d)(15) and referenced in section 4(k)(4)(G) of 
the Bank Holding Company Act.
    (J) An entity that provides real estate settlement services is a 
financial institution because providing real estate settlement services 
is a financial activity listed in 12 CFR 225.28(b)(2)(viii) and 
referenced in section 4(k)(4)(F) of the Bank Holding Company Act.
    (K) A mortgage broker is a financial institution because brokering 
loans is a financial activity listed in 12 CFR 225.28(b)(1) and 
referenced in section 4(k)(4)(F) of the Bank Holding Company Act.
    (L) An investment advisory company and a credit counseling service 
are each financial institutions because providing financial and 
investment advisory services are financial activities referenced in 
section 4(k)(4)(C) of the Bank Holding Company Act.

[[Page 367]]

    (iii) For purposes of this paragraph (l)(3), financial institution 
does not include:
    (A) Any person or entity with respect to any financial activity that 
is subject to the jurisdiction of the Commodity Futures Trading 
Commission under the Commodity Exchange Act (7 U.S.C. 1 et seq.);
    (B) The Federal Agricultural Mortgage Corporation or any entity 
chartered and operating under the Farm Credit Act of 1971 (12 U.S.C. 
2001 et seq.); or
    (C) Institutions chartered by Congress specifically to engage in 
securitizations, secondary market sales (including sales of servicing 
rights) or similar transactions related to a transaction of a consumer, 
as long as such institutions do not sell or transfer nonpublic personal 
information to a nonaffiliated third party other than as permitted by 
Sec. Sec. 1016.14 and 1016.15 of this part.
    (D) Entities that engage in financial activities but that are not 
significantly engaged in those financial activities.
    (iv) Examples of entities that are not significantly engaged in 
financial activities. (A) A retailer is not a financial institution if 
its only means of extending credit are occasional ``lay away'' and 
deferred payment plans or accepting payment by means of credit cards 
issued by others.
    (B) A retailer is not a financial institution merely because it 
accepts payment in the form of cash, checks, or credit cards that it did 
not issue.
    (C) A merchant is not a financial institution merely because it 
allows an individual to ``run a tab.''
    (D) A grocery store is not a financial institution merely because it 
allows individuals to whom it sells groceries to cash a check, or write 
a check for a higher amount than the grocery purchase and obtain cash in 
return.
    (m)(1) Financial product or service means any product or service 
that a financial holding company could offer by engaging in an activity 
that is financial in nature or incidental to such a financial activity 
under section 4(k) of the Bank Holding Company Act of 1956 (12 U.S.C. 
1843(k)).
    (2) Special definition for entities subject to the Federal Trade 
Commission's enforcement jurisdiction. In the case of an entity 
described in section 505(a)(7) of the GLB Act (other than such an entity 
described in section 504(a)(1)(C) of that Act), financial product or 
service means any product or service that a financial holding company 
could offer by engaging in a financial activity under section 4(k) of 
the Bank Holding Company Act of 1956 (12 U.S.C. 1843(k)).
    (3) Financial service includes your evaluation or brokerage of 
information that you collect in connection with a request or an 
application from a consumer for a financial product or service.
    (n) Member means a consumer who is a member of a credit union, as 
defined in the credit union's bylaws.
    (o)(1) Nonaffiliated third party means any person except:
    (i) Your affiliate; or
    (ii) A person employed jointly by you and any company that is not 
your affiliate (but nonaffiliated third party includes the other company 
that jointly employs the person).
    (2) Nonaffiliated third party includes, for financial institutions 
other than credit unions, any company that is an affiliate solely by 
virtue of your or your affiliate's direct or indirect ownership or 
control of the company in conducting merchant banking or investment 
banking activities of the type described in section 4(k)(4)(H) or 
insurance company investment activities of the type described in section 
4(k)(4)(I) of the Bank Holding Company Act of 1956 (12 U.S.C. 
1843(k)(4)(H) and (I)).
    (p)(1) Nonpublic personal information means:
    (i) Personally identifiable financial information; and
    (ii) Any list, description, or other grouping of consumers (and 
publicly available information pertaining to them) that is derived using 
any personally identifiable financial information that is not publicly 
available.
    (2) Nonpublic personal information does not include:
    (i) Publicly available information, except as included on a list 
described in paragraph (p)(1)(ii) of this section; or
    (ii) Any list, description, or other grouping of consumers (and 
publicly available information pertaining to them) that is derived 
without using

[[Page 368]]

any personally identifiable financial information that is not publicly 
available.
    (3) Examples of lists. (i) Nonpublic personal information includes 
any list of individuals' names and street addresses that is derived in 
whole or in part using personally identifiable financial information 
that is not publicly available, such as account numbers.
    (ii) Nonpublic personal information does not include any list of 
individuals' names and addresses that contains only publicly available 
information, is not derived in whole or in part using personally 
identifiable financial information that is not publicly available, and 
is not disclosed in a manner that indicates that any of the individuals 
on the list is a consumer of a financial institution.
    (q)(1) Personally identifiable financial information means any 
information:
    (i) A consumer provides to you to obtain a financial product or 
service from you;
    (ii) About a consumer resulting from any transaction involving a 
financial product or service between you and a consumer; or
    (iii) You otherwise obtain about a consumer in connection with 
providing a financial product or service to that consumer.
    (2) Examplesmdash;(i) Information included. Personally identifiable 
financial information includes:
    (A) Information a consumer provides to you on an application to 
obtain a loan, a credit card, a credit union membership, or other 
financial product or service;
    (B) Account balance information, payment history, overdraft history, 
and credit or debit card purchase information;
    (C) The fact that an individual is or has been one of your customers 
or has obtained a financial product or service from you;
    (D) Any information about your consumer if it is disclosed in a 
manner that indicates that the individual is or has been your consumer;
    (E) Any information that a consumer provides to you or that you or 
your agent otherwise obtain in connection with collecting on, or 
servicing, a loan or a credit account;
    (F) Any information you collect through an internet ``cookie'' (an 
information collecting device from a Web server); and
    (G) Information from a consumer report.
    (ii) Information not included. Personally identifiable financial 
information does not include:
    (A) A list of names and addresses of customers of an entity that is 
not a financial institution; and
    (B) Information that does not identify a consumer, such as aggregate 
information or blind data that does not contain personal identifiers 
such as account numbers, names, or addresses.
    (r)(1) Publicly available information means any information that you 
have a reasonable basis to believe is lawfully made available to the 
general public from:
    (i) Federal, state, or local government records;
    (ii) Widely distributed media; or
    (iii) Disclosures to the general public that are required to be made 
by Federal, state, or local law.
    (2) Reasonable basis. You have a reasonable basis to believe that 
information is lawfully made available to the general public if you have 
taken steps to determine:
    (i) That the information is of the type that is available to the 
general public; and
    (ii) Whether an individual can direct that the information not be 
made available to the general public and, if so, that your consumer has 
not done so.
    (3) Examples--(i) Government records. Publicly available information 
in government records includes information in government real estate 
records and security interest filings.
    (ii) Widely distributed media. Publicly available information from 
widely distributed media includes information from a telephone book, a 
television or radio program, a newspaper, or a Web site that is 
available to the general public on an unrestricted basis. A Web site is 
not restricted merely because an Internet service provider or a site 
operator requires a fee or a password, so long as access is available to 
the general public.

[[Page 369]]

    (iii) Reasonable basis. (A) You have a reasonable basis to believe 
that mortgage information is lawfully made available to the general 
public if you have determined that the information is of the type 
included on the public record in the jurisdiction where the mortgage 
would be recorded.
    (B) You have a reasonable basis to believe that an individual's 
telephone number is lawfully made available to the general public if you 
have located the telephone number in the telephone book or the consumer 
has informed you that the telephone number is not unlisted.
    (s)(1) You means a financial institution or other person for which 
the Bureau has rulemaking authority under section 504(a)(1)(A) of the 
GLB Act (15 U.S.C. 6804(a)(1)(A)).
    (2) You does not include:
    (i) A financial institution that is a person described in section 
1029(a) of the Consumer Financial Protection Act of 2010 (12 U.S.C. 
5519(a));
    (ii) A financial institution or other person subject to the 
jurisdiction on the Commodity Futures Trading Commission under 7 U.S.C. 
7b-2;
    (iii) A broker or dealer that is registered under the Securities 
Exchange Act of 1934 (15 U.S.C. 78a et seq.);
    (iv) A registered investment adviser, properly registered by or on 
behalf of either the Securities Exchange Commission or any State, with 
respect to its investment advisory activities and its activities 
incidental to those investment advisory activities;
    (v) An investment company that is registered under the Investment 
Company Act of 1940 (15 U.S.C. 80a-1 et seq.); or
    (vi) An insurance company, with respect to its insurance activities 
and its activities incidental to those insurance activities, that is 
subject to supervision by a State insurance regulator.



                  Subpart A_Privacy and Opt Out Notices



Sec. 1016.4  Initial privacy notice to consumers required.

    (a) Initial notice requirement. You must provide a clear and 
conspicuous notice that accurately reflects your privacy policies and 
practices to:
    (1) Customer. An individual who becomes your customer, not later 
than when you establish a customer relationship, except as provided in 
paragraph (e) of this section; and
    (2) Consumer. A consumer, before you disclose any nonpublic personal 
information about the consumer to any nonaffiliated third party, if you 
make such a disclosure other than as authorized by Sec. Sec. 1016.14 
and 1016.15 of this part.
    (b) When initial notice to a consumer is not required. You are not 
required to provide an initial notice to a consumer under paragraph (a) 
of this section if:
    (1) You do not disclose any nonpublic personal information about the 
consumer to any nonaffiliated third party, other than as authorized by 
Sec. Sec. 1016.14 and 1016.15; and
    (2) You do not have a customer relationship with the consumer.
    (c) When you establish a customer relationship--(1) General rule. 
You establish a customer relationship when you and the consumer enter 
into a continuing relationship.
    (2) Special rule for loans. You establish a customer relationship 
with a consumer when you originate or acquire the servicing rights to a 
loan to the consumer for personal, family, or household purposes. If you 
subsequently transfer the servicing rights to that loan to another 
financial institution, the customer relationship transfers with the 
servicing rights.
    (3) Examples--(i) Examples of establishing customer relationship by 
financial institutions other than credit unions and covered entities 
subject to FTC enforcement jurisdiction. For purposes of this paragraph 
(c)(3)(i), ``you'' is limited to financial institutions other than 
credit unions and financial institutions described in Sec. 
1016.3(l)(3). You establish a customer relationship when the consumer:
    (A) Opens a credit card account with you;
    (B) Executes the contract to open a deposit account with you, 
obtains credit from you, or purchases insurance from you;
    (C) Agrees to obtain financial, economic, or investment advisory 
services from you for a fee; or

[[Page 370]]

    (D) Becomes your client for the purpose of your providing credit 
counseling or tax preparation services.
    (ii) Examples of establishing customer relationship by covered 
entities subject to FTC enforcement jurisdiction. For purposes of this 
paragraph (c)(3)(ii), ``you'' is limited to financial institutions 
described in Sec. 1016.3(l)(3) of this part. You establish a customer 
relationship when the consumer:
    (A) Opens a credit card account with you;
    (B) Executes the contract to obtain credit from you or purchases 
insurance from you;
    (C) Agrees to obtain financial, economic, or investment advisory 
services from you for a fee;
    (D) Becomes your client for the purpose of your providing credit 
counseling or tax preparation services or to obtain career counseling 
while seeking employment with a financial institution or the finance, 
accounting, or audit department of any company (or while employed by 
such a company or financial institution);
    (E) Provides any personally identifiable financial information to 
you in an effort to obtain a mortgage loan through you;
    (F) Executes the lease for personal property with you;
    (G) Is an obligor on an account that you purchased from another 
financial institution and whom you have located and begun attempting to 
collect amounts owed on the account; or
    (H) Provides you with the information necessary for you to compile 
and provide access to all of the consumer's online financial accounts at 
your Web site.
    (iii) Examples of establishing customer relationship by credit 
unions. For purposes of this paragraph (c)(3)(iii), ``you'' is limited 
to a credit union. You establish a customer relationship when the 
consumer:
    (A) Becomes your member under your bylaws;
    (B) Is a nonmember and opens a credit card account with you jointly 
with a member under your procedures;
    (C) Is a nonmember and executes the contract to open a share or 
share draft account with you or obtains credit from you jointly with a 
member, including an individual acting as a guarantor;
    (D) Is a nonmember and opens an account with you and you are a 
credit union designated as a low-income credit union;
    (E) Is a nonmember and opens an account with you pursuant to State 
law and you are a State-chartered credit union.
    (iv) Examples of loan rule. You establish a customer relationship 
with a consumer who obtains a loan for personal, family, or household 
purposes when you:
    (A) Originate the loan to the consumer; or
    (B) Purchase the servicing rights to the consumer's loan.
    (d) Existing customers. When an existing customer obtains a new 
financial product or service from you that is to be used primarily for 
personal, family, or household purposes, you satisfy the initial notice 
requirements of paragraph (a) of this section as follows:
    (1) You may provide a revised privacy notice, under Sec. 1016.8 of 
this part, that covers the customer's new financial product or service; 
or
    (2) If the initial, revised, or annual notice that you most recently 
provided to that customer was accurate with respect to the new financial 
product or service, you do not need to provide a new privacy notice 
under paragraph (a) of this section.
    (e) Exceptions to allow subsequent delivery of notice. (1) You may 
provide the initial notice required by paragraph (a)(1) of this section 
within a reasonable time after you establish a customer relationship if:
    (i) Establishing the customer relationship is not at the customer's 
election; or
    (ii) Providing notice not later than when you establish a customer 
relationship would substantially delay the customer's transaction and 
the customer agrees to receive the notice at a later time.
    (2) Examples of exceptions--(i) Not at customer's election. (A) In 
the case of financial institutions other than credit unions and 
financial institutions described in Sec. 1016.3(l)(3), establishing a

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customer relationship is not at the customer's election if you acquire a 
customer's deposit liability or the servicing rights to a customer's 
loan from another financial institution and the customer does not have a 
choice about your acquisition.
    (B) In the case of financial institutions described in Sec. 
1016.3(l)(3), establishing a customer relationship is not at the 
customer's election if you acquire a customer's loan or the servicing 
rights from another financial institution and the customer does not have 
a choice about your acquisition.
    (C) In the case of credit unions, establishing a customer 
relationship is not at the customer's election if you acquire a 
customer's deposit liability from another financial institution and the 
customer does not have a choice about your acquisition.
    (ii) Substantial delay of customer's transaction. Providing notice 
not later than when you establish a customer relationship would 
substantially delay the customer's transaction when:
    (A) You and the individual agree over the telephone to enter into a 
customer relationship involving prompt delivery of the financial product 
or service; or
    (B) You establish a customer relationship with an individual under a 
program authorized by Title IV of the Higher Education Act of 1965 (20 
U.S.C. 1070 et seq.) or similar student loan programs where loan 
proceeds are disbursed promptly without prior communication between you 
and the customer.
    (iii) No substantial delay of customer's transaction. Providing 
notice not later than when you establish a customer relationship would 
not substantially delay the customer's transaction when the relationship 
is initiated in person at your office or through other means by which 
the customer may view the notice, such as on a Web site.
    (f) Delivery. When you are required to deliver an initial privacy 
notice by this section, you must deliver it according to Sec. 1016.9 of 
this part. If you use a short-form initial notice for non-customers 
according to Sec. 1016.6(d) of this part, you may deliver your privacy 
notice according to Sec. 1016.6(d)(3).



Sec. 1016.5  Annual privacy notice to customers required.

    (a)(1) General rule. You must provide a clear and conspicuous notice 
to customers that accurately reflects your privacy policies and 
practices not less than annually during the continuation of the customer 
relationship. Annually means at least once in any period of 12 
consecutive months during which that relationship exists. You may define 
the 12-consecutive-month period, but you must apply it to the customer 
on a consistent basis.
    (2) Example. You provide a notice annually if you define the 12-
consecutive-month period as a calendar year and provide the annual 
notice to the customer once in each calendar year following the calendar 
year in which you provided the initial notice. For example, if a 
customer opens an account on any day of year 1, you must provide an 
annual notice to that customer by December 31 of year 2.
    (b)(1) Termination of customer relationship. You are not required to 
provide an annual notice to a former customer.
    (2) Examples in the case of financial institutions other than credit 
unions and covered entities subject to FTC enforcement jurisdiction. For 
purposes of this paragraph (b)(2), ``you'' is limited to financial 
institutions other than credit unions and financial institutions 
described in Sec. 1016.3(l)(3). Your customer becomes a former customer 
when:
    (i) In the case of a deposit account, the account is inactive under 
your policies;
    (ii) In the case of a closed-end loan, the customer pays the loan in 
full, you charge off the loan, or you sell the loan without retaining 
servicing rights;
    (iii) In the case of a credit card relationship or other open-end 
credit relationship, you no longer provide any statements or notices to 
the customer concerning that relationship or you sell the credit card 
receivables without retaining servicing rights; or
    (iv) You have not communicated with the customer about the 
relationship for a period of 12 consecutive months, other than to 
provide annual privacy notices or promotional material.
    (3) Examples in the case of covered entities subject to FTC 
enforcement jurisdiction. For purposes of this paragraph

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(b)(3), ``you'' is limited to financial institutions described in Sec. 
1016.3(l)(3) of this part. Your customer becomes a former customer when:
    (i) In the case of a closed-end loan, the customer pays the loan in 
full, you charge off the loan, or you sell the loan without retaining 
servicing rights;
    (ii) In the case of a credit card relationship or other open-end 
credit relationship, you sell the receivables without retaining 
servicing rights;
    (iii) In the case of credit counseling services, the customer has 
failed to make required payments under a debt management plan, has been 
notified that the plan is terminated, and you no longer provide any 
statements or notices to the customer concerning that relationship;
    (iv) In the case of mortgage or vehicle loan brokering services, 
your customer has obtained a loan through you (and you no longer provide 
any statements or notices to the customer concerning that relationship), 
or has ceased using your services for such purposes;
    (v) In the case of tax preparation services, you have provided and 
received payment for the service and no longer provide any statements or 
notices to the customer concerning that relationship;
    (vi) In the case of providing real estate settlement services, at 
the time the customer completes execution of all documents related to 
the real estate closing, you have received payment, or you have 
completed all of your responsibilities with respect to the settlement, 
including filing documents on the public record, whichever is later; or
    (vii) In cases where there is no definitive time at which the 
customer relationship has terminated, you have not communicated with the 
customer about the relationship for a period of 12 consecutive months, 
other than to provide annual privacy notices or promotional material.
    (4) Examples in the case of a credit union. An individual becomes a 
former customer of a credit union when:
    (i) The individual is no longer the credit union's member as defined 
in the credit union's bylaws;
    (ii) In the case of a nonmember's share or share draft account, the 
account is inactive under the credit union's policies;
    (iii) In the case of a nonmember's closed-end loan, the loan is paid 
in full, the credit union charges off the loan, or the credit union 
sells the loan without retaining servicing rights;
    (iii) In the case of a credit card relationship or other open-end 
credit relationship with a nonmember, the credit union no longer 
provides any statements or notices to the nonmember concerning that 
relationship, or the credit union sells the credit card receivables 
without retaining servicing rights; or
    (v) The credit union has not communicated with the nonmember about 
the relationship for a period of 12 consecutive months, other than to 
provide annual privacy notices or promotional material.
    (c) Special rule for loans in the case of a financial institution 
other than a credit union. If a financial institution other than a 
credit union does not have a customer relationship with a consumer under 
the special rule for loans in Sec. 1016.4(c)(2) of this part, then it 
need not provide an annual notice to that consumer under this section.
    (d) Delivery. When you are required to deliver an annual privacy 
notice by this section, you must deliver it according to Sec. 1016.9 of 
this part.

    Editorial Note: At 76 FR 79028, Dec. 21, 2011, part 1016 was added, 
and at that time Sec. 1016.5 contained two paragraphs (b)(4)(iii).



Sec. 1016.6  Information to be included in privacy notices.

    (a) General rule. The initial, annual, and revised privacy notices 
that you provide under Sec. Sec. 1016.4, 1016.5, and 1016.8 of this 
part must include each of the following items of information, in 
addition to any other information you wish to provide, that applies to 
you and to the consumers to whom you send your privacy notice:
    (1) The categories of nonpublic personal information that you 
collect;
    (2) The categories of nonpublic personal information that you 
disclose;
    (3) The categories of affiliates and nonaffiliated third parties to 
whom you disclose nonpublic personal information, other than those 
parties to

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whom you disclose information under Sec. Sec. 1016.14 and 1016.15 of 
this part;
    (4) The categories of nonpublic personal information about your 
former customers that you disclose and the categories of affiliates and 
nonaffiliated third parties to whom you disclose nonpublic personal 
information about your former customers, other than those parties to 
whom you disclose information under Sec. Sec. 1016.14 and 1016.15;
    (5) If you disclose nonpublic personal information to a 
nonaffiliated third party under Sec. 1016.13 (and no other exception in 
Sec. 1016.14 or Sec. 1016.15 applies to that disclosure), a separate 
statement of the categories of information you disclose and the 
categories of third parties with whom you have contracted;
    (6) An explanation of the consumer's right under Sec. 1016.10(a) of 
this part to opt out of the disclosure of nonpublic personal information 
to nonaffiliated third parties, including the method(s) by which the 
consumer may exercise that right at that time;
    (7) Any disclosures that you make under section 603(d)(2)(A)(iii) of 
the Fair Credit Reporting Act (15 U.S.C. 1681a(d)(2)(A)(iii)) (that is, 
notices regarding the ability to opt out of disclosures of information 
among affiliates);
    (8) Your policies and practices with respect to protecting the 
confidentiality and security of nonpublic personal information; and
    (9) Any disclosure that you make under paragraph (b) of this 
section.
    (b) Description of nonaffiliated third parties subject to 
exceptions. If you disclose nonpublic personal information to third 
parties as authorized under Sec. Sec. 1016.14 and 1016.15, you are not 
required to list those exceptions in the initial or annual privacy 
notices required by Sec. Sec. 1016.4 and 1016.5. When describing the 
categories with respect to those parties, it is sufficient to state that 
you make disclosures to other nonaffiliated companies:
    (1) For your everyday business purposes, such as [include all that 
apply] to process transactions, maintain account(s), respond to court 
orders and legal investigations, or report to credit bureaus; or
    (2) As permitted by law.
    (c) Examples--(1) Categories of nonpublic personal information that 
you collect. You satisfy the requirement to categorize the nonpublic 
personal information that you collect if you list the following 
categories, as applicable:
    (i) Information from the consumer;
    (ii) Information about the consumer's transactions with you or your 
affiliates;
    (iii) Information about the consumer's transactions with 
nonaffiliated third parties; and
    (iv) Information from a consumer reporting agency.
    (2) Categories of nonpublic personal information you disclose. (i) 
You satisfy the requirement to categorize the nonpublic personal 
information that you disclose if you list the categories described in 
paragraph (c)(1) of this section, as applicable, and a few examples to 
illustrate the types of information in each category.
    (ii) If you reserve the right to disclose all of the nonpublic 
personal information about consumers that you collect, you may simply 
state that fact without describing the categories or examples of the 
nonpublic personal information you disclose.
    (3) Categories of affiliates and nonaffiliated third parties to whom 
you disclose. You satisfy the requirement to categorize the affiliates 
and nonaffiliated third parties to whom you disclose nonpublic personal 
information if you list the following categories, as applicable, and a 
few examples to illustrate the types of third parties in each category.
    (i) Financial service providers, followed by illustrative examples 
such as mortgage bankers, securities broker-dealers, and insurance 
agents;
    (ii) Non-financial companies, followed by illustrative examples such 
as retailers, magazine publishers, airlines, and direct marketers; and
    (iii) Others, followed by examples such as nonprofit organizations.
    (4) Disclosures under exception for service providers and joint 
marketers. If you disclose nonpublic personal information under the 
exception in Sec. 1016.13 of this part to a nonaffiliated third party 
to market products or services that you offer alone or jointly with 
another financial institution, you satisfy the

[[Page 374]]

disclosure requirement of paragraph (a)(5) of this section if you:
    (i) List the categories of nonpublic personal information you 
disclose, using the same categories and examples you used to meet the 
requirements of paragraph (a)(2) of this section, as applicable; and
    (ii) State whether the third party is:
    (A) A service provider that performs marketing services on your 
behalf or on behalf of you and another financial institution; or
    (B) A financial institution with whom you have a joint marketing 
agreement.
    (5) Simplified notices. If you do not disclose, and do not wish to 
reserve the right to disclose, nonpublic personal information about 
customers or former customers to affiliates or nonaffiliated third 
parties except as authorized under Sec. Sec. 1016.14 and 1016.15, you 
may simply state that fact, in addition to the information you must 
provide under paragraphs (a)(1), (a)(8), (a)(9), and (b) of this 
section.
    (6) Confidentiality and security. You describe your policies and 
practices with respect to protecting the confidentiality and security of 
nonpublic personal information if you do both of the following:
    (i) Describe in general terms who is authorized to have access to 
the information; and
    (ii) State whether you have security practices and procedures in 
place to ensure the confidentiality of the information in accordance 
with your policy. You are not required to describe technical information 
about the safeguards you use.
    (d) Short-form initial notice with opt out notice for non-customers. 
(1) You may satisfy the initial notice requirements in Sec. Sec. 
1016.4(a)(2), 1016.7(b), and 1016.7(c) of this part for a consumer who 
is not a customer by providing a short-form initial notice at the same 
time as you deliver an opt out notice as required in Sec. 1016.7.
    (2) A short-form initial notice must:
    (i) Be clear and conspicuous;
    (ii) State that your privacy notice is available upon request; and
    (iii) Explain a reasonable means by which the consumer may obtain 
that notice.
    (3) You must deliver your short-form initial notice according to 
Sec. 1016.9. You are not required to deliver your privacy notice with 
your short-form initial notice. You instead may simply provide the 
consumer a reasonable means to obtain your privacy notice. If a consumer 
who receives your short-form notice requests your privacy notice, you 
must deliver your privacy notice according to Sec. 1016.9.
    (4) Examples of obtaining privacy notice. You provide a reasonable 
means by which a consumer may obtain a copy of your privacy notice if 
you:
    (i) Provide a toll-free telephone number that the consumer may call 
to request the notice; or
    (ii) For a consumer who conducts business in person at your office, 
maintain copies of the notice on hand that you provide to the consumer 
immediately upon request.
    (e) Future disclosures. Your notice may include:
    (1) Categories of nonpublic personal information that you reserve 
the right to disclose in the future, but do not currently disclose; and
    (2) Categories of affiliates or nonaffiliated third parties to whom 
you reserve the right in the future to disclose, but to whom you do not 
currently disclose, nonpublic personal information.
    (f) Model privacy form. Pursuant to Sec. 1016.2(a) of this part, a 
model privacy form that meets the notice content requirements of this 
section is included in the appendix to this part.



Sec. 1016.7  Form of opt out notice to consumers; opt out methods.

    (a)(1) Form of opt out notice. If you are required to provide an opt 
out notice under Sec. 1016.10(a), you must provide a clear and 
conspicuous notice to each of your consumers that accurately explains 
the right to opt out under that section. The notice must state:
    (i) That you disclose or reserve the right to disclose nonpublic 
personal information about your consumer to a nonaffiliated third party;
    (ii) That the consumer has the right to opt out of that disclosure; 
and
    (iii) A reasonable means by which the consumer may exercise the opt 
out right.

[[Page 375]]

    (2) Examples--(i) Adequate opt out notice. You provide adequate 
notice that the consumer can opt out of the disclosure of nonpublic 
personal information to a nonaffiliated third party if you:
    (A) Identify all of the categories of nonpublic personal information 
that you disclose or reserve the right to disclose, and all of the 
categories of nonaffiliated third parties to which you disclose the 
information, as described in Sec. 1016.6(a)(2) and (3) of this part, 
and state that the consumer can opt out of the disclosure of that 
information; and
    (B) Identify the financial products or services that the consumer 
obtains from you, either singly or jointly, to which the opt out 
direction would apply.
    (ii) Reasonable opt out means. You provide a reasonable means to 
exercise an opt out right if you:
    (A) Designate check-off boxes in a prominent position on the 
relevant forms with the opt out notice;
    (B) Include a reply form together with the opt out notice that, in 
the case of financial institutions described in Sec. 1016.3(l)(3) of 
this part, includes the address to which the form should be mailed;
    (C) Provide an electronic means to opt out, such as a form that can 
be sent via electronic mail or a process at your Web site, if the 
consumer agrees to the electronic delivery of information; or
    (D) Provide a toll-free telephone number that consumers may call to 
opt out.
    (iii) Unreasonable opt out means. You do not provide a reasonable 
means of opting out if:
    (A) The only means of opting out is for the consumer to write his or 
her own letter to exercise that opt out right; or
    (B) The only means of opting out as described in any notice 
subsequent to the initial notice is to use a check-off box that you 
provided with the initial notice but did not include with the subsequent 
notice.
    (iv) Specific opt out means. You may require each consumer to opt 
out through a specific means, as long as that means is reasonable for 
that consumer.
    (b) Same form as initial notice permitted. You may provide the opt 
out notice together with or on the same written or electronic form as 
the initial notice you provide in accordance with Sec. 1016.4.
    (c) Initial notice required when opt out notice delivered subsequent 
to initial notice. If you provide the opt out notice later than required 
for the initial notice in accordance with Sec. 1016.4 of this part, you 
must also include a copy of the initial notice with the opt out notice 
in writing or, if the consumer agrees, electronically.
    (d) Joint relationships in the case of financial institutions other 
than credit unions and covered entities subject to FTC enforcement 
jurisdiction. For purposes of this paragraph (d), ``you'' is limited to 
financial institutions other than credit unions and financial 
institutions described in Sec. 1016.3(l)(3) of this part.
    (1) If two or more consumers jointly obtain a financial product or 
service from you, you may provide a single opt out notice. Your opt out 
notice must explain how you will treat an opt out direction by a joint 
consumer (as explained in paragraph (d)(5) of this section).
    (2) Any of the joint consumers may exercise the right to opt out. 
You may either:
    (i) Treat an opt out direction by a joint consumer as applying to 
all of the associated joint consumers; or
    (ii) Permit each joint consumer to opt out separately.
    (3) If you permit each joint consumer to opt out separately, you 
must permit one of the joint consumers to opt out on behalf of all of 
the joint consumers.
    (4) You may not require all joint consumers to opt out before you 
implement any opt out direction.
    (5) Example. If John and Mary have a joint checking account with you 
and arrange for you to send statements to John's address, you may do any 
of the following, but you must explain in your opt out notice which opt 
out policy you will follow:
    (i) Send a single opt out notice to John's address, but you must 
accept an opt out direction from either John or Mary.
    (ii) Treat an opt out direction by either John or Mary as applying 
to the entire account. If you do so, and John

[[Page 376]]

opts out, you may not require Mary to opt out as well before 
implementing John's opt out direction.
    (iii) Permit John and Mary to make different opt out directions. If 
you do so:
    (A) You must permit John and Mary to opt out for each other;
    (B) If both opt out, you must permit both to notify you in a single 
response (such as on a form or through a telephone call); and
    (C) If John opts out and Mary does not, you may only disclose 
nonpublic personal information about Mary, but not about John and not 
about John and Mary jointly.
    (e) Joint relationships in the case of credit unions. (1) If two or 
more consumers jointly obtain a financial product or service, other than 
a loan, from a credit union, the credit union may provide only a single 
opt out notice. The opt out notice must explain how the credit union 
will treat an opt out direction by a joint consumer (as explained in the 
examples in paragraph (e)(5) of this section).
    (2) Any of the joint consumers may exercise the right to opt out. A 
credit union may either:
    (i) Treat an opt out direction by a joint consumer to apply to all 
of the associated joint consumers; or
    (ii) Permit each joint consumer to opt out separately.
    (3) If a credit union permits each joint consumer to opt out 
separately, the credit union must permit one of the joint consumers to 
opt out on behalf of all of the joint consumers.
    (4) A credit union may not require all joint consumers to opt out 
before the credit union implements any opt out direction.
    (5) Example. If John and Mary have a joint share account with a 
credit union and arrange for the credit union to send statements to 
John's address, the credit union may do any of the following, but it 
must explain in its opt out notice which opt out policy it will follow:
    (i) Send a single opt out notice to John's address, but it must 
accept an opt out direction from either John or Mary.
    (ii) Treat an opt out direction by either John or Mary as applying 
to the entire account. If it does so, and John opts out, it may not 
require Mary to opt out as well before implementing John's opt out 
direction.
    (iii) Permit John and Mary to make different opt out directions. If 
it does so, and if John and Mary both opt out, it must permit one or 
both of them to notify it in a single response (such as on a form or 
through a telephone call).
    (6) Special rule for loans. (i) A credit union is required to 
provide an initial opt out notice to a borrower or guarantor on a loan 
if it shares his or her nonpublic personal information with 
nonaffiliated third parties other than for purposes under Sec. Sec. 
1016.13, 1016.14, and 1016.15.
    (ii) A credit union may satisfy its annual opt out notice 
requirement by providing one notice to those borrowers and guarantors 
jointly.
    (f) Joint relationships in the case of covered entities subject to 
FTC enforcement jurisdiction. For purposes of this paragraph (f), 
``you'' is limited to the financial institutions described in Sec. 
1016.3(l)(3).
    (1) If two or more consumers jointly obtain a financial product or 
service from you, you may provide a single opt out notice, unless one or 
more of those consumers requests a separate opt out notice. Your opt out 
notice must explain how you will treat an opt out direction by a joint 
consumer (as explained in paragraph (f)(5) of this section).
    (2) Any of the joint consumers may exercise the right to opt out. 
You may either:
    (i) Treat an opt out direction by a joint consumer as applying to 
all of the associated joint consumers; or
    (ii) Permit each joint consumer to opt out separately.
    (3) If you permit each joint consumer to opt out separately, you 
must permit one of the joint consumers to opt out on behalf of all of 
the joint consumers.
    (4) You may not require all joint consumers to opt out before you 
implement any opt out direction.
    (5) Example. If John and Mary have a joint credit card account with 
you and arrange for you to send statements to John's address, you may do 
any of the following, but you must explain in

[[Page 377]]

your opt out notice which opt out policy you will follow:
    (i) Send a single opt out notice to John's address, but you must 
accept an opt out direction from either John or Mary.
    (ii) Treat an opt out direction by either John or Mary as applying 
to the entire account. If you do so, and John opts out, you may not 
require Mary to opt out as well before implementing John's opt out 
direction.
    (iii) Permit John and Mary to make different opt out directions. If 
you do so:
    (A) You must permit John and Mary to opt out for each other;
    (B) If both opt out, you must permit both to notify you in a single 
response (such as on a form or through a telephone call); and
    (C) If John opts out and Mary does not, you may only disclose 
nonpublic personal information about Mary, but not about John and not 
about John and Mary jointly.
    (g) Time to comply with opt out. You must comply with a consumer's 
opt out direction as soon as reasonably practicable after you receive 
it.
    (h) Continuing right to opt out. A consumer may exercise the right 
to opt out at any time.
    (i) Duration of consumer's opt out direction. (1) A consumer's 
direction to opt out under this section is effective until the consumer 
revokes it in writing or, if the consumer agrees, electronically.
    (2) When a customer relationship terminates, the customer's opt out 
direction continues to apply to the nonpublic personal information that 
you collected during or related to that relationship. If the individual 
subsequently establishes a new customer relationship with you, the opt 
out direction that applied to the former relationship does not apply to 
the new relationship.
    (j) Delivery. When you are required to deliver an opt out notice by 
this section, you must deliver it according to Sec. 1016.9 of this 
part.
    (k) Model privacy form. Pursuant to Sec. 1016.2(a) of this part, a 
model privacy form that meets the notice content requirements of this 
section is included in the appendix to this part.



Sec. 1016.8  Revised privacy notices.

    (a) General rule. Except as otherwise authorized in this part, you 
must not, directly or through any affiliate, disclose any nonpublic 
personal information about a consumer to a nonaffiliated third party 
other than as described in the initial notice that you provided to that 
consumer under Sec. 1016.4 of this part, unless:
    (1) You have provided to the consumer a clear and conspicuous 
revised notice that accurately describes your policies and practices;
    (2) You have provided to the consumer a new opt out notice;
    (3) You have given the consumer a reasonable opportunity, before you 
disclose the information to the nonaffiliated third party, to opt out of 
the disclosure; and
    (4) The consumer does not opt out.
    (b) Examples. (1) Except as otherwise permitted by Sec. Sec. 
1016.13, 1016.14, and 1016.15 of this part, you must provide a revised 
notice before you:
    (i) Disclose a new category of nonpublic personal information to any 
nonaffiliated third party;
    (ii) Disclose nonpublic personal information to a new category of 
nonaffiliated third party; or
    (iii) Disclose nonpublic personal information about a former 
customer to a nonaffiliated third party, if that former customer has not 
had the opportunity to exercise an opt out right regarding that 
disclosure.
    (2) A revised notice is not required if you disclose nonpublic 
personal information to a new nonaffiliated third party that you 
adequately described in your prior notice.
    (c) Delivery. When you are required to deliver a revised privacy 
notice by this section, you must deliver it according to Sec. 1016.9 of 
this part.



Sec. 1016.9  Delivering privacy and opt out notices.

    (a) How to provide notices. You must provide any privacy notices and 
opt out notices, including short-form initial notices, that this part 
requires so that each consumer can reasonably be expected to receive 
actual notice in writing or, if the consumer agrees, electronically.

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    (b)(1) Examples of reasonable expectation of actual notice. You may 
reasonably expect that a consumer will receive actual notice if you:
    (i) Hand-deliver a printed copy of the notice to the consumer;
    (ii) Mail a printed copy of the notice to the last known address of 
the consumer;
    (iii) For the consumer who conducts transactions electronically:
    (A) In the case of financial institutions other than those described 
in Sec. 1016.3(l)(3) of this part, post the notice on the electronic 
site and require the consumer to acknowledge receipt of the notice as a 
necessary step to obtaining a particular financial product or service; 
or
    (B) In the case of financial institutions described in Sec. 
1016.3(l)(3), clearly and conspicuously post the notice on the 
electronic site and require the consumer to acknowledge receipt of the 
notice as a necessary step to obtaining a particular financial product 
or service;
    (iv) For an isolated transaction with the consumer, such as an ATM 
transaction, post the notice on the ATM screen and require the consumer 
to acknowledge receipt of the notice as a necessary step to obtaining 
the particular financial product or service.
    (2) Examples of unreasonable expectation of actual notice. You may 
not, however, reasonably expect that a consumer will receive actual 
notice of your privacy policies and practices if you:
    (i) Only post a sign in your branch or office or generally publish 
advertisements of your privacy policies and practices; or
    (ii) Send the notice via electronic mail to a consumer who does not 
obtain a financial product or service from you electronically.
    (c) Annual notices only. You may reasonably expect that a customer 
will receive actual notice of your annual privacy notice if:
    (1) The customer uses your Web site to access financial products and 
services electronically and agrees to receive notices at the Web site, 
and you post your current privacy notice continuously in a clear and 
conspicuous manner on the Web site; or
    (2) The customer has requested that you refrain from sending any 
information regarding the customer relationship, and your current 
privacy notice remains available to the customer upon request.
    (d) Oral description of notice insufficient. You may not provide any 
notice required by this part solely by orally explaining the notice, 
either in person or over the telephone.
    (e) Retention or accessibility of notices for customers. (1) For 
customers only, you must provide the initial notice required by Sec. 
1016.4(a)(1), the annual notice required by Sec. 1016.5(a), and the 
revised notice required by Sec. 1016.8 so that the customer can retain 
them or obtain them later in writing or, if the customer agrees, 
electronically.
    (2) Examples of retention or accessibility. You provide a privacy 
notice to the customer so that the customer can retain it or obtain it 
later if you:
    (i) Hand-deliver a printed copy of the notice to the customer;
    (ii) Mail a printed copy of the notice to the last known address of 
the customer, or, in the case of credit unions, mail a printed copy of 
the notice to the last known address of the customer upon request of the 
customer; or
    (iii) Make your current privacy notice available on a Web site (or a 
link to another Web site) for the customer who obtains a financial 
product or service electronically and agrees to receive the notice at 
the Web site.
    (f) Joint notice with other financial institutions. You may provide 
a joint notice from you and one or more of your affiliates or other 
financial institutions, as identified in the notice, as long as the 
notice is accurate with respect to you and the other institutions.
    (g) Joint relationships in the case of financial institutions other 
than credit unions and covered entities subject to FTC enforcement 
jurisdiction. For purposes of this paragraph (g), ``you'' is limited to 
financial institutions other than credit unions and the financial 
institutions described in Sec. 1016.3(l)(3). If two or more consumers 
jointly obtain a financial product or service from you, you may satisfy 
the initial, annual, and revised notice requirements of

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Sec. Sec. 1016.4(a), 1016.5(a), and 1016.8(a), respectively, by 
providing one notice to those consumers jointly.
    (h) Joint relationships in the case of covered entities subject to 
FTC enforcement jurisdiction. For purposes of this paragraph (h), 
``you'' is limited to the financial institutions described in Sec. 
1016.3(l)(3). If two or more consumers jointly obtain a financial 
product or service from you, you may satisfy the initial, annual, and 
revised notice requirements of Sec. Sec. 1016.4(a), 1016.5(a), and 
1016.8(a) by providing one notice to those consumers jointly, unless one 
or more of those consumers requests separate notices.
    (i) Joint relationships in the case of credit unions. (1) If two or 
more consumers jointly obtain a financial product or service, other than 
a loan, from a credit union, the credit union may satisfy the 
requirements of Sec. 1016.4(a) by providing one initial notice to those 
consumers jointly.
    (2) Special rule for loans in the case of credit unions. (i) A 
credit union is required to provide an initial notice to a borrower or 
guarantor on a loan if the credit union shares his or her nonpublic 
personal information with nonaffiliated third parties other than for 
purposes under Sec. Sec. 1016.13, 1016.14, and 1016.15.
    (ii) A credit union may satisfy the annual notice requirements of 
Sec. 1016.5 by providing one notice to those borrowers and guarantors 
jointly.



                     Subpart B_Limits on Disclosures



Sec. 1016.10  Limits on disclosure of nonpublic personal information to
nonaffiliated third parties.

    (a)(1) Conditions for disclosure. Except as otherwise authorized in 
this part, you may not, directly or through any affiliate, disclose any 
nonpublic personal information about a consumer to a nonaffiliated third 
party unless:
    (i) You have provided to the consumer an initial notice as required 
under Sec. 1016.4 of this part;
    (ii) You have provided to the consumer an opt out notice as required 
in Sec. 1016.7 of this part;
    (iii) You have given the consumer a reasonable opportunity, before 
you disclose the information to the nonaffiliated third party, to opt 
out of the disclosure; and
    (iv) The consumer does not opt out.
    (2) Opt out definition. Opt out means a direction by the consumer 
that you not disclose nonpublic personal information about that consumer 
to a nonaffiliated third party, other than as permitted by Sec. Sec. 
1016.13, 1016.14, and 1016.15.
    (3) Examples of reasonable opportunity to opt out. You provide a 
consumer with a reasonable opportunity to opt out if:
    (i) By mail. You mail the notices required in paragraph (a)(1) of 
this section to the consumer and allow the consumer to opt out by 
mailing a form, calling a toll-free telephone number, or any other 
reasonable means within 30 days from the date you mailed the notices.
    (ii) By electronic means. A customer opens an online account with 
you and agrees to receive the notices required in paragraph (a)(1) of 
this section electronically, and you allow the customer to opt out by 
any reasonable means within 30 days after the date that the customer 
acknowledges receipt of the notices in conjunction with opening the 
account.
    (iii) Isolated transaction with consumer. For an isolated 
transaction, such as the purchase of a cashier's check by a consumer, 
you provide the consumer with a reasonable opportunity to opt out if you 
provide the notices required in paragraph (a)(1) of this section at the 
time of the transaction and request that the consumer decide, as a 
necessary part of the transaction, whether to opt out before completing 
the transaction.
    (b) Application of opt out to all consumers and all nonpublic 
personal information. (1) You must comply with this section, regardless 
of whether you and the consumer have established a customer 
relationship.
    (2) Unless you comply with this section, you may not, directly or 
through any affiliate, disclose any nonpublic personal information about 
a consumer that you have collected, regardless of whether you collected 
it before or after receiving the direction to opt out from the consumer.
    (c) Partial opt out. You may allow a consumer to select certain 
nonpublic

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personal information or certain nonaffiliated third parties with respect 
to which the consumer wishes to opt out.



Sec. 1016.11  Limits on redisclosure and reuse of information.

    (a)(1) Information you receive under an exception. If you receive 
nonpublic personal information from a nonaffiliated financial 
institution under an exception in Sec. 1016.14 or Sec. 1016.15 of this 
part, your disclosure and use of that information is limited as follows:
    (i) You may disclose the information to the affiliates of the 
financial institution from which you received the information;
    (ii) You may disclose the information to your affiliates, but your 
affiliates may, in turn, disclose and use the information only to the 
extent that you may disclose and use the information; and
    (iii) You may disclose and use the information pursuant to an 
exception in Sec. 1016.14 or Sec. 1016.15 in the ordinary course of 
business to carry out the activity covered by the exception under which 
you received the information.
    (2) Example. If you receive a customer list from a nonaffiliated 
financial institution in order to provide account processing services 
under the exception in Sec. 1016.14(a), you may disclose that 
information under any exception in Sec. 1016.14 or Sec. 1016.15 in the 
ordinary course of business in order to provide those services. For 
example, you could disclose the information in response to a properly 
authorized subpoena or, in the case of financial institutions other than 
those described in Sec. 1016.3(l)(3), to your attorneys, accountants, 
and auditors. You could not disclose that information to a third party 
for marketing purposes or use that information for your own marketing 
purposes.
    (b)(1) Information you receive outside of an exception. If you 
receive nonpublic personal information from a nonaffiliated financial 
institution other than under an exception in Sec. 1016.14 or Sec. 
1016.15 of this part, you may disclose the information only:
    (i) To the affiliates of the financial institution from which you 
received the information;
    (ii) To your affiliates, but your affiliates may, in turn, disclose 
the information only to the extent that you can disclose the 
information; and
    (iii) To any other person, if the disclosure would be lawful if made 
directly to that person by the financial institution from which you 
received the information.
    (2) Example. If you obtain a customer list from a nonaffiliated 
financial institution outside of the exceptions in Sec. Sec. 1016.14 
and 1016.15:
    (i) You may use that list for your own purposes; and
    (ii) You may disclose that list to another nonaffiliated third party 
only if the financial institution from which you purchased the list 
could have lawfully disclosed the list to that third party. That is, you 
may disclose the list in accordance with the privacy policy of the 
financial institution from which you received the list, as limited by 
the opt out direction of each consumer whose nonpublic personal 
information you intend to disclose, and you may disclose the list in 
accordance with an exception in Sec. 1016.14 or Sec. 1016.15, such as 
to your attorneys or accountants.
    (c) Information you disclose under an exception. If you disclose 
nonpublic personal information to a nonaffiliated third party under an 
exception in Sec. 1016.14 or Sec. 1016.15 of this part, the third 
party may disclose and use that information only as follows:
    (1) The third party may disclose the information to your affiliates;
    (2) The third party may disclose the information to its affiliates, 
but its affiliates may, in turn, disclose and use the information only 
to the extent that the third party may disclose and use the information; 
and
    (3) The third party may disclose and use the information pursuant to 
an exception in Sec. 1016.14 or Sec. 1016.15 in the ordinary course of 
business to carry out the activity covered by the exception under which 
it received the information.
    (d) Information you disclose outside of an exception. If you 
disclose nonpublic personal information to a nonaffiliated third party 
other than under an exception in Sec. 1016.14 or Sec. 1016.15 of this 
part, the third party may disclose the information only:
    (1) To your affiliates;

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    (2) To its affiliates, but its affiliates, in turn, may disclose the 
information only to the extent the third party can disclose the 
information; and
    (3) To any other person, if the disclosure would be lawful if you 
made it directly to that person.



Sec. 1016.12  Limits on sharing account number information for marketing
purposes.

    (a) General prohibition on disclosure of account numbers. You must 
not, directly or through an affiliate, disclose, other than to a 
consumer reporting agency, an account number or similar form of access 
number or access code for a consumer's credit card account, deposit 
account, share account, or transaction account to any nonaffiliated 
third party for use in telemarketing, direct mail marketing, or other 
marketing through electronic mail to the consumer.
    (b) Exceptions. Paragraph (a) of this section does not apply if you 
disclose an account number or similar form of access number or access 
code:
    (1) To your agent or service provider solely in order to perform 
marketing for your own products or services, as long as the agent or 
service provider is not authorized to directly initiate charges to the 
account; or
    (2) To a participant in a private label credit card program or an 
affinity or similar program where the participants in the program are 
identified to the customer when the customer enters into the program.
    (c) Examples--(1) Account number. An account number, or similar form 
of access number or access code, does not include a number or code in an 
encrypted form, as long as you do not provide the recipient with a means 
to decode the number or code.
    (2) Transaction account. A transaction account is an account other 
than a deposit account, a share account, or a credit card account. A 
transaction account does not include an account to which third parties 
cannot initiate charges.



                          Subpart C_Exceptions



Sec. 1016.13  Exception to opt out requirements for service providers 
and joint marketing.

    (a) General rule. (1) The opt out requirements in Sec. Sec. 1016.7 
and 1016.10 of this part do not apply when you provide nonpublic 
personal information to a nonaffiliated third party to perform services 
for you or functions on your behalf, if you:
    (i) Provide the initial notice in accordance with Sec. 1016.4; and
    (ii) Enter into a contractual agreement with the third party that 
prohibits the third party from disclosing or using the information other 
than to carry out the purposes for which you disclosed the information, 
including use under an exception in Sec. 1016.14 or Sec. 1016.15 in 
the ordinary course of business to carry out those purposes.
    (2) Example. If you disclose nonpublic personal information under 
this section to a financial institution with which you perform joint 
marketing, your contractual agreement with that institution meets the 
requirements of paragraph (a)(1)(ii) of this section if it prohibits the 
institution from disclosing or using the nonpublic personal information 
except as necessary to carry out the joint marketing or under an 
exception in Sec. 1016.14 or Sec. 1016.15 in the ordinary course of 
business to carry out that joint marketing.
    (b) Service may include joint marketing. The services a 
nonaffiliated third party performs for you under paragraph (a) of this 
section may include marketing of your own products or services or 
marketing of financial products or services offered pursuant to joint 
agreements between you and one or more financial institutions.
    (c) Definition of joint agreement. For purposes of this section, 
joint agreement means a written contract pursuant to which you and one 
or more financial institutions jointly offer, endorse, or sponsor a 
financial product or service.

[[Page 382]]



Sec. 1016.14  Exceptions to notice and opt out requirements for 
processing and servicing transactions.

    (a) Exceptions for processing transactions at consumer's request. 
The requirements for initial notice in Sec. 1016.4(a)(2), for the opt 
out in Sec. Sec. 1016.7 and 1016.10, and for service providers and 
joint marketing in Sec. 1016.13 do not apply if you disclose nonpublic 
personal information as necessary to effect, administer, or enforce a 
transaction that a consumer requests or authorizes, or in connection 
with:
    (1) Servicing or processing a financial product or service that a 
consumer requests or authorizes;
    (2) Maintaining or servicing the consumer's account with you, or 
with another entity as part of a private label credit card program or 
other extension of credit on behalf of such entity; or
    (3) A proposed or actual securitization, secondary market sale 
(including sales of servicing rights), or similar transaction related to 
a transaction of the consumer.
    (b) Necessary to effect, administer, or enforce a transaction means 
that the disclosure is:
    (1) Required, or is one of the lawful or appropriate methods, to 
enforce your rights or the rights of other persons engaged in carrying 
out the financial transaction or providing the product or service; or
    (2) Required, or is a usual, appropriate or acceptable method:
    (i) To carry out the transaction or the product or service business 
of which the transaction is a part, and record, service, or maintain the 
consumer's account in the ordinary course of providing the financial 
service or financial product;
    (ii) To administer or service benefits or claims relating to the 
transaction or the product or service business of which it is a part;
    (iii) To provide a confirmation, statement, or other record of the 
transaction, or information on the status or value of the financial 
service or financial product to the consumer or the consumer's agent or 
broker;
    (iv) To accrue or recognize incentives or bonuses associated with 
the transaction that are provided by you or any other party;
    (v) To underwrite insurance at the consumer's request or for 
reinsurance purposes, or for any of the following purposes as they 
relate to a consumer's insurance: account administration, reporting, 
investigating, or preventing fraud or material misrepresentation, 
processing premium payments, processing insurance claims, administering 
insurance benefits (including utilization review activities), 
participating in research projects, or as otherwise required or 
specifically permitted by Federal or state law; or
    (vi) In connection with:
    (A) The authorization, settlement, billing, processing, clearing, 
transferring, reconciling or collection of amounts charged, debited, or 
otherwise paid using a debit, credit, or other payment card, check, or 
account number, or by other payment means;
    (B) The transfer of receivables, accounts, or interests therein; or
    (C) The audit of debit, credit, or other payment information.



Sec. 1016.15  Other exceptions to notice and opt out requirements.

    (a) Exceptions to opt out requirements. The requirements for initial 
notice in Sec. 1016.4(a)(2), for the opt out in Sec. Sec. 1016.7 and 
1016.10, and for service providers and joint marketing in Sec. 1016.13 
do not apply when you disclose nonpublic personal information:
    (1) With the consent or at the direction of the consumer, provided 
that the consumer has not revoked the consent or direction;
    (2)(i) To protect the confidentiality or security of your records 
pertaining to the consumer, service, product, or transaction;
    (ii) To protect against or prevent actual or potential fraud, 
unauthorized transactions, claims, or other liability;
    (iii) For required institutional risk control or for resolving 
consumer disputes or inquiries;
    (iv) To persons holding a legal or beneficial interest relating to 
the consumer; or
    (v) To persons acting in a fiduciary or representative capacity on 
behalf of the consumer;
    (3) To provide information to insurance rate advisory organizations, 
guaranty funds or agencies, agencies that

[[Page 383]]

are rating you, persons that are assessing your compliance with industry 
standards, and your attorneys, accountants, and auditors;
    (4) To the extent specifically permitted or required under other 
provisions of law and in accordance with the Right to Financial Privacy 
Act of 1978 (12 U.S.C. 3401 et seq.), to law enforcement agencies 
(including the Bureau, a Federal functional regulator, the Secretary of 
the Treasury, with respect to 31 U.S.C. Chapter 53, Subchapter II 
(Records and Reports on Monetary Instruments and Transactions) and 12 
U.S.C. Chapter 21 (Financial Recordkeeping), a state insurance 
authority, with respect to any person domiciled in that insurance 
authority's state that is engaged in providing insurance, and the 
Federal Trade Commission), self-regulatory organizations, or for an 
investigation on a matter related to public safety;
    (5)(i) To a consumer reporting agency in accordance with the Fair 
Credit Reporting Act (15 U.S.C. 1681 et seq.); or
    (ii) From a consumer report reported by a consumer reporting agency;
    (6) In connection with a proposed or actual sale, merger, transfer, 
or exchange of all or a portion of a business or operating unit if the 
disclosure of nonpublic personal information concerns solely consumers 
of such business or unit; or
    (7)(i) To comply with Federal, state, or local laws, rules and other 
applicable legal requirements;
    (ii) To comply with a properly authorized civil, criminal, or 
regulatory investigation, or subpoena or summons by Federal, state, or 
local authorities; or
    (iii) To respond to judicial process or government regulatory 
authorities having jurisdiction over you for examination, compliance, or 
other purposes as authorized by law.
    (b) Examples of consent and revocation of consent. (1) A consumer 
may specifically consent to your disclosure to a nonaffiliated insurance 
company of the fact that the consumer has applied to you for a mortgage 
so that the insurance company can offer homeowner's insurance to the 
consumer.
    (2) A consumer may revoke consent by subsequently exercising the 
right to opt out of future disclosures of nonpublic personal information 
as permitted under Sec. 1016.7(h) of this part.



                    Subpart D_Relation to Other Laws



Sec. 1016.16  Protection of Fair Credit Reporting Act.

    Nothing in this part shall be construed to modify, limit, or 
supersede the operation of the Fair Credit Reporting Act (15 U.S.C. 1681 
et seq.), and no inference shall be drawn on the basis of the provisions 
of this part regarding whether information is transaction or experience 
information under section 603 of that Act.



Sec. 1016.17  Relation to state laws.

    (a) In general. This part shall not be construed as superseding, 
altering, or affecting any statute, regulation, order, or interpretation 
in effect in any state, except to the extent that such state statute, 
regulation, order, or interpretation is inconsistent with the provisions 
of this part, and then only to the extent of the inconsistency.
    (b) Greater protection under state law. For purposes of this 
section, a state statute, regulation, order, or interpretation is not 
inconsistent with the provisions of this part if the protection such 
statute, regulation, order, or interpretation affords any consumer is 
greater than the protection provided under this part, as determined by 
the Bureau, on its own motion or upon the petition of any interested 
party, after consultation with the agency or authority with jurisdiction 
under section 505(a) of the GLB Act (15 U.S.C. 6805(a)) over either the 
person that initiated the complaint or that is the subject of the 
complaint.



             Sec. Appendix to Part 1016--Model Privacy Form

                        A. The Model Privacy Form

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                         B. General Instructions

                  1. How the Model Privacy Form Is Used

    (a) The model form may be used, at the option of a financial 
institution, including a group of financial institutions that use a 
common privacy notice, to meet the content requirements of the privacy 
notice and opt-out notice set forth in Sec. Sec. 1016.6 and 1016.7 of 
this part.
    (b) The model form is a standardized form, including page layout, 
content, format, style, pagination, and shading. Institutions seeking to 
obtain the safe harbor through use of the model form may modify it only 
as described in these Instructions.
    (c) Note that disclosure of certain information, such as assets, 
income, and information from a consumer reporting agency, may give rise 
to obligations under the Fair Credit Reporting Act [15 U.S.C. 1681-
1681x] (FCRA), such as a requirement to permit a consumer to opt out of 
disclosures to affiliates or designation as a consumer reporting agency 
if disclosures are made to nonaffiliated third parties.
    (d) The word ``customer'' may be replaced by the word ``member'' 
whenever it appears in the model form, as appropriate.

                2. The Contents of the Model Privacy Form

    The model form consists of two pages, which may be printed on both 
sides of a single sheet of paper, or may appear on two separate pages. 
Where an institution provides a long list of institutions at the end of 
the model form in accordance with Instruction C.3(a)(1), or provides 
additional information in accordance with Instruction C.3(c), and such 
list or additional information exceeds the space available on page two 
of the model form, such list or additional information may extend to a 
third page.
    (a) Page One. The first page consists of the following components:
    (1) Date last revised (upper right-hand corner).
    (2) Title.
    (3) Key frame (Why?, What?, How?).
    (4) Disclosure table (``Reasons we can share your personal 
information'').
    (5) ``To limit our sharing'' box, as needed, for the financial 
institution's opt-out information.
    (6) ``Questions'' box, for customer service contact information.
    (7) Mail-in opt-out form, as needed.
    (b) Page Two. The second page consists of the following components:
    (1) Heading (Page 2).
    (2) Frequently Asked Questions (``Who we are'' and ``What we do'').
    (3) Definitions.
    (4) ``Other important information'' box, as needed.

                 3. The Format of the Model Privacy Form

    The format of the model form may be modified only as described 
below.
    (a) Easily readable type font. Financial institutions that use the 
model form must use an easily readable type font. While a number of 
factors together produce easily readable type font, institutions are 
required to use a minimum of 10-point font (unless otherwise expressly 
permitted in these Instructions) and sufficient spacing between the 
lines of type.
    (b) Logo. A financial institution may include a corporate logo on 
any page of the notice, so long as it does not interfere with the 
readability of the model form or the space constraints of each page.

[[Page 391]]

    (c) Page size and orientation. Each page of the model form must be 
printed on paper in portrait orientation, the size of which must be 
sufficient to meet the layout and minimum font size requirements, with 
sufficient white space on the top, bottom, and sides of the content.
    (d) Color. The model form must be printed on white or light color 
paper (such as cream) with black or other contrasting ink color. Spot 
color may be used to achieve visual interest, so long as the color 
contrast is distinctive and the color does not detract from the 
readability of the model form. Logos may also be printed in color.
    (e) Languages. The model form may be translated into languages other 
than English.

            C. Information Required in the Model Privacy Form

    The information in the model form may be modified only as described 
below:

1. Name of the Institution or Group of Affiliated Institutions Providing 
                               the Notice

    Insert the name of the financial institution providing the notice or 
a common identity of affiliated institutions jointly providing the 
notice on the form wherever [name of financial institution] appears.

                               2. Page One

    (a) Last revised date. The financial institution must insert in the 
upper right-hand corner the date on which the notice was last revised. 
The information shall appear in minimum 8-point font as ``rev. [month/
year]'' using either the name or number of the month, such as ``rev. 
July 2009'' or ``rev. 7/09''.
    (b) General instructions for the ``What?'' box.
    (1) The bulleted list identifies the types of personal information 
that the institution collects and shares. All institutions must use the 
term ``Social Security number'' in the first bullet.
    (2) Institutions must use five (5) of the following terms to 
complete the bulleted list: Income; account balances; payment history; 
transaction history; transaction or loss history; credit history; credit 
scores; assets; investment experience; credit-based insurance scores; 
insurance claim history; medical information; overdraft history; 
purchase history; account transactions; risk tolerance; medical-related 
debts; credit card or other debt; mortgage rates and payments; 
retirement assets; checking account information; employment information; 
wire transfer instructions.
    (c) General instructions for the disclosure table. The left column 
lists reasons for sharing or using personal information. Each reason 
correlates to a specific legal provision described in paragraph C.2(d) 
of this Instruction. In the middle column, each institution must provide 
a ``Yes'' or ``No'' response that accurately reflects its information 
sharing policies and practices with respect to the reason listed on the 
left. In the right column, each institution must provide in each box one 
of the following three (3) responses, as applicable, that reflects 
whether a consumer can limit such sharing: ``Yes'' if it is required to 
or voluntarily provides an opt-out; ``No'' if it does not provide an 
opt-out; or ``We don't share'' if it answers ``No'' in the middle 
column. Only the sixth row (``For our affiliates to market to you'') may 
be omitted at the option of the institution. See paragraph C.2(d)(6) of 
this Instruction.
    (d) Specific disclosures and corresponding legal provisions.
    (1) For our everyday business purposes. This reason incorporates 
sharing information under Sec. Sec. 1016.14 and 1016.15 and with 
service providers pursuant to Sec. 1016.13 of this part other than the 
purposes specified in paragraphs C.2(d)(2) or C.2(d)(3) of these 
Instructions.
    (2) For our marketing purposes. This reason incorporates sharing 
information with service providers by an institution for its own 
marketing pursuant to Sec. 1016.13 of this part. An institution that 
shares for this reason may choose to provide an opt-out.
    (3) For joint marketing with other financial companies. This reason 
incorporates sharing information under joint marketing agreements 
between two or more financial institutions and with any service provider 
used in connection with such agreements pursuant to Sec. 1016.13 of 
this part. An institution that shares for this reason may choose to 
provide an opt-out.
    (4) For our affiliates' everyday business purposes--information 
about transactions and experiences. This reason incorporates sharing 
information specified in sections 603(d)(2)(A)(i) and (ii) of the FCRA. 
An institution that shares for this reason may choose to provide an opt-
out.
    (5) For our affiliates' everyday business purposes--information 
about creditworthiness. This reason incorporates sharing information 
pursuant to section 603(d)(2)(A)(iii) of the FCRA. An institution that 
shares for this reason must provide an opt-out.
    (6) For our affiliates to market to you. This reason incorporates 
sharing information specified in section 624 of the FCRA. This reason 
may be omitted from the disclosure table when: the institution does not 
have affiliates (or does not disclose personal information to its 
affiliates); the institution's affiliates do not use personal 
information in a manner that requires an opt-out; or the institution 
provides the affiliate marketing notice separately. Institutions that 
include this reason must provide an opt-out of indefinite duration. An 
institution that is required to provide an affiliate marketing opt-

[[Page 392]]

out, but does not include that opt-out in the model form under this 
part, must comply with section 624 of the FCRA and 12 CFR part 1022, 
subpart C, with respect to the initial notice and opt-out and any 
subsequent renewal notice and opt-out. An institution not required to 
provide an opt-out under this subparagraph may elect to include this 
reason in the model form.
    (7) For nonaffiliates to market to you. This reason incorporates 
sharing described in Sec. Sec. 1016.7 and 1016.10(a) of this part. An 
institution that shares personal information for this reason must 
provide an opt-out.
    (e) To limit our sharing: A financial institution must include this 
section of the model form only if it provides an opt-out. The word 
``choice'' may be written in either the singular or plural, as 
appropriate. Institutions must select one or more of the applicable opt-
out methods described: Telephone, such as by a toll-free number; a Web 
site; or use of a mail-in opt-out form. Institutions may include the 
words ``toll-free'' before telephone, as appropriate. An institution 
that allows consumers to opt out online must provide either a specific 
Web address that takes consumers directly to the opt-out page or a 
general Web address that provides a clear and conspicuous direct link to 
the opt-out page. The opt-out choices made available to the consumer who 
contacts the institution through these methods must correspond 
accurately to the ``Yes'' responses in the third column of the 
disclosure table. In the part titled ``Please note,'' institutions may 
insert a number that is 30 or greater in the space marked ``[30].'' 
Instructions on voluntary or state privacy law opt-out information are 
in paragraph C.2(g)(5) of these Instructions.
    (f) Questions box. Customer service contact information must be 
inserted as appropriate, where [phone number] or [Web site] appear. 
Institutions may elect to provide either a phone number, such as a toll-
free number, or a web address, or both. Institutions may include the 
words ``toll-free'' before the telephone number, as appropriate.
    (g) Mail-in opt-out form. Financial institutions must include this 
mail-in form only if they state in the ``To limit our sharing'' box that 
consumers can opt out by mail. The mail-in form must provide opt-out 
options that correspond accurately to the ``Yes'' responses in the third 
column in the disclosure table. Institutions that require customers to 
provide only name and address may omit the section identified as 
``[account ].'' Institutions that require additional or 
different information, such as a random opt-out number or a truncated 
account number, to implement an opt-out election should modify the 
``[account ]'' reference accordingly. This includes 
institutions that require customers with multiple accounts to identify 
each account to which the opt-out should apply. An institution must 
enter its opt-out mailing address: in the far right of this form (see 
version 3); or below the form (see version 4). The reverse side of the 
mail-in opt-out form must not include any content of the model form.
    (1) Joint accountholder. Only institutions that provide their joint 
accountholders the choice to opt out for only one accountholder, in 
accordance with paragraph C.3(a)(5) of these Instructions, must include 
in the far left column of the mail-in form the following statement: ``If 
you have a joint account, your choice(s) will apply to everyone on your 
account unless you mark below. Apply my choice(s) only to me.'' The word 
``choice'' may be written in either the singular or plural, as 
appropriate. Financial institutions that provide insurance products or 
services, provide this option, and elect to use the model form may 
substitute the word ``policy'' for ``account'' in this statement. 
Institutions that do not provide this option may eliminate this left 
column from the mail-in form.
    (2) FCRA section 603(d)(2)(A)(iii) opt-out. If the institution 
shares personal information pursuant to section 603(d)(2)(A)(iii) of the 
FCRA, it must include in the mail-in opt-out form the following 
statement: `` Do not share information about my creditworthiness with 
your affiliates for their everyday business purposes.''
    (3) FCRA section 624 opt-out. If the institution incorporates 
section 624 of the FCRA in accord with paragraph C.2(d)(6) of these 
Instructions, it must include in the mail-in opt-out form the following 
statement: `` Do not allow your affiliates to use my personal 
information to market to me.''
    (4) Nonaffiliate opt-out. If the financial institution shares 
personal information pursuant to Sec. 1016.10(a) of this part, it must 
include in the mail-in opt-out form the following statement: `` Do not 
share my personal information with nonaffiliates to market their 
products and services to me.''
    (5) Additional opt-outs. Financial institutions that use the 
disclosure table to provide opt-out options beyond those required by 
Federal law must provide those opt-outs in this section of the model 
form. A financial institution that chooses to offer an opt-out for its 
own marketing in the mail-in opt-out form must include one of the two 
following statements: `` Do not share my personal information to market 
to me.'' or `` Do not use my personal information to market to me.'' A 
financial institution that chooses to offer an opt-out for joint 
marketing must include the following statement: `` Do not share my 
personal information with other financial institutions to jointly market 
to me.''
    (h) Barcodes. A financial institution may elect to include a barcode 
and/or ``tagline'' (an internal identifier) in 6-point font at the 
bottom of page one, as needed for information internal to the 
institution, so long as

[[Page 393]]

these do not interfere with the clarity or text of the form.

                               3. Page Two

    (a) General Instructions for the Questions. Certain of the Questions 
may be customized as follows:
    (1) ``Who is providing this notice?'' This question may be omitted 
where only one financial institution provides the model form and that 
institution is clearly identified in the title on page one. Two or more 
financial institutions that jointly provide the model form must use this 
question to identify themselves as required by Sec. 1016.9(f) of this 
part. Where the list of institutions exceeds four (4) lines, the 
institution must describe in the response to this question the general 
types of institutions jointly providing the notice and must separately 
identify those institutions, in minimum 8-point font, directly following 
the ``Other important information'' box, or, if that box is not included 
in the institution's form, directly following the ``Definitions.'' The 
list may appear in a multi-column format.
    (2) ``How does [name of financial institution] protect my personal 
information?'' The financial institution may only provide additional 
information pertaining to its safeguards practices following the 
designated response to this question. Such information may include 
information about the institution's use of cookies or other measures it 
uses to safeguard personal information. Institutions are limited to a 
maximum of 30 additional words.
    (3) ``How does [name of financial institution] collect my personal 
information?'' Institutions must use five (5) of the following terms to 
complete the bulleted list for this question: Open an account; deposit 
money; pay your bills; apply for a loan; use your credit or debit card; 
seek financial or tax advice; apply for insurance; pay insurance 
premiums; file an insurance claim; seek advice about your investments; 
buy securities from us; sell securities to us; direct us to buy 
securities; direct us to sell your securities; make deposits or 
withdrawals from your account; enter into an investment advisory 
contract; give us your income information; provide employment 
information; give us your employment history; tell us about your 
investment or retirement portfolio; tell us about your investment or 
retirement earnings; apply for financing; apply for a lease; provide 
account information; give us your contact information; pay us by check; 
give us your wage statements; provide your mortgage information; make a 
wire transfer; tell us who receives the money; tell us where to send the 
money; show your government-issued ID; show your driver's license; order 
a commodity futures or option trade. Institutions that collect personal 
information from their affiliates and/or credit bureaus must include 
after the bulleted list the following statement: ``We also collect your 
personal information from others, such as credit bureaus, affiliates, or 
other companies.'' Institutions that do not collect personal information 
from their affiliates or credit bureaus but do collect information from 
other companies must include the following statement instead: ``We also 
collect your personal information from other companies.'' Only 
institutions that do not collect any personal information from 
affiliates, credit bureaus, or other companies can omit both statements.
    (4) ``Why can't I limit all sharing?'' Institutions that describe 
state privacy law provisions in the ``Other important information'' box 
must use the bracketed sentence: ``See below for more on your rights 
under state law.'' Other institutions must omit this sentence.
    (5) ``What happens when I limit sharing for an account I hold 
jointly with someone else?'' Only financial institutions that provide 
opt-out options must use this question. Other institutions must omit 
this question. Institutions must choose one of the following two 
statements to respond to this question: ``Your choices will apply to 
everyone on your account.'' or ``Your choices will apply to everyone on 
your account--unless you tell us otherwise.'' Financial institutions 
that provide insurance products or services and elect to use the model 
form may substitute the word ``policy'' for ``account'' in these 
statements.
    (b) General Instructions for the Definitions. The financial 
institution must customize the space below the responses to the three 
definitions in this section. This specific information must be in 
italicized lettering to set off the information from the standardized 
definitions.
    (1) Affiliates. As required by Sec. 1016.6(a)(3) of this part, 
where [affiliate information] appears, the financial institution must:
    (i) If it has no affiliates, state: ``[name of financial 
institution] has no affiliates'';
    (ii) If it has affiliates but does not share personal information, 
state: ``[name of financial institution] does not share with our 
affiliates''; or
    (iii) If it shares with its affiliates, state, as applicable: ``Our 
affiliates include companies with a [common corporate identity of 
financial institution] name; financial companies such as [insert 
illustrative list of companies]; nonfinancial companies, such as [insert 
illustrative list of companies]; and others, such as [insert 
illustrative list].''
    (2) Nonaffiliates. As required by Sec. 1016.6(c)(3) of this part, 
where [nonaffiliate information] appears, the financial institution 
must:
    (i) If it does not share with nonaffiliated third parties, state: 
``[name of financial institution] does not share with nonaffiliates so 
they can market to you''; or

[[Page 394]]

    (ii) If it shares with nonaffiliated third parties, state, as 
applicable: ``Nonaffiliates we share with can include [list categories 
of companies such as mortgage companies, insurance companies, direct 
marketing companies, and nonprofit organizations].''
    (3) Joint Marketing. As required by Sec. 1016.13 of this part, 
where [joint marketing] appears, the financial institution must:
    (i) If it does not engage in joint marketing, state: ``[name of 
financial institution] doesn't jointly market''; or
    (ii) If it shares personal information for joint marketing, state, 
as applicable: ``Our joint marketing partners include [list categories 
of companies such as credit card companies].''
    (c) General instructions for the ``Other important information'' 
box. This box is optional. The space provided for information in this 
box is not limited. Only the following types of information can appear 
in this box.
    (1) State and/or international privacy law information; and/or
    (2) Acknowledgment of receipt form.



PART 1022_FAIR CREDIT REPORTING (REGULATION V)--Table of Contents



                      Subpart A_General Provisions

Sec.
1022.1 Purpose, scope, and model forms and disclosures.
1022.2 Examples.
1022.3 Definitions.

Subpart B [Reserved]

                      Subpart C_Affiliate Marketing

1022.20 Coverage and definitions.
1022.21 Affiliate marketing opt-out and exceptions.
1022.22 Scope and duration of opt-out.
1022.23 Contents of opt-out notice; consolidated and equivalent notices.
1022.24 Reasonable opportunity to opt out.
1022.25 Reasonable and simple methods of opting out.
1022.26 Delivery of opt-out notices.
1022.27 Renewal of opt-out.

                      Subpart D_Medical Information

1022.30 Obtaining or using medical information in connection with a 
          determination of eligibility for credit.
1022.31 Limits on redisclosure of information.
1022.32 Sharing medical information with affiliates.

              Subpart E_Duties of Furnishers of Information

1022.40 Scope.
1022.41 Definitions.
1022.42 Reasonable policies and procedures concerning the accuracy and 
          integrity of furnished information.
1022.43 Direct disputes.

Subpart F_Duties of Users Regarding Obtaining and Using Consumer Reports

1022.50-1022.53 [Reserved]
1022.54 Duties of users making written firm offers of credit or 
          insurance based on information contained in consumer files.
1022.55-1022.59 [Reserved]

Subpart G [Reserved]

         Subpart H_Duties of Users Regarding Risk-Based Pricing

1022.70 Scope.
1022.71 Definitions.
1022.72 General requirements for risk-based pricing notices.
1022.73 Content, form, and timing of risk-based pricing notices.
1022.74 Exceptions.
1022.75 Rules of construction.

 Subpart I_Duties of Users of Consumer Reports Regarding Identity Theft

1022.80-1022.81 [Reserved]
1022.82 Duties of users regarding address discrepancies.

Subparts J-L [Reserved]

Subpart M_Duties of Consumer Reporting Agencies Regarding Identity Theft

1022.120 [Reserved]
1022.121 Active duty alerts.
1022.122 [Reserved]
1022.123 Appropriate proof of identity.
1022.124-1022.129 [Reserved]

Subpart N_Duties of Consumer Reporting Agencies Regarding Disclosures to 
                                Consumers

1022.130 Definitions.
1022.131-1022.135 [Reserved]
1022.136 Centralized source for requesting annual file disclosures from 
          nationwide consumer reporting agencies.
1022.137 Streamlined process for requesting annual file disclosures from 
          nationwide specialty consumer reporting agencies.
1022.138 Prevention of deceptive marketing of free credit reports.
1022.139 [Reserved]

[[Page 395]]

      Subpart O_Miscellaneous Duties of Consumer Reporting Agencies

1022.140 Prohibition against circumventing or evading treatment as a 
          consumer reporting agency.

Appendix A to Part 1022 [Reserved]
Appendix B to Part 1022--Model Notices of Furnishing Negative 
          Information
Appendix C to Part 1022--Model Forms for Opt-Out Notices
Appendix D to Part 1022--Model Forms for Firm Offers of Credit or 
          Insurance
Appendix E to Part 1022-- Interagency Guidelines Concerning the Accuracy 
          and Integrity of Information Furnished to Consumer Reporting 
          Agencies
Appendices F-G to Part 1022 [Reserved]
Appendix H to Part 1022--Model Forms for Risk-Based Pricing and Credit 
          Score Disclosure Exception Notices
Appendix I to Part 1022--Summary of Consumer Identity Theft Rights
Appendix J to Part 1022 [Reserved]
Appendix K to Part 1022--Summary of Consumer Rights
Appendix L to Part 1022--Standardized Form for Requesting Annual File 
          Disclosures
Appendix M to Part 1022--Notice of Furnisher Responsibilities
Appendix N to Part 1022--Notice of User Responsibilities

    Authority: 12 U.S.C. 5512, 5581; 15 U.S.C. 1681a, 1681b, 1681c, 
1681c-1, 1681e, 1681g, 1681i, 1681j, 1681m, 1681s, 1681s-2, 1681s-3, and 
1681t; Sec. 214, Public Law 108-159, 117 Stat. 1952.

    Source: 76 FR 79312, Dec. 21, 2011, unless otherwise noted.



                      Subpart A_General Provisions



Sec. 1022.1  Purpose, scope, and model forms and disclosures.

    (a) Purpose. The purpose of this part is to implement the Fair 
Credit Reporting Act (FCRA). This part generally applies to persons that 
obtain and use information about consumers to determine the consumer's 
eligibility for products, services, or employment, share such 
information among affiliates, and furnish information to consumer 
reporting agencies.
    (b) Scope. (1) [Reserved]
    (2) Institutions covered. (i) Except as otherwise provided in this 
part, this part applies to any person subject to the FCRA except for a 
person excluded from coverage of this part by section 1029 of the 
Consumer Financial Protection Act of 2010, Title X of the Dodd-Frank 
Wall Street Reform and Consumer Protection Act, Public Law 111-203, 124 
Stat. 1376.
    (ii) For purposes of appendix B to this part, financial institutions 
as defined in section 509 of the Gramm-Leach-Bliley Act (12 U.S.C. 
6809), may use the model notices in appendix B to this part to comply 
with the notice requirement in section 623(a)(7) of the FCRA (15 U.S.C. 
1681s-2(a)(7)).
    (c) Model forms and disclosures--(1) Use. Appendices D, H, I, K, L, 
M, and N contain model forms and disclosures. These appendices carry out 
the directive in FCRA that the Bureau prescribe such model forms and 
disclosures. Use or distribution of these model forms and disclosures, 
or substantially similar forms and disclosures, will constitute 
compliance with any section or subsection of the FCRA requiring that 
such forms and disclosures be used by or supplied to any person.
    (2) Definition. Substantially similar means that all information in 
the Bureau's prescribed model is included in the document that is 
distributed, and that the document distributed is formatted in a way 
consistent with the format prescribed by the Bureau. The document that 
is distributed shall not include anything that interferes with, detracts 
from, or otherwise undermines the information contained in the Bureau's 
prescribed model. Until January 1, 2013, the model forms in appendices 
B, E, F, G, and H to 16 CFR part 698, as those appendices existed as of 
October 1, 2011, are deemed substantially similar to the corresponding 
model forms in appendices H, I, K, M, and N to this part, and the model 
forms in appendix H to 12 CFR part 222, as that appendix existed as of 
October 1, 2011, are deemed substantially similar to the corresponding 
model forms in appendix H to this part.



Sec. 1022.2  Examples.

    The examples in this part are not exclusive. Compliance with an 
example, to the extent applicable, constitutes compliance with this 
part. Examples in a paragraph illustrate only the issue described in the 
paragraph and do not illustrate any other issue that may arise in this 
part.

[[Page 396]]



Sec. 1022.3  Definitions.

    For purposes of this part, unless explicitly stated otherwise:
    (a) Act means the FCRA (15 U.S.C. 1681 et seq.).
    (b) Affiliate means any company that is related by common ownership 
or common corporate control with another company. For example, an 
affiliate of a Federal credit union is a credit union service 
corporation, as provided in 12 CFR part 712, that is controlled by the 
Federal credit union.
    (c) [Reserved]
    (d) Common ownership or common corporate control means a 
relationship between two companies under which:
    (1) One company has, with respect to the other company:
    (i) Ownership, control, or power to vote 25 percent or more of the 
outstanding shares of any class of voting security of a company, 
directly or indirectly, or acting through one or more other persons;
    (ii) Control in any manner over the election of a majority of the 
directors, trustees, or general partners (or individuals exercising 
similar functions) of a company; or
    (iii) The power to exercise, directly or indirectly, a controlling 
influence over the management or policies of a company, as determined by 
the applicable prudential regulator (as defined in 12 U.S.C. 5481(24)) 
(a credit union is presumed to have a controlling influence over the 
management or policies of a credit union service corporation if the 
credit union service corporation is 67% owned by credit unions) or, 
where there is no prudential regulator, by the Bureau; or
    (2) Any other person has, with respect to both companies, a 
relationship described in paragraphs (d)(1)(i) through (d)(1)(ii).
    (e) Company means any corporation, limited liability company, 
business trust, general or limited partnership, association, or similar 
organization.
    (f) Consumer means an individual.
    (g) Identifying information means any name or number that may be 
used, alone or in conjunction with any other information, to identify a 
specific person, including any:
    (1) Name, social security number, date of birth, official state or 
government issued driver's license or identification number, alien 
registration number, government passport number, employer or taxpayer 
identification number;
    (2) Unique biometric data, such as fingerprint, voice print, retina 
or iris image, or other unique physical representation;
    (3) Unique electronic identification number, address, or routing 
code; or
    (4) Telecommunication identifying information or access device (as 
defined in 18 U.S.C. 1029(e)).
    (h) Identity theft means a fraud committed or attempted using the 
identifying information of another person without authority.
    (i)(1) Identity theft report means a report:
    (i) That alleges identity theft with as much specificity as the 
consumer can provide;
    (ii) That is a copy of an official, valid report filed by the 
consumer with a Federal, state, or local law enforcement agency, 
including the United States Postal Inspection Service, the filing of 
which subjects the person filing the report to criminal penalties 
relating to the filing of false information, if, in fact, the 
information in the report is false; and
    (iii) That may include additional information or documentation that 
an information furnisher or consumer reporting agency reasonably 
requests for the purpose of determining the validity of the alleged 
identity theft, provided that the information furnisher or consumer 
reporting agency:
    (A) Makes such request not later than fifteen days after the date of 
receipt of the copy of the report form identified in paragraph 
(i)(1)(ii) of this section or the request by the consumer for the 
particular service, whichever shall be the later;
    (B) Makes any supplemental requests for information or documentation 
and final determination on the acceptance of the identity theft report 
within another fifteen days after its initial request for information or 
documentation; and
    (C) Shall have five days to make a final determination on the 
acceptance of the identity theft report, in the event that the consumer 
reporting

[[Page 397]]

agency or information furnisher receives any such additional information 
or documentation on the eleventh day or later within the fifteen day 
period set forth in paragraph (i)(1)(iii)(B) of this section.
    (2) Examples of the specificity referenced in paragraph (i)(1)(i) of 
this section are provided for illustrative purposes only, as follows:
    (i) Specific dates relating to the identity theft such as when the 
loss or theft of personal information occurred or when the fraud(s) 
using the personal information occurred, and how the consumer discovered 
or otherwise learned of the theft.
    (ii) Identification information or any other information about the 
perpetrator, if known.
    (iii) Name(s) of information furnisher(s), account numbers, or other 
relevant account information related to the identity theft.
    (iv) Any other information known to the consumer about the identity 
theft.
    (3) Examples of when it would or would not be reasonable to request 
additional information or documentation referenced in paragraph 
(i)(1)(iii) of this section are provided for illustrative purposes only, 
as follows:
    (i) A law enforcement report containing detailed information about 
the identity theft and the signature, badge number or other 
identification information of the individual law enforcement official 
taking the report should be sufficient on its face to support a victim's 
request. In this case, without an identifiable concern, such as an 
indication that the report was fraudulent, it would not be reasonable 
for an information furnisher or consumer reporting agency to request 
additional information or documentation.
    (ii) A consumer might provide a law enforcement report similar to 
the report in paragraph (i)(1) of this section but certain important 
information such as the consumer's date of birth or Social Security 
number may be missing because the consumer chose not to provide it. The 
information furnisher or consumer reporting agency could accept this 
report, but it would be reasonable to require that the consumer provide 
the missing information. The Bureau's Identity Theft Affidavit is 
available on the Bureau's Web site (consumerfinance.gov/learnmore). The 
version of this form developed by the Federal Trade Commission, 
available on the FTC's Web site (ftc.gov/idtheft), remains valid and 
sufficient for this purpose.
    (iii) A consumer might provide a law enforcement report generated by 
an automated system with a simple allegation that an identity theft 
occurred to support a request for a tradeline block or cessation of 
information furnishing. In such a case, it would be reasonable for an 
information furnisher or consumer reporting agency to ask that the 
consumer fill out and have notarized the Bureau's Identity Theft 
Affidavit or a similar form and provide some form of identification 
documentation.
    (iv) A consumer might provide a law enforcement report generated by 
an automated system with a simple allegation that an identity theft 
occurred to support a request for an extended fraud alert. In this case, 
it would not be reasonable for a consumer reporting agency to require 
additional documentation or information, such as a notarized affidavit.
    (j) [Reserved]
    (k) Medical information means:
    (1) Information or data, whether oral or recorded, in any form or 
medium, created by or derived from a health care provider or the 
consumer, that relates to:
    (i) The past, present, or future physical, mental, or behavioral 
health or condition of an individual;
    (ii) The provision of health care to an individual; or
    (iii) The payment for the provision of health care to an individual.
    (2) The term does not include:
    (i) The age or gender of a consumer;
    (ii) Demographic information about the consumer, including a 
consumer's residence address or email address;
    (iii) Any other information about a consumer that does not relate to 
the physical, mental, or behavioral health or condition of a consumer, 
including the existence or value of any insurance policy; or
    (iv) Information that does not identify a specific consumer.

[[Page 398]]

    (l) Person means any individual, partnership, corporation, trust, 
estate cooperative, association, government or governmental subdivision 
or agency, or other entity.

Subpart B [Reserved]



                      Subpart C_Affiliate Marketing



Sec. 1022.20  Coverage and definitions.

    (a) Coverage. Subpart C of this part applies to any person that uses 
information from its affiliates for the purpose of marketing 
solicitations, or provides information to its affiliates for that 
purpose, other than a person excluded from coverage of this part by 
section 1029 of the Consumer Financial Protection Act of 2010, Title X 
of the Dodd-Frank Wall Street Reform and Consumer Protection Act, Public 
Law 111-203, 124 Stat. 137.
    (b) Definitions. For purposes of this subpart:
    (1) Clear and conspicuous. The term ``clear and conspicuous'' means 
reasonably understandable and designed to call attention to the nature 
and significance of the information presented.
    (2) Concise--(i) In general. The term ``concise'' means a reasonably 
brief expression or statement.
    (ii) Combination with other required disclosures. A notice required 
by this subpart may be concise even if it is combined with other 
disclosures required or authorized by Federal or state law.
    (3) Eligibility information. The term ``eligibility information'' 
means any information the communication of which would be a consumer 
report if the exclusions from the definition of ``consumer report'' in 
section 603(d)(2)(A) of the Act did not apply. Eligibility information 
does not include aggregate or blind data that does not contain personal 
identifiers such as account numbers, names, or addresses.
    (4) Pre-existing business relationship--(i) In general. The term 
``pre-existing business relationship'' means a relationship between a 
person, or a person's licensed agent, and a consumer based on:
    (A) A financial contract between the person and the consumer which 
is in force on the date on which the consumer is sent a solicitation 
covered by this subpart;
    (B) The purchase, rental, or lease by the consumer of the person's 
goods or services, or a financial transaction (including holding an 
active account or a policy in force or having another continuing 
relationship) between the consumer and the person, during the 18-month 
period immediately preceding the date on which the consumer is sent a 
solicitation covered by this subpart; or
    (C) An inquiry or application by the consumer regarding a product or 
service offered by that person during the three-month period immediately 
preceding the date on which the consumer is sent a solicitation covered 
by this subpart.
    (ii) Examples of pre-existing business relationships. (A) If a 
consumer has a time deposit account, such as a certificate of deposit, 
at a financial institution that is currently in force, the financial 
institution has a pre-existing business relationship with the consumer 
and can use eligibility information it receives from its affiliates to 
make solicitations to the consumer about its products or services.
    (B) If a consumer obtained a certificate of deposit from a financial 
institution, but did not renew the certificate at maturity, the 
financial institution has a pre-existing business relationship with the 
consumer and can use eligibility information it receives from its 
affiliates to make solicitations to the consumer about its products or 
services for 18 months after the date of maturity of the certificate of 
deposit.
    (C) If a consumer obtains a mortgage, the mortgage lender has a pre-
existing business relationship with the consumer. If the mortgage lender 
sells the consumer's entire loan to an investor, the mortgage lender has 
a pre-existing business relationship with the consumer and can use 
eligibility information it receives from its affiliates to make 
solicitations to the consumer about its products or services for 18 
months after the date it sells the loan, and the investor has a pre-
existing business relationship with the consumer upon purchasing the 
loan. If, however, the mortgage lender sells a fractional interest in 
the consumer's

[[Page 399]]

loan to an investor but also retains an ownership interest in the loan, 
the mortgage lender continues to have a pre-existing business 
relationship with the consumer, but the investor does not have a pre-
existing business relationship with the consumer. If the mortgage lender 
retains ownership of the loan, but sells ownership of the servicing 
rights to the consumer's loan, the mortgage lender continues to have a 
pre-existing business relationship with the consumer. The purchaser of 
the servicing rights also has a pre-existing business relationship with 
the consumer as of the date it purchases ownership of the servicing 
rights, but only if it collects payments from or otherwise deals 
directly with the consumer on a continuing basis.
    (D) If a consumer applies to a financial institution for a product 
or service that it offers, but does not obtain a product or service from 
or enter into a financial contract or transaction with the institution, 
the financial institution has a pre-existing business relationship with 
the consumer and can therefore use eligibility information it receives 
from an affiliate to make solicitations to the consumer about its 
products or services for three months after the date of the application.
    (E) If a consumer makes a telephone inquiry to a financial 
institution about its products or services and provides contact 
information to the institution, but does not obtain a product or service 
from or enter into a financial contract or transaction with the 
institution, the financial institution has a pre-existing business 
relationship with the consumer and can therefore use eligibility 
information it receives from an affiliate to make solicitations to the 
consumer about its products or services for three months after the date 
of the inquiry.
    (F) If a consumer makes an inquiry to a financial institution by 
email about its products or services, but does not obtain a product or 
service from or enter into a financial contract or transaction with the 
institution, the financial institution has a pre-existing business 
relationship with the consumer and can therefore use eligibility 
information it receives from an affiliate to make solicitations to the 
consumer about its products or services for three months after the date 
of the inquiry.
    (G) If a consumer has an existing relationship with a financial 
institution that is part of a group of affiliated companies, makes a 
telephone call to the centralized call center for the group of 
affiliated companies to inquire about products or services offered by 
the insurance affiliate, and provides contact information to the call 
center, the call constitutes an inquiry to the insurance affiliate that 
offers those products or services. The insurance affiliate has a pre-
existing business relationship with the consumer and can therefore use 
eligibility information it receives from its affiliated financial 
institution to make solicitations to the consumer about its products or 
services for three months after the date of the inquiry.
    (iii) Examples where no pre-existing business relationship is 
created. (A) If a consumer makes a telephone call to a centralized call 
center for a group of affiliated companies to inquire about the 
consumer's existing account at a financial institution, the call does 
not constitute an inquiry to any affiliate other than the financial 
institution that holds the consumer's account and does not establish a 
pre-existing business relationship between the consumer and any 
affiliate of the account-holding financial institution.
    (B) If a consumer who has a deposit account with a financial 
institution makes a telephone call to an affiliate of the institution to 
ask about the affiliate's retail locations and hours, but does not make 
an inquiry about the affiliate's products or services, the call does not 
constitute an inquiry and does not establish a pre-existing business 
relationship between the consumer and the affiliate. Also, the 
affiliate's capture of the consumer's telephone number does not 
constitute an inquiry and does not establish a pre-existing business 
relationship between the consumer and the affiliate.
    (C) If a consumer makes a telephone call to a financial institution 
in response to an advertisement that offers a free promotional item to 
consumers who call a toll-free number, but the advertisement does not 
indicate that the

[[Page 400]]

financial institution's products or services will be marketed to 
consumers who call in response, the call does not create a pre-existing 
business relationship between the consumer and the financial institution 
because the consumer has not made an inquiry about a product or service 
offered by the institution, but has merely responded to an offer for a 
free promotional item.
    (5) Solicitation--(i) In general. The term ``solicitation'' means 
the marketing of a product or service initiated by a person to a 
particular consumer that is:
    (A) Based on eligibility information communicated to that person by 
its affiliate as described in this subpart; and
    (B) Intended to encourage the consumer to purchase or obtain such 
product or service.
    (ii) Exclusion of marketing directed at the general public. A 
solicitation does not include marketing communications that are directed 
at the general public. For example, television, general circulation 
magazine, and billboard advertisements do not constitute solicitations, 
even if those communications are intended to encourage consumers to 
purchase products and services from the person initiating the 
communications.
    (iii) Examples of solicitations. A solicitation would include, for 
example, a telemarketing call, direct mail, email, or other form of 
marketing communication directed to a particular consumer that is based 
on eligibility information received from an affiliate.
    (6) You means a person described in paragraph (a) of this section.



Sec. 1022.21  Affiliate marketing opt-out and exceptions.

    (a) Initial notice and opt-out requirement[dash](1) In general. You 
may not use eligibility information about a consumer that you receive 
from an affiliate to make a solicitation for marketing purposes to the 
consumer, unless:
    (i) It is clearly and conspicuously disclosed to the consumer in 
writing or, if the consumer agrees, electronically, in a concise notice 
that you may use eligibility information about that consumer received 
from an affiliate to make solicitations for marketing purposes to the 
consumer;
    (ii) The consumer is provided a reasonable opportunity and a 
reasonable and simple method to ``opt out,'' or prohibit you from using 
eligibility information to make solicitations for marketing purposes to 
the consumer; and
    (iii) The consumer has not opted out.
    (2) Example. A consumer has a homeowner's insurance policy with an 
insurance company. The insurance company furnishes eligibility 
information about the consumer to its affiliated creditor. Based on that 
eligibility information, the creditor wants to make a solicitation to 
the consumer about its home equity loan products. The creditor does not 
have a pre-existing business relationship with the consumer and none of 
the other exceptions apply. The creditor is prohibited from using 
eligibility information received from its insurance affiliate to make 
solicitations to the consumer about its home equity loan products unless 
the consumer is given a notice and opportunity to opt out and the 
consumer does not opt out.
    (3) Affiliates who may provide the notice. The notice required by 
this paragraph must be provided:
    (i) By an affiliate that has or has previously had a pre-existing 
business relationship with the consumer; or
    (ii) As part of a joint notice from two or more members of an 
affiliated group of companies, provided that at least one of the 
affiliates on the joint notice has or has previously had a pre-existing 
business relationship with the consumer.
    (b) Making solicitations--(1) In general. For purposes of this 
subpart, you make a solicitation for marketing purposes if:
    (i) You receive eligibility information from an affiliate;
    (ii) You use that eligibility information to do one or more of the 
following:
    (A) Identify the consumer or type of consumer to receive a 
solicitation;
    (B) Establish criteria used to select the consumer to receive a 
solicitation; or
    (C) Decide which of your products or services to market to the 
consumer or tailor your solicitation to that consumer; and

[[Page 401]]

    (iii) As a result of your use of the eligibility information, the 
consumer is provided a solicitation.
    (2) Receiving eligibility information from an affiliate, including 
through a common database. You may receive eligibility information from 
an affiliate in various ways, including when the affiliate places that 
information into a common database that you may access.
    (3) Receipt or use of eligibility information by your service 
provider. Except as provided in paragraph (b)(5) of this section, you 
receive or use an affiliate's eligibility information if a service 
provider acting on your behalf (whether an affiliate or a nonaffiliated 
third party) receives or uses that information in the manner described 
in paragraphs (b)(1)(i) or (b)(1)(ii) of this section. All relevant 
facts and circumstances will determine whether a person is acting as 
your service provider when it receives or uses an affiliate's 
eligibility information in connection with marketing your products and 
services.
    (4) Use by an affiliate of its own eligibility information. Unless 
you have used eligibility information that you receive from an affiliate 
in the manner described in paragraph (b)(1)(ii) of this section, you do 
not make a solicitation subject to this subpart if your affiliate:
    (i) Uses its own eligibility information that it obtained in 
connection with a pre-existing business relationship it has or had with 
the consumer to market your products or services to the consumer; or
    (ii) Directs its service provider to use the affiliate's own 
eligibility information that it obtained in connection with a pre-
existing business relationship it has or had with the consumer to market 
your products or services to the consumer, and you do not communicate 
directly with the service provider regarding that use.
    (5) Use of eligibility information by a service provider--(i) In 
general. You do not make a solicitation subject to subpart C of this 
part if a service provider (including an affiliated or third-party 
service provider that maintains or accesses a common database that you 
may access) receives eligibility information from your affiliate that 
your affiliate obtained in connection with a pre-existing business 
relationship it has or had with the consumer and uses that eligibility 
information to market your products or services to the consumer, so long 
as:
    (A) Your affiliate controls access to and use of its eligibility 
information by the service provider (including the right to establish 
the specific terms and conditions under which the service provider may 
use such information to market your products or services);
    (B) Your affiliate establishes specific terms and conditions under 
which the service provider may access and use the affiliate's 
eligibility information to market your products and services (or those 
of affiliates generally) to the consumer, such as the identity of the 
affiliated companies whose products or services may be marketed to the 
consumer by the service provider, the types of products or services of 
affiliated companies that may be marketed, and the number of times the 
consumer may receive marketing materials, and periodically evaluates the 
service provider's compliance with those terms and conditions;
    (C) Your affiliate requires the service provider to implement 
reasonable policies and procedures designed to ensure that the service 
provider uses the affiliate's eligibility information in accordance with 
the terms and conditions established by the affiliate relating to the 
marketing of your products or services;
    (D) Your affiliate is identified on or with the marketing materials 
provided to the consumer; and
    (E) You do not directly use your affiliate's eligibility information 
in the manner described in paragraph (b)(1)(ii) of this section.
    (ii) Writing requirements. (A) The requirements of paragraphs 
(b)(5)(i)(A) and (C) of this section must be set forth in a written 
agreement between your affiliate and the service provider; and
    (B) The specific terms and conditions established by your affiliate 
as provided in paragraph (b)(5)(i)(B) of this section must be set forth 
in writing.
    (6) Examples of making solicitations. (i) A consumer has a deposit 
account with a financial institution, which is affiliated with an 
insurance company. The insurance company receives eligibility

[[Page 402]]

information about the consumer from the financial institution. The 
insurance company uses that eligibility information to identify the 
consumer to receive a solicitation about insurance products, and, as a 
result, the insurance company provides a solicitation to the consumer 
about its insurance products. Pursuant to paragraph (b)(1) of this 
section, the insurance company has made a solicitation to the consumer.
    (ii) The same facts as in the example in paragraph (b)(6)(i) of this 
section, except that after using the eligibility information to identify 
the consumer to receive a solicitation about insurance products, the 
insurance company asks the financial institution to send the 
solicitation to the consumer and the financial institution does so. 
Pursuant to paragraph (b)(1) of this section, the insurance company has 
made a solicitation to the consumer because it used eligibility 
information about the consumer that it received from an affiliate to 
identify the consumer to receive a solicitation about its products or 
services, and, as a result, a solicitation was provided to the consumer 
about the insurance company's products.
    (iii) The same facts as in the example in paragraph (b)(6)(i) of 
this section, except that eligibility information about consumers that 
have deposit accounts with the financial institution is placed into a 
common database that all members of the affiliated group of companies 
may independently access and use. Without using the financial 
institution's eligibility information, the insurance company develops 
selection criteria and provides those criteria, marketing materials, and 
related instructions to the financial institution. The financial 
institution reviews eligibility information about its own consumers 
using the selection criteria provided by the insurance company to 
determine which consumers should receive the insurance company's 
marketing materials and sends marketing materials about the insurance 
company's products to those consumers. Even though the insurance company 
has received eligibility information through the common database as 
provided in paragraph (b)(2) of this section, it did not use that 
information to identify consumers or establish selection criteria; 
instead, the financial institution used its own eligibility information. 
Therefore, pursuant to paragraph (b)(4)(i) of this section, the 
insurance company has not made a solicitation to the consumer.
    (iv) The same facts as in the example in paragraph (b)(6)(iii) of 
this section, except that the financial institution provides the 
insurance company's criteria to the financial institution's service 
provider and directs the service provider to use the financial 
institution's eligibility information to identify financial institution 
consumers who meet the criteria and to send the insurance company's 
marketing materials to those consumers. The insurance company does not 
communicate directly with the service provider regarding the use of the 
financial institution's information to market its products to the 
financial institution's consumers. Pursuant to paragraph (b)(4)(ii) of 
this section, the insurance company has not made a solicitation to the 
consumer.
    (v) An affiliated group of companies includes a financial 
institution, an insurance company, and a service provider. Each 
affiliate in the group places information about its consumers into a 
common database. The service provider has access to all information in 
the common database. The financial institution controls access to and 
use of its eligibility information by the service provider. This control 
is set forth in a written agreement between the financial institution 
and the service provider. The written agreement also requires the 
service provider to establish reasonable policies and procedures 
designed to ensure that the service provider uses the financial 
institution's eligibility information in accordance with specific terms 
and conditions established by the financial institution relating to the 
marketing of the products and services of all affiliates, including the 
insurance company. In a separate written communication, the financial 
institution specifies the terms and conditions under which the service 
provider may use the financial institution's eligibility information to

[[Page 403]]

market the insurance company's products and services to the financial 
institution's consumers. The specific terms and conditions are: a list 
of affiliated companies (including the insurance company) whose products 
or services may be marketed to the financial institution's consumers by 
the service provider; the specific products or types of products that 
may be marketed to the financial institution's consumers by the service 
provider; the categories of eligibility information that may be used by 
the service provider in marketing products or services to the financial 
institution's consumers; the types or categories of the financial 
institution's consumers to whom the service provider may market products 
or services of financial institution affiliates; the number and/or types 
of marketing communications that the service provider may send to the 
financial institution's consumers; and the length of time during which 
the service provider may market the products or services of the 
financial institution's affiliates to its consumers. The financial 
institution periodically evaluates the service provider's compliance 
with these terms and conditions. The insurance company asks the service 
provider to market insurance products to certain consumers who have 
deposit accounts with the financial institution. Without using the 
financial institution's eligibility information, the insurance company 
develops selection criteria and provides those criteria, marketing 
materials, and related instructions to the service provider. The service 
provider uses the financial institution's eligibility information from 
the common database to identify the financial institution's consumers to 
whom insurance products will be marketed. When the insurance company's 
marketing materials are provided to the identified consumers, the name 
of the financial institution is displayed on the insurance marketing 
materials, an introductory letter that accompanies the marketing 
materials, an account statement that accompanies the marketing 
materials, or the envelope containing the marketing materials. The 
requirements of paragraph (b)(5) of this section have been satisfied, 
and the insurance company has not made a solicitation to the consumer.
    (vi) The same facts as in the example in paragraph (b)(6)(v) of this 
section, except that the terms and conditions permit the service 
provider to use the financial institution's eligibility information to 
market the products and services of other affiliates to the financial 
institution's consumers whenever the service provider deems it 
appropriate to do so. The service provider uses the financial 
institution's eligibility information in accordance with the discretion 
afforded to it by the terms and conditions. Because the terms and 
conditions are not specific, the requirements of paragraph (b)(5) of 
this section have not been satisfied.
    (c) Exceptions. The provisions of this subpart do not apply to you 
if you use eligibility information that you receive from an affiliate:
    (1) To make a solicitation for marketing purposes to a consumer with 
whom you have a pre-existing business relationship;
    (2) To facilitate communications to an individual for whose benefit 
you provide employee benefit or other services pursuant to a contract 
with an employer related to and arising out of the current employment 
relationship or status of the individual as a participant or beneficiary 
of an employee benefit plan;
    (3) To perform services on behalf of an affiliate, except that this 
subparagraph shall not be construed as permitting you to send 
solicitations on behalf of an affiliate if the affiliate would not be 
permitted to send the solicitation as a result of the election of the 
consumer to opt out under this subpart;
    (4) In response to a communication about your products or services 
initiated by the consumer;
    (5) In response to an authorization or request by the consumer to 
receive solicitations; or
    (6) If your compliance with this subpart would prevent you from 
complying with any provision of state insurance laws pertaining to 
unfair discrimination in any state in which you are lawfully doing 
business.
    (d) Examples of exceptions--(1) Example of the pre-existing business 
relationship

[[Page 404]]

exception. A consumer has a deposit account with a financial 
institution. The consumer also has a relationship with the financial 
institution's securities affiliate for management of the consumer's 
securities portfolio. The financial institution receives eligibility 
information about the consumer from its securities affiliate and uses 
that information to make a solicitation to the consumer about the 
financial institution's wealth management services. The financial 
institution may make this solicitation even if the consumer has not been 
given a notice and opportunity to opt out because the financial 
institution has a pre-existing business relationship with the consumer.
    (2) Examples of service provider exception. (i) A consumer has an 
insurance policy issued by an insurance company. The insurance company 
furnishes eligibility information about the consumer to its affiliated 
financial institution. Based on that eligibility information, the 
financial institution wants to make a solicitation to the consumer about 
its deposit products. The financial institution does not have a pre-
existing business relationship with the consumer and none of the other 
exceptions in paragraph (c) of this section apply. The consumer has been 
given an opt-out notice and has elected to opt out of receiving such 
solicitations. The financial institution asks a service provider to send 
the solicitation to the consumer on its behalf. The service provider may 
not send the solicitation on behalf of the financial institution 
because, as a result of the consumer's opt-out election, the financial 
institution is not permitted to make the solicitation.
    (ii) The same facts as in paragraph (d)(2)(i) of this section, 
except the consumer has been given an opt-out notice, but has not 
elected to opt out. The financial institution asks a service provider to 
send the solicitation to the consumer on its behalf. The service 
provider may send the solicitation on behalf of the financial 
institution because, as a result of the consumer's not opting out, the 
financial institution is permitted to make the solicitation.
    (3) Examples of consumer-initiated communications. (i) A consumer 
who has a deposit account with a financial institution initiates a 
communication with the financial institution's credit card affiliate to 
request information about a credit card. The credit card affiliate may 
use eligibility information about the consumer it obtains from the 
financial institution or any other affiliate to make solicitations 
regarding credit card products in response to the consumer-initiated 
communication.
    (ii) A consumer who has a deposit account with a financial 
institution contacts the institution to request information about how to 
save and invest for a child's college education without specifying the 
type of product in which the consumer may be interested. Information 
about a range of different products or services offered by the financial 
institution and one or more affiliates of the institution may be 
responsive to that communication. Such products or services may include 
the following: mutual funds offered by the institution's mutual fund 
affiliate; section 529 plans offered by the institution, its mutual fund 
affiliate, or another securities affiliate; or trust services offered by 
a different financial institution in the affiliated group. Any affiliate 
offering investment products or services that would be responsive to the 
consumer's request for information about saving and investing for a 
child's college education may use eligibility information to make 
solicitations to the consumer in response to this communication.
    (iii) A credit card issuer makes a marketing call to the consumer 
without using eligibility information received from an affiliate. The 
issuer leaves a voice-mail message that invites the consumer to call a 
toll-free number to apply for the issuer's credit card. If the consumer 
calls the toll-free number to inquire about the credit card, the call is 
a consumer-initiated communication about a product or service and the 
credit card issuer may now use eligibility information it receives from 
its affiliates to make solicitations to the consumer.
    (iv) A consumer calls a financial institution to ask about retail 
locations and hours, but does not request information about products or 
services. The institution may not use eligibility information it 
receives from an affiliate

[[Page 405]]

to make solicitations to the consumer about its products or services 
because the consumer-initiated communication does not relate to the 
financial institution's products or services. Thus, the use of 
eligibility information received from an affiliate would not be 
responsive to the communication and the exception does not apply.
    (v) A consumer calls a financial institution to ask about retail 
locations and hours. The customer service representative asks the 
consumer if there is a particular product or service about which the 
consumer is seeking information. The consumer responds that the consumer 
wants to stop in and find out about certificates of deposit. The 
customer service representative offers to provide that information by 
telephone and mail additional information and application materials to 
the consumer. The consumer agrees and provides or confirms contact 
information for receipt of the materials to be mailed. The financial 
institution may use eligibility information it receives from an 
affiliate to make solicitations to the consumer about certificates of 
deposit because such solicitations would respond to the consumer-
initiated communication about products or services.
    (4) Examples of consumer authorization or request for solicitations. 
(i) A consumer who obtains a mortgage from a mortgage lender authorizes 
or requests information about homeowner's insurance offered by the 
mortgage lender's insurance affiliate. Such authorization or request, 
whether given to the mortgage lender or to the insurance affiliate, 
would permit the insurance affiliate to use eligibility information 
about the consumer it obtains from the mortgage lender or any other 
affiliate to make solicitations to the consumer about homeowner's 
insurance.
    (ii) A consumer completes an online application to apply for a 
credit card from a credit card issuer. The issuer's online application 
contains a blank check box that the consumer may check to authorize or 
request information from the credit card issuer's affiliates. The 
consumer checks the box. The consumer has authorized or requested 
solicitations from the card issuer's affiliates.
    (iii) A consumer completes an online application to apply for a 
credit card from a credit card issuer. The issuer's online application 
contains a pre-selected check box indicating that the consumer 
authorizes or requests information from the issuer's affiliates. The 
consumer does not deselect the check box. The consumer has not 
authorized or requested solicitations from the card issuer's affiliates.
    (iv) The terms and conditions of a credit card account agreement 
contain preprinted boilerplate language stating that by applying to open 
an account the consumer authorizes or requests to receive solicitations 
from the credit card issuer's affiliates. The consumer has not 
authorized or requested solicitations from the card issuer's affiliates.
    (e) Relation to affiliate-sharing notice and opt-out. Nothing in 
this subpart limits the responsibility of a person to comply with the 
notice and opt-out provisions of section 603(d)(2)(A)(iii) of the Act 
where applicable.



Sec. 1022.22  Scope and duration of opt-out.

    (a) Scope of opt-out--(1) In general. Except as otherwise provided 
in this section, the consumer's election to opt out prohibits any 
affiliate covered by the opt-out notice from using eligibility 
information received from another affiliate as described in the notice 
to make solicitations to the consumer.
    (2) Continuing relationship--(i) In general. If the consumer 
establishes a continuing relationship with you or your affiliate, an 
opt-out notice may apply to eligibility information obtained in 
connection with:
    (A) A single continuing relationship or multiple continuing 
relationships that the consumer establishes with you or your affiliates, 
including continuing relationships established subsequent to delivery of 
the opt-out notice, so long as the notice adequately describes the 
continuing relationships covered by the opt-out; or
    (B) Any other transaction between the consumer and you or your 
affiliates as described in the notice.

[[Page 406]]

    (ii) Examples of continuing relationships. A consumer has a 
continuing relationship with you or your affiliate if the consumer:
    (A) Opens a deposit or investment account with you or your 
affiliate;
    (B) Obtains a loan for which you or your affiliate owns the 
servicing rights;
    (C) Purchases an insurance product from you or your affiliate;
    (D) Holds an investment product through you or your affiliate, such 
as when you act or your affiliate acts as a custodian for securities or 
for assets in an individual retirement arrangement;
    (E) Enters into an agreement or understanding with you or your 
affiliate whereby you or your affiliate undertakes to arrange or broker 
a home mortgage loan for the consumer;
    (F) Enters into a lease of personal property with you or your 
affiliate; or
    (G) Obtains financial, investment, or economic advisory services 
from you or your affiliate for a fee.
    (3) No continuing relationship--(i) In general. If there is no 
continuing relationship between a consumer and you or your affiliate, 
and you or your affiliate obtain eligibility information about a 
consumer in connection with a transaction with the consumer, such as an 
isolated transaction or a credit application that is denied, an opt-out 
notice provided to the consumer only applies to eligibility information 
obtained in connection with that transaction.
    (ii) Examples of isolated transactions. An isolated transaction 
occurs if:
    (A) The consumer uses your or your affiliate's ATM to withdraw cash 
from an account at another financial institution; or
    (B) You or your affiliate sells the consumer a cashier's check or 
money order, airline tickets, travel insurance, or traveler's checks in 
isolated transactions.
    (4) Menu of alternatives. A consumer may be given the opportunity to 
choose from a menu of alternatives when electing to prohibit 
solicitations, such as by electing to prohibit solicitations from 
certain types of affiliates covered by the opt-out notice but not other 
types of affiliates covered by the notice, electing to prohibit 
solicitations based on certain types of eligibility information but not 
other types of eligibility information, or electing to prohibit 
solicitations by certain methods of delivery but not other methods of 
delivery. However, one of the alternatives must allow the consumer to 
prohibit all solicitations from all of the affiliates that are covered 
by the notice.
    (5) Special rule for a notice following termination of all 
continuing relationships--(i) In general. A consumer must be given a new 
opt-out notice if, after all continuing relationships with you or your 
affiliate(s) are terminated, the consumer subsequently establishes 
another continuing relationship with you or your affiliate(s) and the 
consumer's eligibility information is to be used to make a solicitation. 
The new opt-out notice must apply, at a minimum, to eligibility 
information obtained in connection with the new continuing relationship. 
Consistent with paragraph (b) of this section, the consumer's decision 
not to opt out after receiving the new opt-out notice would not override 
a prior opt-out election by the consumer that applies to eligibility 
information obtained in connection with a terminated relationship, 
regardless of whether the new opt-out notice applies to eligibility 
information obtained in connection with the terminated relationship.
    (ii) Example. A consumer has a checking account with a financial 
institution that is part of an affiliated group. The consumer closes the 
checking account. One year after closing the checking account, the 
consumer opens a savings account with the same financial institution. 
The consumer must be given a new notice and opportunity to opt out 
before the financial institution's affiliates may make solicitations to 
the consumer using eligibility information obtained by the financial 
institution in connection with the new savings account relationship, 
regardless of whether the consumer opted out in connection with the 
checking account.
    (b) Duration of opt-out. The election of a consumer to opt out must 
be effective for a period of at least five years (the ``opt-out 
period'') beginning when the consumer's opt-out election is received and 
implemented, unless the

[[Page 407]]

consumer subsequently revokes the opt-out in writing or, if the consumer 
agrees, electronically. An opt-out period of more than five years may be 
established, including an opt-out period that does not expire unless 
revoked by the consumer.
    (c) Time of opt-out. A consumer may opt out at any time.



Sec. 1022.23  Contents of opt-out notice; consolidated and equivalent 
notices.

    (a) Contents of opt-out notice--(1) In general. A notice must be 
clear, conspicuous, and concise, and must accurately disclose:
    (i) The name of the affiliate(s) providing the notice. If the notice 
is provided jointly by multiple affiliates and each affiliate shares a 
common name, such as ``ABC,'' then the notice may indicate that it is 
being provided by multiple companies with the ABC name or multiple 
companies in the ABC group or family of companies, for example, by 
stating that the notice is provided by ``all of the ABC companies,'' 
``the ABC banking, credit card, insurance, and securities companies,'' 
or by listing the name of each affiliate providing the notice. But if 
the affiliates providing the joint notice do not all share a common 
name, then the notice must either separately identify each affiliate by 
name or identify each of the common names used by those affiliates, for 
example, by stating that the notice is provided by ``all of the ABC and 
XYZ companies'' or by ``the ABC banking and credit card companies and 
the XYZ insurance companies;''
    (ii) A list of the affiliates or types of affiliates whose use of 
eligibility information is covered by the notice, which may include 
companies that become affiliates after the notice is provided to the 
consumer. If each affiliate covered by the notice shares a common name, 
such as ``ABC,'' then the notice may indicate that it applies to 
multiple companies with the ABC name or multiple companies in the ABC 
group or family of companies, for example, by stating that the notice is 
provided by ``all of the ABC companies,'' ``the ABC banking, credit 
card, insurance, and securities companies,'' or by listing the name of 
each affiliate providing the notice. But if the affiliates covered by 
the notice do not all share a common name, then the notice must either 
separately identify each covered affiliate by name or identify each of 
the common names used by those affiliates, for example, by stating that 
the notice applies to ``all of the ABC and XYZ companies'' or to ``the 
ABC banking and credit card companies and the XYZ insurance companies;''
    (iii) A general description of the types of eligibility information 
that may be used to make solicitations to the consumer;
    (iv) That the consumer may elect to limit the use of eligibility 
information to make solicitations to the consumer;
    (v) That the consumer's election will apply for the specified period 
of time stated in the notice and, if applicable, that the consumer will 
be allowed to renew the election once that period expires;
    (vi) If the notice is provided to consumers who may have previously 
opted out, such as if a notice is provided to consumers annually, that 
the consumer who has chosen to limit solicitations does not need to act 
again until the consumer receives a renewal notice; and
    (vii) A reasonable and simple method for the consumer to opt out.
    (2) Joint relationships. (i) If two or more consumers jointly obtain 
a product or service, a single opt-out notice may be provided to the 
joint consumers. Any of the joint consumers may exercise the right to 
opt out.
    (ii) The opt-out notice must explain how an opt-out direction by a 
joint consumer will be treated. An opt-out direction by a joint consumer 
may be treated as applying to all of the associated joint consumers, or 
each joint consumer may be permitted to opt out separately. If each 
joint consumer is permitted to opt out separately, one of the joint 
consumers must be permitted to opt out on behalf of all of the joint 
consumers and the joint consumers must be permitted to exercise their 
separate rights to opt out in a single response.
    (iii) It is impermissible to require all joint consumers to opt out 
before implementing any opt-out direction.

[[Page 408]]

    (3) Alternative contents. If the consumer is afforded a broader 
right to opt out of receiving marketing than is required by this 
subpart, the requirements of this section may be satisfied by providing 
the consumer with a clear, conspicuous, and concise notice that 
accurately discloses the consumer's opt-out rights.
    (4) Model notices. Model notices are provided in appendix C of this 
part.
    (b) Coordinated and consolidated notices. A notice required by this 
subpart may be coordinated and consolidated with any other notice or 
disclosure required to be issued under any other provision of law by the 
entity providing the notice, including but not limited to the notice 
described in section 603(d)(2)(A)(iii) of the Act and the Gramm-Leach-
Bliley Act privacy notice.
    (c) Equivalent notices. A notice or other disclosure that is 
equivalent to the notice required by this subpart, and that is provided 
to a consumer together with disclosures required by any other provision 
of law, satisfies the requirements of this section.



Sec. 1022.24  Reasonable opportunity to opt out.

    (a) In general. You must not use eligibility information about a 
consumer that you receive from an affiliate to make a solicitation to 
the consumer about your products or services, unless the consumer is 
provided a reasonable opportunity to opt out, as required by Sec. 
1022.21(a)(1)(ii) of this part.
    (b) Examples of a reasonable opportunity to opt out. The consumer is 
given a reasonable opportunity to opt out if:
    (1) By mail. The opt-out notice is mailed to the consumer. The 
consumer is given 30 days from the date the notice is mailed to elect to 
opt out by any reasonable means.
    (2) By electronic means. (i) The opt-out notice is provided 
electronically to the consumer, such as by posting the notice at a Web 
site at which the consumer has obtained a product or service. The 
consumer acknowledges receipt of the electronic notice. The consumer is 
given 30 days after the date the consumer acknowledges receipt to elect 
to opt out by any reasonable means.
    (ii) The opt-out notice is provided to the consumer by email where 
the consumer has agreed to receive disclosures by email from the person 
sending the notice. The consumer is given 30 days after the email is 
sent to elect to opt out by any reasonable means.
    (3) At the time of an electronic transaction. The opt-out notice is 
provided to the consumer at the time of an electronic transaction, such 
as a transaction conducted on a Web site. The consumer is required to 
decide, as a necessary part of proceeding with the transaction, whether 
to opt out before completing the transaction. There is a simple process 
that the consumer may use to opt out at that time using the same 
mechanism through which the transaction is conducted.
    (4) At the time of an in-person transaction. The opt-out notice is 
provided to the consumer in writing at the time of an in-person 
transaction. The consumer is required to decide, as a necessary part of 
proceeding with the transaction, whether to opt out before completing 
the transaction, and is not permitted to complete the transaction 
without making a choice. There is a simple process that the consumer may 
use during the course of the in-person transaction to opt out, such as 
completing a form that requires consumers to write a ``yes'' or ``no'' 
to indicate their opt-out preference or that requires the consumer to 
check one of two blank check boxes; one that allows consumers to 
indicate that they want to opt out and one that allows consumers to 
indicate that they do not want to opt out.
    (5) By including in a privacy notice. The opt-out notice is included 
in a Gramm-Leach-Bliley Act privacy notice. The consumer is allowed to 
exercise the opt-out within a reasonable period of time and in the same 
manner as the opt-out under that privacy notice.



Sec. 1022.25  Reasonable and simple methods of opting out.

    (a) In general. You must not use eligibility information about a 
consumer that you receive from an affiliate to make a solicitation to 
the consumer about your products or services, unless the consumer is 
provided a reasonable

[[Page 409]]

and simple method to opt out, as required by Sec. 1022.21(a)(1)(ii) of 
this part.
    (b) Examples--(1) Reasonable and simple opt-out methods. Reasonable 
and simple methods for exercising the opt-out right include:
    (i) Designating a check-off box in a prominent position on the opt-
out form;
    (ii) Including a reply form and a self-addressed envelope together 
with the opt-out notice;
    (iii) Providing an electronic means to opt out, such as a form that 
can be electronically mailed or processed at a Web site, if the consumer 
agrees to the electronic delivery of information;
    (iv) Providing a toll-free telephone number that consumers may call 
to opt out; or
    (v) Allowing consumers to exercise all of their opt-out rights 
described in a consolidated opt-out notice that includes the privacy 
opt-out under the Gramm-Leach-Bliley Act, 15 U.S.C. 6801 et seq., the 
affiliate sharing opt-out under the Act, and the affiliate marketing 
opt-out under the Act, by a single method, such as by calling a single 
toll-free telephone number.
    (2) Opt-out methods that are not reasonable and simple. Reasonable 
and simple methods for exercising an opt-out right do not include--
    (i) Requiring the consumer to write his or her own letter;
    (ii) Requiring the consumer to call or write to obtain a form for 
opting out, rather than including the form with the opt-out notice;
    (iii) Requiring the consumer who receives the opt-out notice in 
electronic form only, such as through posting at a Web site, to opt out 
solely by paper mail or by visiting a different Web site without 
providing a link to that site.
    (c) Specific opt-out means. Each consumer may be required to opt out 
through a specific means, as long as that means is reasonable and simple 
for that consumer.



Sec. 1022.26  Delivery of opt-out notices.

    (a) In general. The opt-out notice must be provided so that each 
consumer can reasonably be expected to receive actual notice. For opt-
out notices provided electronically, the notice may be provided in 
compliance with either the electronic disclosure provisions in this 
subpart or the provisions in section 101 of the Electronic Signatures in 
Global and National Commerce Act, 15 U.S.C. 7001 et seq.
    (b) Examples of reasonable expectation of actual notice. A consumer 
may reasonably be expected to receive actual notice if the affiliate 
providing the notice:
    (1) Hand-delivers a printed copy of the notice to the consumer;
    (2) Mails a printed copy of the notice to the last known mailing 
address of the consumer;
    (3) Provides a notice by email to a consumer who has agreed to 
receive electronic disclosures by email from the affiliate providing the 
notice; or
    (4) Posts the notice on the Web site at which the consumer obtained 
a product or service electronically and requires the consumer to 
acknowledge receipt of the notice.
    (c) Examples of no reasonable expectation of actual notice. A 
consumer may not reasonably be expected to receive actual notice if the 
affiliate providing the notice:
    (1) Only posts the notice on a sign in a branch or office or 
generally publishes the notice in a newspaper;
    (2) Sends the notice via email to a consumer who has not agreed to 
receive electronic disclosures by email from the affiliate providing the 
notice; or
    (3) Posts the notice on a Web site without requiring the consumer to 
acknowledge receipt of the notice.



Sec. 1022.27  Renewal of opt-out.

    (a) Renewal notice and opt-out requirement--(1) In general. After 
the opt-out period expires, you may not make solicitations based on 
eligibility information you receive from an affiliate to a consumer who 
previously opted out, unless:
    (i) The consumer has been given a renewal notice that complies with 
the requirements of this section and Sec. Sec. 1022.24 through 1022.26 
of this part, and a reasonable opportunity and a reasonable and simple 
method to renew the opt-out, and the consumer does not renew the opt-
out; or
    (ii) An exception in Sec. 1022.21(c) of this part applies.

[[Page 410]]

    (2) Renewal period. Each opt-out renewal must be effective for a 
period of at least five years as provided in Sec. 1022.22(b) of this 
part.
    (3) Affiliates who may provide the notice. The notice required by 
this paragraph must be provided:
    (i) By the affiliate that provided the previous opt-out notice, or 
its successor; or
    (ii) As part of a joint renewal notice from two or more members of 
an affiliated group of companies, or their successors, that jointly 
provided the previous opt-out notice.
    (b) Contents of renewal notice. The renewal notice must be clear, 
conspicuous, and concise, and must accurately disclose:
    (1) The name of the affiliate(s) providing the notice. If the notice 
is provided jointly by multiple affiliates and each affiliate shares a 
common name, such as ``ABC,'' then the notice may indicate that it is 
being provided by multiple companies with the ABC name or multiple 
companies in the ABC group or family of companies, for example, by 
stating that the notice is provided by ``all of the ABC companies,'' 
``the ABC banking, credit card, insurance, and securities companies,'' 
or by listing the name of each affiliate providing the notice. But if 
the affiliates providing the joint notice do not all share a common 
name, then the notice must either separately identify each affiliate by 
name or identify each of the common names used by those affiliates, for 
example, by stating that the notice is provided by ``all of the ABC and 
XYZ companies'' or by ``the ABC banking and credit card companies and 
the XYZ insurance companies'';
    (2) A list of the affiliates or types of affiliates whose use of 
eligibility information is covered by the notice, which may include 
companies that become affiliates after the notice is provided to the 
consumer. If each affiliate covered by the notice shares a common name, 
such as ``ABC,'' then the notice may indicate that it applies to 
multiple companies with the ABC name or multiple companies in the ABC 
group or family of companies, for example, by stating that the notice is 
provided by ``all of the ABC companies,'' ``the ABC banking, credit 
card, insurance, and securities companies,'' or by listing the name of 
each affiliate providing the notice. But if the affiliates covered by 
the notice do not all share a common name, then the notice must either 
separately identify each covered affiliate by name or identify each of 
the common names used by those affiliates, for example, by stating that 
the notice applies to ``all of the ABC and XYZ companies'' or to ``the 
ABC banking and credit card companies and the XYZ insurance companies;''
    (3) A general description of the types of eligibility information 
that may be used to make solicitations to the consumer;
    (4) That the consumer previously elected to limit the use of certain 
information to make solicitations to the consumer;
    (5) That the consumer's election has expired or is about to expire;
    (6) That the consumer may elect to renew the consumer's previous 
election;
    (7) If applicable, that the consumer's election to renew will apply 
for the specified period of time stated in the notice and that the 
consumer will be allowed to renew the election once that period expires; 
and
    (8) A reasonable and simple method for the consumer to opt out.
    (c) Timing of the renewal notice--(1) In general. A renewal notice 
may be provided to the consumer either:
    (i) A reasonable period of time before the expiration of the opt-out 
period; or
    (ii) Any time after the expiration of the opt-out period but before 
solicitations that would have been prohibited by the expired opt-out are 
made to the consumer.
    (2) Combination with annual privacy notice. If you provide an annual 
privacy notice under the Gramm-Leach-Bliley Act, 15 U.S.C. 6801 et seq., 
providing a renewal notice with the last annual privacy notice provided 
to the consumer before expiration of the opt-out period is a reasonable 
period of time before expiration of the opt-out in all cases.
    (d) No effect on opt-out period. An opt-out period may not be 
shortened by sending a renewal notice to the consumer before expiration 
of the opt-out

[[Page 411]]

period, even if the consumer does not renew the opt out.



                      Subpart D_Medical Information



Sec. 1022.30  Obtaining or using medical information in connection with
a determination of eligibility for credit.

    (a) Scope. This section applies to any person that participates as a 
creditor in a transaction, except for a person excluded from coverage of 
this part by section 1029 of the Consumer Financial Protection Act of 
2010, Title X of the Dodd-Frank Wall Street Reform and Consumer 
Protection Act, Public Law 111-203, 124 Stat. 137.
    (b) General prohibition on obtaining or using medical information--
(1) In general. A creditor may not obtain or use medical information 
pertaining to a consumer in connection with any determination of the 
consumer's eligibility, or continued eligibility, for credit, except as 
provided in this section.
    (2) Definitions. (i) Credit has the same meaning as in section 702 
of the Equal Credit Opportunity Act, 15 U.S.C. 1691a.
    (ii) Creditor has the same meaning as in section 702 of the Equal 
Credit Opportunity Act, 15 U.S.C. 1691a.
    (iii) Eligibility, or continued eligibility, for credit means the 
consumer's qualification or fitness to receive, or continue to receive, 
credit, including the terms on which credit is offered. The term does 
not include:
    (A) Any determination of the consumer's qualification or fitness for 
employment, insurance (other than a credit insurance product), or other 
non-credit products or services;
    (B) Authorizing, processing, or documenting a payment or transaction 
on behalf of the consumer in a manner that does not involve a 
determination of the consumer's eligibility, or continued eligibility, 
for credit; or
    (C) Maintaining or servicing the consumer's account in a manner that 
does not involve a determination of the consumer's eligibility, or 
continued eligibility, for credit.
    (c) Rule of construction for obtaining and using unsolicited medical 
information--(1) In general. A creditor does not obtain medical 
information in violation of the prohibition if it receives medical 
information pertaining to a consumer in connection with any 
determination of the consumer's eligibility, or continued eligibility, 
for credit without specifically requesting medical information.
    (2) Use of unsolicited medical information. A creditor that receives 
unsolicited medical information in the manner described in paragraph 
(c)(1) of this section may use that information in connection with any 
determination of the consumer's eligibility, or continued eligibility, 
for credit to the extent the creditor can rely on at least one of the 
exceptions in Sec. 1022.30(d) or (e).
    (3) Examples. A creditor does not obtain medical information in 
violation of the prohibition if, for example:
    (i) In response to a general question regarding a consumer's debts 
or expenses, the creditor receives information that the consumer owes a 
debt to a hospital.
    (ii) In a conversation with the creditor's loan officer, the 
consumer informs the creditor that the consumer has a particular medical 
condition.
    (iii) In connection with a consumer's application for an extension 
of credit, the creditor requests a consumer report from a consumer 
reporting agency and receives medical information in the consumer report 
furnished by the agency even though the creditor did not specifically 
request medical information from the consumer reporting agency.
    (d) Financial information exception for obtaining and using medical 
information--(1) In general. A creditor may obtain and use medical 
information pertaining to a consumer in connection with any 
determination of the consumer's eligibility, or continued eligibility, 
for credit so long as:
    (i) The information is the type of information routinely used in 
making credit eligibility determinations, such as information relating 
to debts, expenses, income, benefits, assets, collateral, or the purpose 
of the loan, including the use of proceeds;
    (ii) The creditor uses the medical information in a manner and to an 
extent that is no less favorable than it would use comparable 
information that is not medical information in a credit transaction; and

[[Page 412]]

    (iii) The creditor does not take the consumer's physical, mental, or 
behavioral health, condition or history, type of treatment, or prognosis 
into account as part of any such determination.
    (2) Examples--(i) Examples of the types of information routinely 
used in making credit eligibility determinations. Paragraph (d)(1)(i) of 
this section permits a creditor, for example, to obtain and use 
information about:
    (A) The dollar amount, repayment terms, repayment history, and 
similar information regarding medical debts to calculate, measure, or 
verify the repayment ability of the consumer, the use of proceeds, or 
the terms for granting credit;
    (B) The value, condition, and lien status of a medical device that 
may serve as collateral to secure a loan;
    (C) The dollar amount and continued eligibility for disability 
income, workers' compensation income, or other benefits related to 
health or a medical condition that is relied on as a source of 
repayment; or
    (D) The identity of creditors to whom outstanding medical debts are 
owed in connection with an application for credit, including but not 
limited to, a transaction involving the consolidation of medical debts.
    (ii) Examples of uses of medical information consistent with the 
exception. (A) A consumer includes on an application for credit 
information about two $20,000 debts. One debt is to a hospital; the 
other debt is to a retailer. The creditor contacts the hospital and the 
retailer to verify the amount and payment status of the debts. The 
creditor learns that both debts are more than 90 days past due. Any two 
debts of this size that are more than 90 days past due would disqualify 
the consumer under the creditor's established underwriting criteria. The 
creditor denies the application on the basis that the consumer has a 
poor repayment history on outstanding debts. The creditor has used 
medical information in a manner and to an extent no less favorable than 
it would use comparable non-medical information.
    (B) A consumer indicates on an application for a $200,000 mortgage 
loan that she receives $15,000 in long-term disability income each year 
from her former employer and has no other income. Annual income of 
$15,000, regardless of source, would not be sufficient to support the 
requested amount of credit. The creditor denies the application on the 
basis that the projected debt-to-income ratio of the consumer does not 
meet the creditor's underwriting criteria. The creditor has used medical 
information in a manner and to an extent that is no less favorable than 
it would use comparable non-medical information.
    (C) A consumer includes on an application for a $10,000 home equity 
loan that he has a $50,000 debt to a medical facility that specializes 
in treating a potentially terminal disease. The creditor contacts the 
medical facility to verify the debt and obtain the repayment history and 
current status of the loan. The creditor learns that the debt is 
current. The applicant meets the income and other requirements of the 
creditor's underwriting guidelines. The creditor grants the application. 
The creditor has used medical information in accordance with the 
exception.
    (iii) Examples of uses of medical information inconsistent with the 
exception. (A) A consumer applies for $25,000 of credit and includes on 
the application information about a $50,000 debt to a hospital. The 
creditor contacts the hospital to verify the amount and payment status 
of the debt, and learns that the debt is current and that the consumer 
has no delinquencies in her repayment history. If the existing debt were 
instead owed to a retail department store, the creditor would approve 
the application and extend credit based on the amount and repayment 
history of the outstanding debt. The creditor, however, denies the 
application because the consumer is indebted to a hospital. The creditor 
has used medical information, here the identity of the medical creditor, 
in a manner and to an extent that is less favorable than it would use 
comparable non-medical information.
    (B) A consumer meets with a loan officer of a creditor to apply for 
a mortgage loan. While filling out the loan application, the consumer 
informs the loan officer orally that she has a potentially terminal 
disease. The consumer

[[Page 413]]

meets the creditor's established requirements for the requested mortgage 
loan. The loan officer recommends to the credit committee that the 
consumer be denied credit because the consumer has that disease. The 
credit committee follows the loan officer's recommendation and denies 
the application because the consumer has a potentially terminal disease. 
The creditor has used medical information in a manner inconsistent with 
the exception by taking into account the consumer's physical, mental, or 
behavioral health, condition, or history, type of treatment, or 
prognosis as part of a determination of eligibility or continued 
eligibility for credit.
    (C) A consumer who has an apparent medical condition, such as a 
consumer who uses a wheelchair or an oxygen tank, meets with a loan 
officer to apply for a home equity loan. The consumer meets the 
creditor's established requirements for the requested home equity loan 
and the creditor typically does not require consumers to obtain a debt 
cancellation contract, debt suspension agreement, or credit insurance 
product in connection with such loans. However, based on the consumer's 
apparent medical condition, the loan officer recommends to the credit 
committee that credit be extended to the consumer only if the consumer 
obtains a debt cancellation contract, debt suspension agreement, or 
credit insurance product from a nonaffiliated third party. The credit 
committee agrees with the loan officer's recommendation. The loan 
officer informs the consumer that the consumer must obtain a debt 
cancellation contract, debt suspension agreement, or credit insurance 
product from a nonaffiliated third party to qualify for the loan. The 
consumer obtains one of these products and the creditor approves the 
loan. The creditor has used medical information in a manner inconsistent 
with the exception by taking into account the consumer's physical, 
mental, or behavioral health, condition, or history, type of treatment, 
or prognosis in setting conditions on the consumer's eligibility for 
credit.
    (e) Specific exceptions for obtaining and using medical 
information--(1) In general. A creditor may obtain and use medical 
information pertaining to a consumer in connection with any 
determination of the consumer's eligibility, or continued eligibility, 
for credit:
    (i) To determine whether the use of a power of attorney or legal 
representative that is triggered by a medical condition or event is 
necessary and appropriate or whether the consumer has the legal capacity 
to contract when a person seeks to exercise a power of attorney or act 
as legal representative for a consumer based on an asserted medical 
condition or event;
    (ii) To comply with applicable requirements of local, state, or 
Federal laws;
    (iii) To determine, at the consumer's request, whether the consumer 
qualifies for a legally permissible special credit program or credit-
related assistance program that is:
    (A) Designed to meet the special needs of consumers with medical 
conditions; and
    (B) Established and administered pursuant to a written plan that:
    (1) Identifies the class of persons that the program is designed to 
benefit; and
    (2) Sets forth the procedures and standards for extending credit or 
providing other credit-related assistance under the program;
    (iv) To the extent necessary for purposes of fraud prevention or 
detection;
    (v) In the case of credit for the purpose of financing medical 
products or services, to determine and verify the medical purpose of a 
loan and the use of proceeds;
    (vi) Consistent with safe and sound practices, if the consumer or 
the consumer's legal representative specifically requests that the 
creditor use medical information in determining the consumer's 
eligibility, or continued eligibility, for credit, to accommodate the 
consumer's particular circumstances, and such request is documented by 
the creditor;
    (vii) Consistent with safe and sound practices, to determine whether 
the provisions of a forbearance practice or program that is triggered by 
a medical condition or event apply to a consumer;
    (viii) To determine the consumer's eligibility for, the triggering 
of, or the

[[Page 414]]

reactivation of a debt cancellation contract or debt suspension 
agreement if a medical condition or event is a triggering event for the 
provision of benefits under the contract or agreement; or
    (ix) To determine the consumer's eligibility for, the triggering of, 
or the reactivation of a credit insurance product if a medical condition 
or event is a triggering event for the provision of benefits under the 
product.
    (2) Example of determining eligibility for a special credit program 
or credit assistance program. A not-for-profit organization establishes 
a credit assistance program pursuant to a written plan that is designed 
to assist disabled veterans in purchasing homes by subsidizing the down 
payment for the home purchase mortgage loans of qualifying veterans. The 
organization works through mortgage lenders and requires mortgage 
lenders to obtain medical information about the disability of any 
consumer that seeks to qualify for the program, use that information to 
verify the consumer's eligibility for the program, and forward that 
information to the organization. A consumer who is a veteran applies to 
a creditor for a home purchase mortgage loan. The creditor informs the 
consumer about the credit assistance program for disabled veterans and 
the consumer seeks to qualify for the program. Assuming that the program 
complies with all applicable law, including applicable fair lending 
laws, the creditor may obtain and use medical information about the 
medical condition and disability, if any, of the consumer to determine 
whether the consumer qualifies for the credit assistance program.
    (3) Examples of verifying the medical purpose of the loan or the use 
of proceeds. (i) If a consumer applies for $10,000 of credit for the 
purpose of financing vision correction surgery, the creditor may verify 
with the surgeon that the procedure will be performed. If the surgeon 
reports that surgery will not be performed on the consumer, the creditor 
may use that medical information to deny the consumer's application for 
credit, because the loan would not be used for the stated purpose.
    (ii) If a consumer applies for $10,000 of credit for the purpose of 
financing cosmetic surgery, the creditor may confirm the cost of the 
procedure with the surgeon. If the surgeon reports that the cost of the 
procedure is $5,000, the creditor may use that medical information to 
offer the consumer only $5,000 of credit.
    (iii) A creditor has an established medical loan program for 
financing particular elective surgical procedures. The creditor receives 
a loan application from a consumer requesting $10,000 of credit under 
the established loan program for an elective surgical procedure. The 
consumer indicates on the application that the purpose of the loan is to 
finance an elective surgical procedure not eligible for funding under 
the guidelines of the established loan program. The creditor may deny 
the consumer's application because the purpose of the loan is not for a 
particular procedure funded by the established loan program.
    (4) Examples of obtaining and using medical information at the 
request of the consumer. (i) If a consumer applies for a loan and 
specifically requests that the creditor consider the consumer's medical 
disability at the relevant time as an explanation for adverse payment 
history information in his credit report, the creditor may consider such 
medical information in evaluating the consumer's willingness and ability 
to repay the requested loan to accommodate the consumer's particular 
circumstances, consistent with safe and sound practices. The creditor 
may also decline to consider such medical information to accommodate the 
consumer, but may evaluate the consumer's application in accordance with 
its otherwise applicable underwriting criteria. The creditor may not 
deny the consumer's application or otherwise treat the consumer less 
favorably because the consumer specifically requested a medical 
accommodation, if the creditor would have extended the credit or treated 
the consumer more favorably under the creditor's otherwise applicable 
underwriting criteria.
    (ii) If a consumer applies for a loan by telephone and explains that 
his income has been and will continue to be interrupted on account of a 
medical condition and that he expects to repay the loan by liquidating 
assets, the

[[Page 415]]

creditor may, but is not required to, evaluate the application using the 
sale of assets as the primary source of repayment, consistent with safe 
and sound practices, provided that the creditor documents the consumer's 
request by recording the oral conversation or making a notation of the 
request in the consumer's file.
    (iii) If a consumer applies for a loan and the application form 
provides a space where the consumer may provide any other information or 
special circumstances, whether medical or non-medical, that the consumer 
would like the creditor to consider in evaluating the consumer's 
application, the creditor may use medical information provided by the 
consumer in that space on that application to accommodate the consumer's 
application for credit, consistent with safe and sound practices, or may 
disregard that information.
    (iv) If a consumer specifically requests that the creditor use 
medical information in determining the consumer's eligibility, or 
continued eligibility, for credit and provides the creditor with medical 
information for that purpose, and the creditor determines that it needs 
additional information regarding the consumer's circumstances, the 
creditor may request, obtain, and use additional medical information 
about the consumer as necessary to verify the information provided by 
the consumer or to determine whether to make an accommodation for the 
consumer. The consumer may decline to provide additional information, 
withdraw the request for an accommodation, and have the application 
considered under the creditor's otherwise applicable underwriting 
criteria.
    (v) If a consumer completes and signs a credit application that is 
not for medical purpose credit and the application contains boilerplate 
language that routinely requests medical information from the consumer 
or that indicates that by applying for credit the consumer authorizes or 
consents to the creditor obtaining and using medical information in 
connection with a determination of the consumer's eligibility, or 
continued eligibility, for credit, the consumer has not specifically 
requested that the creditor obtain and use medical information to 
accommodate the consumer's particular circumstances.
    (5) Example of a forbearance practice or program. After an 
appropriate safety and soundness review, a creditor institutes a program 
that allows consumers who are or will be hospitalized to defer payments 
as needed for up to three months, without penalty, if the credit account 
has been open for more than one year and has not previously been in 
default, and the consumer provides confirming documentation at an 
appropriate time. A consumer is hospitalized and does not pay her bill 
for a particular month. This consumer has had a credit account with the 
creditor for more than one year and has not previously been in default. 
The creditor attempts to contact the consumer and speaks with the 
consumer's adult child, who is not the consumer's legal representative. 
The adult child informs the creditor that the consumer is hospitalized 
and is unable to pay the bill at that time. The creditor defers payments 
for up to three months, without penalty, for the hospitalized consumer 
and sends the consumer a letter confirming this practice and the date on 
which the next payment will be due. The creditor has obtained and used 
medical information to determine whether the provisions of a medically-
triggered forbearance practice or program apply to a consumer.



Sec. 1022.31  Limits on redisclosure of information.

    (a) Scope. This section applies to any person, except for a person 
excluded from coverage of this part by section 1029 of the Consumer 
Financial Protection Act of 2010, Title X of the Dodd-Frank Wall Street 
Reform and Consumer Protection Act, Public Law 111-203, 124 Stat. 137.
    (b) Limits on redisclosure. If a person described in paragraph (a) 
of this section receives medical information about a consumer from a 
consumer reporting agency or its affiliate, the person must not disclose 
that information to any other person, except as necessary to carry out 
the purpose for which the information was initially disclosed, or as 
otherwise permitted by statute, regulation, or order.

[[Page 416]]



Sec. 1022.32  Sharing medical information with affiliates.

    (a) Scope. This section applies to any person, except for a person 
excluded from coverage of this part by section 1029 of the Consumer 
Financial Protection Act of 2010, Title X of the Dodd-Frank Wall Street 
Reform and Consumer Protection Act, Public Law 111-203, 124 Stat. 137.
    (b) In general. The exclusions from the term ``consumer report'' in 
section 603(d)(2) of the Act that allow the sharing of information with 
affiliates do not apply to a person described in paragraph (a) of this 
section if that person communicates to an affiliate:
    (1) Medical information;
    (2) An individualized list or description based on the payment 
transactions of the consumer for medical products or services; or
    (3) An aggregate list of identified consumers based on payment 
transactions for medical products or services.
    (c) Exceptions. A person described in paragraph (a) of this section 
may rely on the exclusions from the term ``consumer report'' in section 
603(d)(2) of the Act to communicate the information in paragraph (b) of 
this section to an affiliate:
    (1) In connection with the business of insurance or annuities 
(including the activities described in section 18B of the model Privacy 
of Consumer Financial and Health Information Regulation issued by the 
National Association of Insurance Commissioners, as in effect on January 
1, 2003);
    (2) For any purpose permitted without authorization under the 
regulations promulgated by the Department of Health and Human Services 
pursuant to the Health Insurance Portability and Accountability Act of 
1996 (HIPAA);
    (3) For any purpose referred to in section 1179 of HIPAA;
    (4) For any purpose described in section 502(e) of the Gramm-Leach-
Bliley Act;
    (5) In connection with a determination of the consumer's 
eligibility, or continued eligibility, for credit consistent with Sec. 
1022.30 of this part; or
    (6) As otherwise permitted by order of the Bureau.



              Subpart E_Duties of Furnishers of Information



Sec. 1022.40  Scope.

    Subpart E of this part applies to any person that furnishes 
information to a consumer reporting agency, except for a person excluded 
from coverage of this part by section 1029 of the Consumer Financial 
Protection Act of 2010, Title X of the Dodd-Frank Wall Street Reform and 
Consumer Protection Act, Public Law 111-203, 124 Stat. 1376.



Sec. 1022.41  Definitions.

    For purposes of this subpart and appendix E of this part, the 
following definitions apply:
    (a) Accuracy means that information that a furnisher provides to a 
consumer reporting agency about an account or other relationship with 
the consumer correctly:
    (1) Reflects the terms of and liability for the account or other 
relationship;
    (2) Reflects the consumer's performance and other conduct with 
respect to the account or other relationship; and
    (3) Identifies the appropriate consumer.
    (b) Direct dispute means a dispute submitted directly to a furnisher 
(including a furnisher that is a debt collector) by a consumer 
concerning the accuracy of any information contained in a consumer 
report and pertaining to an account or other relationship that the 
furnisher has or had with the consumer.
    (c) Furnisher means an entity that furnishes information relating to 
consumers to one or more consumer reporting agencies for inclusion in a 
consumer report. An entity is not a furnisher when it:
    (1) Provides information to a consumer reporting agency solely to 
obtain a consumer report in accordance with sections 604(a) and (f) of 
the FCRA;
    (2) Is acting as a ``consumer reporting agency'' as defined in 
section 603(f) of the FCRA;
    (3) Is a consumer to whom the furnished information pertains; or
    (4) Is a neighbor, friend, or associate of the consumer, or another 
individual with whom the consumer is acquainted or who may have 
knowledge about the

[[Page 417]]

consumer, and who provides information about the consumer's character, 
general reputation, personal characteristics, or mode of living in 
response to a specific request from a consumer reporting agency.
    (d) Integrity means that information that a furnisher provides to a 
consumer reporting agency about an account or other relationship with 
the consumer:
    (1) Is substantiated by the furnisher's records at the time it is 
furnished;
    (2) Is furnished in a form and manner that is designed to minimize 
the likelihood that the information may be incorrectly reflected in a 
consumer report; and
    (3) Includes the information in the furnisher's possession about the 
account or other relationship that the Bureau has:
    (i) Determined that the absence of which would likely be materially 
misleading in evaluating a consumer's creditworthiness, credit standing, 
credit capacity, character, general reputation, personal 
characteristics, or mode of living; and
    (ii) Listed in section I.(b)(2)(iii) of appendix E of this part.



Sec. 1022.42  Reasonable policies and procedures concerning the accuracy
and integrity of furnished information.

    (a) Policies and procedures. Each furnisher must establish and 
implement reasonable written policies and procedures regarding the 
accuracy and integrity of the information relating to consumers that it 
furnishes to a consumer reporting agency. The policies and procedures 
must be appropriate to the nature, size, complexity, and scope of each 
furnisher's activities.
    (b) Guidelines. Each furnisher must consider the guidelines in 
appendix E of this part in developing its policies and procedures 
required by this section, and incorporate those guidelines that are 
appropriate.
    (c) Reviewing and updating policies and procedures. Each furnisher 
must review its policies and procedures required by this section 
periodically and update them as necessary to ensure their continued 
effectiveness.



Sec. 1022.43  Direct disputes.

    (a) General rule. Except as otherwise provided in this section, a 
furnisher must conduct a reasonable investigation of a direct dispute if 
it relates to:
    (1) The consumer's liability for a credit account or other debt with 
the furnisher, such as direct disputes relating to whether there is or 
has been identity theft or fraud against the consumer, whether there is 
individual or joint liability on an account, or whether the consumer is 
an authorized user of a credit account;
    (2) The terms of a credit account or other debt with the furnisher, 
such as direct disputes relating to the type of account, principal 
balance, scheduled payment amount on an account, or the amount of the 
credit limit on an open-end account;
    (3) The consumer's performance or other conduct concerning an 
account or other relationship with the furnisher, such as direct 
disputes relating to the current payment status, high balance, date a 
payment was made, the amount of a payment made, or the date an account 
was opened or closed; or
    (4) Any other information contained in a consumer report regarding 
an account or other relationship with the furnisher that bears on the 
consumer's creditworthiness, credit standing, credit capacity, 
character, general reputation, personal characteristics, or mode of 
living.
    (b) Exceptions. The requirements of paragraph (a) of this section do 
not apply to a furnisher if:
    (1) The direct dispute relates to:
    (i) The consumer's identifying information (other than a direct 
dispute relating to a consumer's liability for a credit account or other 
debt with the furnisher, as provided in paragraph (a)(1) of this 
section) such as name(s), date of birth, Social Security number, 
telephone number(s), or address(es);
    (ii) The identity of past or present employers;
    (iii) Inquiries or requests for a consumer report;
    (iv) Information derived from public records, such as judgments, 
bankruptcies, liens, and other legal matters (unless provided by a 
furnisher with an account or other relationship with the consumer);

[[Page 418]]

    (v) Information related to fraud alerts or active duty alerts; or
    (vi) Information provided to a consumer reporting agency by another 
furnisher; or
    (2) The furnisher has a reasonable belief that the direct dispute is 
submitted by, is prepared on behalf of the consumer by, or is submitted 
on a form supplied to the consumer by, a credit repair organization, as 
defined in 15 U.S.C. 1679a(3), or an entity that would be a credit 
repair organization, but for 15 U.S.C. 1679a(3)(B)(i).
    (c) Direct dispute address. A furnisher is required to investigate a 
direct dispute only if a consumer submits a dispute notice to the 
furnisher at:
    (1) The address of a furnisher provided by a furnisher and set forth 
on a consumer report relating to the consumer;
    (2) An address clearly and conspicuously specified by the furnisher 
for submitting direct disputes that is provided to the consumer in 
writing or electronically (if the consumer has agreed to the electronic 
delivery of information from the furnisher); or
    (3) Any business address of the furnisher if the furnisher has not 
so specified and provided an address for submitting direct disputes 
under paragraphs (c)(1) or (2) of this section.
    (d) Direct dispute notice contents. A dispute notice must include:
    (1) Sufficient information to identify the account or other 
relationship that is in dispute, such as an account number and the name, 
address, and telephone number of the consumer, if applicable;
    (2) The specific information that the consumer is disputing and an 
explanation of the basis for the dispute; and
    (3) All supporting documentation or other information reasonably 
required by the furnisher to substantiate the basis of the dispute. This 
documentation may include, for example: a copy of the relevant portion 
of the consumer report that contains the allegedly inaccurate 
information; a police report; a fraud or identity theft affidavit; a 
court order; or account statements.
    (e) Duty of furnisher after receiving a direct dispute notice. After 
receiving a dispute notice from a consumer pursuant to paragraphs (c) 
and (d) of this section, the furnisher must:
    (1) Conduct a reasonable investigation with respect to the disputed 
information;
    (2) Review all relevant information provided by the consumer with 
the dispute notice;
    (3) Complete its investigation of the dispute and report the results 
of the investigation to the consumer before the expiration of the period 
under section 611(a)(1) of the FCRA (15 U.S.C. 1681i(a)(1)) within which 
a consumer reporting agency would be required to complete its action if 
the consumer had elected to dispute the information under that section; 
and
    (4) If the investigation finds that the information reported was 
inaccurate, promptly notify each consumer reporting agency to which the 
furnisher provided inaccurate information of that determination and 
provide to the consumer reporting agency any correction to that 
information that is necessary to make the information provided by the 
furnisher accurate.
    (f) Frivolous or irrelevant disputes. (1) A furnisher is not 
required to investigate a direct dispute if the furnisher has reasonably 
determined that the dispute is frivolous or irrelevant. A dispute 
qualifies as frivolous or irrelevant if:
    (i) The consumer did not provide sufficient information to 
investigate the disputed information as required by paragraph (d) of 
this section;
    (ii) The direct dispute is substantially the same as a dispute 
previously submitted by or on behalf of the consumer, either directly to 
the furnisher or through a consumer reporting agency, with respect to 
which the furnisher has already satisfied the applicable requirements of 
the Act or this section; provided, however, that a direct dispute is not 
substantially the same as a dispute previously submitted if the dispute 
includes information listed in paragraph (d) of this section that had 
not previously been provided to the furnisher; or
    (iii) The furnisher is not required to investigate the direct 
dispute because one or more of the exceptions listed in paragraph (b) of 
this section applies.

[[Page 419]]

    (2) Notice of determination. Upon making a determination that a 
dispute is frivolous or irrelevant, the furnisher must notify the 
consumer of the determination not later than five business days after 
making the determination, by mail or, if authorized by the consumer for 
that purpose, by any other means available to the furnisher.
    (3) Contents of notice of determination that a dispute is frivolous 
or irrelevant. A notice of determination that a dispute is frivolous or 
irrelevant must include the reasons for such determination and identify 
any information required to investigate the disputed information, which 
notice may consist of a standardized form describing the general nature 
of such information.



Subpart F_Duties of Users Regarding Obtaining and Using Consumer Reports



Sec. Sec. 1022.50-1022.53  [Reserved]



Sec. 1022.54  Duties of users making written firm offers of credit or 
insurance based on information contained in consumer files

    (a) Scope. This subpart applies to any person who uses a consumer 
report on any consumer in connection with any credit or insurance 
transaction that is not initiated by the consumer, and that is provided 
to that person under section 604(c)(1)(B) of the FCRA (15 U.S.C. 
1681b(c)(1)(B)), except for a person excluded from coverage of this part 
by section 1029 of the Consumer Financial Protection Act of 2010, Title 
X of the Dodd-Frank Wall Street Reform and Consumer Protection Act, 
Public Law 111-203, 124 Stat. 137.
    (b) Definitions. For purposes of this section and appendix D of this 
part, the following definitions apply:
    (1) Simple and easy to understand means:
    (i) A layered format as described in paragraph (c) of this section;
    (ii) Plain language designed to be understood by ordinary consumers; 
and
    (iii) Use of clear and concise sentences, paragraphs, and sections.
    (iv) Examples. For purposes of this part, examples of factors to be 
considered in determining whether a statement is in plain language and 
uses clear and concise sentences, paragraphs, and sections include:
    (A) Use of short explanatory sentences;
    (B) Use of definite, concrete, everyday words;
    (C) Use of active voice;
    (D) Avoidance of multiple negatives;
    (E) Avoidance of legal and technical business terminology;
    (F) Avoidance of explanations that are imprecise and reasonably 
subject to different interpretations; and
    (G) Use of language that is not misleading.
    (2) Principal promotional document means the document designed to be 
seen first by the consumer, such as the cover letter.
    (c) Prescreen opt-out notice. Any person who uses a consumer report 
on any consumer in connection with any credit or insurance transaction 
that is not initiated by the consumer, and that is provided to that 
person under section 604(c)(1)(B) of the FCRA (15 U.S.C. 
1681b(c)(1)(B)), shall, with each written solicitation made to the 
consumer about the transaction, provide the consumer with the following 
statement, consisting of a short portion and a long portion, which shall 
be in the same language as the offer of credit or insurance:
    (1) Short notice. The short notice shall be a clear and conspicuous, 
and simple and easy to understand statement as follows:
    (i) Content. The short notice shall state that the consumer has the 
right to opt out of receiving prescreened solicitations, and shall 
provide the toll-free number the consumer can call to exercise that 
right. The short notice also shall direct the consumer to the existence 
and location of the long notice, and shall state the heading for the 
long notice. The short notice shall not contain any other information.
    (ii) Form. The short notice shall be:
    (A) In a type size that is larger than the type size of the 
principal text on the same page, but in no event smaller than 12 point 
type, or if provided by electronic means, then reasonable steps shall be 
taken to ensure that the type size is larger than the type size of the 
principal text on the same page;

[[Page 420]]

    (B) On the front side of the first page of the principal promotional 
document in the solicitation, or, if provided electronically, on the 
same page and in close proximity to the principal marketing message;
    (C) Located on the page and in a format so that the statement is 
distinct from other text, such as inside a border; and
    (D) In a type style that is distinct from the principal type style 
used on the same page, such as bolded, italicized, underlined, and/or in 
a color that contrasts with the color of the principal text on the page, 
if the solicitation is in more than one color.
    (2) Long notice. The long notice shall be a clear and conspicuous, 
and simple and easy to understand statement as follows:
    (i) Content. The long notice shall state the information required by 
section 615(d) of the Fair Credit Reporting Act (15 U.S.C. 1681m(d)). 
The long notice shall not include any other information that interferes 
with, detracts from, contradicts, or otherwise undermines the purpose of 
the notice.
    (ii) Form. The long notice shall:
    (A) Appear in the solicitation;
    (B) Be in a type size that is no smaller than the type size of the 
principal text on the same page, and, for solicitations provided other 
than by electronic means, the type size shall in no event be smaller 
than 8 point type;
    (C) Begin with a heading in capital letters and underlined, and 
identifying the long notice as the ``PRESCREEN&OPT-OUT NOTICE;''
    (D) Be in a type style that is distinct from the principal type 
style used on the same page, such as bolded, italicized, underlined, 
and/or in a color that contrasts with the color of the principal text on 
the page, if the solicitation is in more than one color; and
    (E) Be set apart from other text on the page, such as by including a 
blank line above and below the statement, and by indenting both the left 
and right margins from other text on the page.



Sec. Sec. 1022.55-1022.59  [Reserved]

Subpart G [Reserved]



         Subpart H_Duties of Users Regarding Risk-Based Pricing



Sec. 1022.70  Scope.

    (a) Coverage--(1) In general. This subpart applies to any person, 
except for a person excluded from coverage of this part by section 1029 
of the Consumer Financial Protection Act of 2010, Title X of the Dodd-
Frank Wall Street Reform and Consumer Protection Act, Public Law 111-
203, 124 Stat. 137, that both:
    (i) Uses a consumer report in connection with an application for, or 
a grant, extension, or other provision of, credit to a consumer that is 
primarily for personal, family, or household purposes; and
    (ii) Based in whole or in part on the consumer report, grants, 
extends, or otherwise provides credit to the consumer on material terms 
that are materially less favorable than the most favorable material 
terms available to a substantial proportion of consumers from or through 
that person.
    (2) Business credit excluded. This subpart does not apply to an 
application for, or a grant, extension, or other provision of, credit to 
a consumer or to any other applicant primarily for a business purpose.
    (b) Enforcement. The provisions of this subpart will be enforced in 
accordance with the enforcement authority set forth in sections 621(a) 
and (b) of the FCRA.



Sec. 1022.71  Definitions.

    For purposes of this subpart, the following definitions apply:
    (a) Adverse action has the same meaning as in 15 U.S.C. 
1681a(k)(1)(A).
    (b) Annual percentage rate has the same meaning as in 12 CFR 
1026.14(b) with respect to an open-end credit plan and as in 12 CFR 
1026.22 with respect to closed-end credit.
    (c) Closed-end credit has the same meaning as in 12 CFR 
1026.2(a)(10).
    (d) Consumer has the same meaning as in 15 U.S.C. 1681a(c).
    (e) Consummation has the same meaning as in 12 CFR 1026.2(a)(13).
    (f) Consumer report has the same meaning as in 15 U.S.C. 1681a(d).
    (g) Consumer reporting agency has the same meaning as in 15 U.S.C. 
1681a(f).

[[Page 421]]

    (h) Credit has the same meaning as in 15 U.S.C. 1681a(r)(5).
    (i) Creditor has the same meaning as in 15 U.S.C. 1681a(r)(5).
    (j) Credit card has the same meaning as in 15 U.S.C. 1681a(r)(2).
    (k) Credit card issuer has the same meaning as card issuer, as 
defined in 15 U.S.C. 1681a(r)(1)(A).
    (l) Credit score has the same meaning as in 15 U.S.C. 
1681g(f)(2)(A).
    (m) Firm offer of credit has the same meaning as in 15 U.S.C. 
1681a(l).
    (n) Material terms means:
    (1)(i) Except as otherwise provided in paragraphs (n)(1)(ii) and 
(n)(3) of this section, in the case of credit extended under an open-end 
credit plan, the annual percentage rate required to be disclosed under 
12 CFR 1026.6(a)(1)(ii) or 12 CFR 1026.6(b)(2)(i), excluding any 
temporary initial rate that is lower than the rate that will apply after 
the temporary rate expires, any penalty rate that will apply upon the 
occurrence of one or more specific events, such as a late payment or an 
extension of credit that exceeds the credit limit, and any fixed annual 
percentage rate option for a home equity line of credit;
    (ii) In the case of a credit card (other than a credit card that is 
used to access a home equity line of credit or a charge card), the 
annual percentage rate required to be disclosed under 12 CFR 
1026.6(b)(2)(i) that applies to purchases (``purchase annual percentage 
rate'') and no other annual percentage rate, or in the case of a credit 
card that has no purchase annual percentage rate, the annual percentage 
rate that varies based on information in a consumer report and that has 
the most significant financial impact on consumers;
    (2) In the case of closed-end credit, the annual percentage rate 
required to be disclosed under 12 CFR 1026.17(c) and 1026.18(e); and
    (3) In the case of credit for which there is no annual percentage 
rate, the financial term that varies based on information in a consumer 
report and that has the most significant financial impact on consumers, 
such as a deposit required in connection with credit extended by a 
telephone company or utility or an annual membership fee for a charge 
card.
    (o) Materially less favorable means, when applied to material terms, 
that the terms granted, extended, or otherwise provided to a consumer 
differ from the terms granted, extended, or otherwise provided to 
another consumer from or through the same person such that the cost of 
credit to the first consumer would be significantly greater than the 
cost of credit granted, extended, or otherwise provided to the other 
consumer. For purposes of this definition, factors relevant to 
determining the significance of a difference in cost include the type of 
credit product, the term of the credit extension, if any, and the extent 
of the difference between the material terms granted, extended, or 
otherwise provided to the two consumers.
    (p) Open-end credit plan has the same meaning as in 15 U.S.C. 
1602(i), as interpreted by the Bureau in Regulation Z (12 CFR part 1026) 
and the Official Interpretations to Regulation Z (Supplement I to 12 CFR 
part 1026).
    (q) Person has the same meaning as in 15 U.S.C. 1681a(b).



Sec. 1022.72  General requirements for risk-based pricing notices.

    (a) In general. Except as otherwise provided in this subpart, a 
person must provide to a consumer a notice (``risk-based pricing 
notice'') in the form and manner required by this subpart if the person 
both:
    (1) Uses a consumer report in connection with an application for, or 
a grant, extension, or other provision of, credit to that consumer that 
is primarily for personal, family, or household purposes; and
    (2) Based in whole or in part on the consumer report, grants, 
extends, or otherwise provides credit to that consumer on material terms 
that are materially less favorable than the most favorable material 
terms available to a substantial proportion of consumers from or through 
that person.
    (b) Determining which consumers must receive a notice. A person may 
determine whether paragraph (a) of this section applies by directly 
comparing the material terms offered to each consumer and the material 
terms offered to other consumers for a specific type of credit product. 
For purposes of this

[[Page 422]]

section, a ``specific type of credit product'' means one or more credit 
products with similar features that are designed for similar purposes. 
Examples of a specific type of credit product include student loans, 
unsecured credit cards, secured credit cards, new automobile loans, used 
automobile loans, fixed-rate mortgage loans, and variable-rate mortgage 
loans. As an alternative to making this direct comparison, a person may 
make the determination by using one of the following methods:
    (1) Credit score proxy method--(i) In general. A person that sets 
the material terms of credit granted, extended, or otherwise provided to 
a consumer, based in whole or in part on a credit score, may comply with 
the requirements of paragraph (a) of this section by:
    (A) Determining the credit score (hereafter referred to as the 
``cutoff score'') that represents the point at which approximately 40 
percent of the consumers to whom it grants, extends, or provides credit 
have higher credit scores and approximately 60 percent of the consumers 
to whom it grants, extends, or provides credit have lower credit scores; 
and
    (B) Providing a risk-based pricing notice to each consumer to whom 
it grants, extends, or provides credit whose credit score is lower than 
the cutoff score.
    (ii) Alternative to the 40/60 cutoff score determination. In the 
case of credit that has been granted, extended, or provided on the most 
favorable material terms to more than 40 percent of consumers, a person 
may, at its option, set its cutoff score at a point at which the 
approximate percentage of consumers who historically have been granted, 
extended, or provided credit on material terms other than the most 
favorable terms would receive risk-based pricing notices under this 
section.
    (iii) Determining the cutoff score--(A) Sampling approach. A person 
that currently uses risk-based pricing with respect to the credit 
products it offers must calculate the cutoff score by considering the 
credit scores of all or a representative sample of the consumers to whom 
it has granted, extended, or provided credit for a specific type of 
credit product.
    (B) Secondary source approach in limited circumstances. A person 
that is a new entrant into the credit business, introduces new credit 
products, or starts to use risk-based pricing with respect to the credit 
products it currently offers may initially determine the cutoff score 
based on information derived from appropriate market research or 
relevant third-party sources for a specific type of credit product, such 
as research or data from companies that develop credit scores. A person 
that acquires a credit portfolio as a result of a merger or acquisition 
may determine the cutoff score based on information from the party which 
it acquired, with which it merged, or from which it acquired the 
portfolio.
    (C) Recalculation of cutoff scores. A person using the credit score 
proxy method must recalculate its cutoff score(s) no less than every two 
years in the manner described in paragraph (b)(1)(iii)(A) of this 
section. A person using the credit score proxy method using market 
research, third-party data, or information from a party which it 
acquired, with which it merged, or from which it acquired the portfolio 
as permitted by paragraph (b)(1)(iii)(B) of this section generally must 
calculate a cutoff score(s) based on the scores of its own consumers in 
the manner described in paragraph (b)(1)(iii)(A) of this section within 
one year after it begins using a cutoff score derived from market 
research, third-party data, or information from a party which it 
acquired, with which it merged, or from which it acquired the portfolio. 
If such a person does not grant, extend, or provide credit to new 
consumers during that one-year period such that it lacks sufficient data 
with which to recalculate a cutoff score based on the credit scores of 
its own consumers, the person may continue to use a cutoff score derived 
from market research, third-party data, or information from a party 
which it acquired, with which it merged, or from which it acquired the 
portfolio as provided in paragraph (b)(1)(iii)(B) until it obtains 
sufficient data on which to base the recalculation. However, the person 
must recalculate its cutoff score(s) in the

[[Page 423]]

manner described in paragraph (b)(1)(iii)(A) of this section within two 
years, if it has granted, extended, or provided credit to some new 
consumers during that two-year period.
    (D) Use of two or more credit scores. A person that generally uses 
two or more credit scores in setting the material terms of credit 
granted, extended, or provided to a consumer must determine the cutoff 
score using the same method the person uses to evaluate multiple scores 
when making credit decisions. These evaluation methods may include, but 
are not limited to, selecting the low, median, high, most recent, or 
average credit score of each consumer to whom it grants, extends, or 
provides credit. If a person that uses two or more credit scores does 
not consistently use the same method for evaluating multiple credit 
scores (e.g., if the person sometimes chooses the median score and other 
times calculates the average score), the person must determine the 
cutoff score using a reasonable means. In such cases, use of any one of 
the methods that the person regularly uses or the average credit score 
of each consumer to whom it grants, extends, or provides credit is 
deemed to be a reasonable means of calculating the cutoff score.
    (iv) Credit score not available. For purposes of this section, a 
person using the credit score proxy method who grants, extends, or 
provides credit to a consumer for whom a credit score is not available 
must assume that the consumer receives credit on material terms that are 
materially less favorable than the most favorable credit terms offered 
to a substantial proportion of consumers from or through that person and 
must provide a risk-based pricing notice to the consumer.
    (v) Examples. (A) A credit card issuer engages in risk-based pricing 
and the annual percentage rates it offers to consumers are based in 
whole or in part on a credit score. The credit card issuer takes a 
representative sample of the credit scores of consumers to whom it 
issued credit cards within the preceding three months. The credit card 
issuer determines that approximately 40 percent of the sampled consumers 
have a credit score at or above 720 (on a scale of 350 to 850) and 
approximately 60 percent of the sampled consumers have a credit score 
below 720. Thus, the card issuer selects 720 as its cutoff score. A 
consumer applies to the credit card issuer for a credit card. The card 
issuer obtains a credit score for the consumer. The consumer's credit 
score is 700. Since the consumer's 700 credit score falls below the 720 
cutoff score, the credit card issuer must provide a risk-based pricing 
notice to the consumer.
    (B) A credit card issuer engages in risk-based pricing, and the 
annual percentage rates it offers to consumers are based in whole or in 
part on a credit score. The credit card issuer takes a representative 
sample of the consumers to whom it issued credit cards over the 
preceding six months. The credit card issuer determines that 
approximately 80 percent of the sampled consumers received credit at its 
lowest annual percentage rate, and 20 percent received credit at a 
higher annual percentage rate. Approximately 80 percent of the sampled 
consumers have a credit score at or above 750 (on a scale of 350 to 
850), and 20 percent have a credit score below 750. Thus, the card 
issuer selects 750 as its cutoff score. A consumer applies to the credit 
card issuer for a credit card. The card issuer obtains a credit score 
for the consumer. The consumer's credit score is 740. Since the 
consumer's 740 credit score falls below the 750 cutoff score, the credit 
card issuer must provide a risk-based pricing notice to the consumer.
    (C) An auto lender engages in risk-based pricing, obtains credit 
scores from one of the nationwide consumer reporting agencies, and uses 
the credit score proxy method to determine which consumers must receive 
a risk-based pricing notice. A consumer applies to the auto lender for 
credit to finance the purchase of an automobile. A credit score about 
that consumer is not available from the consumer reporting agency from 
which the lender obtains credit scores. The lender nevertheless grants, 
extends, or provides credit to the consumer. The lender must provide a 
risk-based pricing notice to the consumer.
    (2) Tiered pricing method--(i) In general. A person that sets the 
material terms of credit granted, extended, or provided to a consumer by 
placing the

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consumer within one of a discrete number of pricing tiers for a specific 
type of credit product, based in whole or in part on a consumer report, 
may comply with the requirements of paragraph (a) of this section by 
providing a risk-based pricing notice to each consumer who is not placed 
within the top pricing tier or tiers, as described below.
    (ii) Four or fewer pricing tiers. If a person using the tiered 
pricing method has four or fewer pricing tiers, the person complies with 
the requirements of paragraph (a) of this section by providing a risk-
based pricing notice to each consumer to whom it grants, extends, or 
provides credit who does not qualify for the top tier (that is, the 
lowest-priced tier). For example, a person that uses a tiered pricing 
structure with annual percentage rates of 8, 10, 12, and 14 percent 
would provide the risk-based pricing notice to each consumer to whom it 
grants, extends, or provides credit at annual percentage rates of 10, 
12, and 14 percent.
    (iii) Five or more pricing tiers. If a person using the tiered 
pricing method has five or more pricing tiers, the person complies with 
the requirements of paragraph (a) of this section by providing a risk-
based pricing notice to each consumer to whom it grants, extends, or 
provides credit who does not qualify for the top two tiers (that is, the 
two lowest-priced tiers) and any other tier that, together with the top 
tiers, comprise no less than the top 30 percent but no more than the top 
40 percent of the total number of tiers. Each consumer placed within the 
remaining tiers must receive a risk-based pricing notice. For example, 
if a person has nine pricing tiers, the top three tiers (that is, the 
three lowest-priced tiers) comprise no less than the top 30 percent but 
no more than the top 40 percent of the tiers. Therefore, a person using 
this method would provide a risk-based pricing notice to each consumer 
to whom it grants, extends, or provides credit who is placed within the 
bottom six tiers.
    (c) Application to credit card issuers--(1) In general. A credit 
card issuer subject to the requirements of paragraph (a) of this section 
may use one of the methods set forth in paragraph (b) of this section to 
identify consumers to whom it must provide a risk-based pricing notice. 
Alternatively, a credit card issuer may satisfy its obligations under 
paragraph (a) of this section by providing a risk-based pricing notice 
to a consumer when:
    (i) A consumer applies for a credit card either in connection with 
an application program, such as a direct-mail offer or a take-one 
application, or in response to a solicitation under 12 CFR 1026.60, and 
more than a single possible purchase annual percentage rate may apply 
under the program or solicitation; and
    (ii) Based in whole or in part on a consumer report, the credit card 
issuer provides a credit card to the consumer with an annual percentage 
rate referenced in Sec. 1022.71(n)(1)(ii) that is greater than the 
lowest annual percentage rate referenced in Sec. 1022.71(n)(1)(ii) 
available in connection with the application or solicitation.
    (2) No requirement to compare different offers. A credit card issuer 
is not subject to the requirements of paragraph (a) of this section and 
is not required to provide a risk-based pricing notice to a consumer if:
    (i) The consumer applies for a credit card for which the card issuer 
provides a single annual percentage rate referenced in Sec. 
1022.71(n)(1)(ii), excluding a temporary initial rate that is lower than 
the rate that will apply after the temporary rate expires and a penalty 
rate that will apply upon the occurrence of one or more specific events, 
such as a late payment or an extension of credit that exceeds the credit 
limit; or
    (ii) The credit card issuer offers the consumer the lowest annual 
percentage rate referenced in Sec. 1022.71(n)(1)(ii) available under 
the credit card offer for which the consumer applied, even if a lower 
annual percentage rate referenced in Sec. 1022.71(n)(1)(ii) is 
available under a different credit card offer issued by the card issuer.
    (3) Examples. (i) A credit card issuer sends a solicitation to the 
consumer that discloses several possible purchase annual percentage 
rates that may apply, such as 10, 12, or 14 percent, or a range of 
purchase annual percentage

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rates from 10 to 14 percent. The consumer applies for a credit card in 
response to the solicitation. The card issuer provides a credit card to 
the consumer with a purchase annual percentage rate of 12 percent based 
in whole or in part on a consumer report. Unless an exception applies 
under Sec. 1022.74, the card issuer may satisfy its obligations under 
paragraph (a) of this section by providing a risk-based pricing notice 
to the consumer because the consumer received credit at a purchase 
annual percentage rate greater than the lowest purchase annual 
percentage rate available under that solicitation.
    (ii) The same facts as in the example in paragraph (c)(3)(i) of this 
section, except that the card issuer provides a credit card to the 
consumer at a purchase annual percentage rate of 10 percent. The card 
issuer is not required to provide a risk-based pricing notice to the 
consumer even if, under a different credit card solicitation, that 
consumer or other consumers might qualify for a purchase annual 
percentage rate of 8 percent.
    (d) Account review--(1) In general. Except as otherwise provided in 
this subpart, a person is subject to the requirements of paragraph (a) 
of this section and must provide a risk-based pricing notice to a 
consumer in the form and manner required by this subpart if the person:
    (i) Uses a consumer report in connection with a review of credit 
that has been extended to the consumer; and
    (ii) Based in whole or in part on the consumer report, increases the 
annual percentage rate (the annual percentage rate referenced in Sec. 
1022.71(n)(1)(ii) in the case of a credit card).
    (2) Example. A credit card issuer periodically obtains consumer 
reports for the purpose of reviewing the terms of credit it has extended 
to consumers in connection with credit cards. As a result of this 
review, the credit card issuer increases the purchase annual percentage 
rate applicable to a consumer's credit card based in whole or in part on 
information in a consumer report. The credit card issuer is subject to 
the requirements of paragraph (a) of this section and must provide a 
risk-based pricing notice to the consumer.



Sec. 1022.73  Content, form, and timing of risk-based pricing notices.

    (a) Content of the notice--(1) In general. The risk-based pricing 
notice required by Sec. 1022.72(a) or (c) must include:
    (i) A statement that a consumer report (or credit report) includes 
information about the consumer's credit history and the type of 
information included in that history;
    (ii) A statement that the terms offered, such as the annual 
percentage rate, have been set based on information from a consumer 
report;
    (iii) A statement that the terms offered may be less favorable than 
the terms offered to consumers with better credit histories;
    (iv) A statement that the consumer is encouraged to verify the 
accuracy of the information contained in the consumer report and has the 
right to dispute any inaccurate information in the report;
    (v) The identity of each consumer reporting agency that furnished a 
consumer report used in the credit decision;
    (vi) A statement that Federal law gives the consumer the right to 
obtain a copy of a consumer report from the consumer reporting agency or 
agencies identified in the notice without charge for 60 days after 
receipt of the notice;
    (vii) A statement informing the consumer how to obtain a consumer 
report from the consumer reporting agency or agencies identified in the 
notice and providing contact information (including a toll-free 
telephone number, where applicable) specified by the consumer reporting 
agency or agencies;
    (viii) A statement directing consumers to the Web site of the Bureau 
to obtain more information about consumer reports; and
    (ix) If a credit score of the consumer to whom a person grants, 
extends, or otherwise provides credit is used in setting the material 
terms of credit:
    (A) A statement that a credit score is a number that takes into 
account information in a consumer report, that the consumer's credit 
score was used to set the terms of credit offered, and that a credit 
score can change over time to reflect changes in the consumer's credit 
history;

[[Page 426]]

    (B) The credit score used by the person in making the credit 
decision;
    (C) The range of possible credit scores under the model used to 
generate the credit score;
    (D) All of the key factors that adversely affected the credit score, 
which shall not exceed four key factors, except that if one of the key 
factors is the number of enquiries made with respect to the consumer 
report, the number of key factors shall not exceed five;
    (E) The date on which the credit score was created; and
    (F) The name of the consumer reporting agency or other person that 
provided the credit score.
    (2) Account review. The risk-based pricing notice required by Sec. 
1022.72(d) must include:
    (i) A statement that a consumer report (or credit report) includes 
information about the consumer's credit history and the type of 
information included in that credit history;
    (ii) A statement that the person has conducted a review of the 
account using information from a consumer report;
    (iii) A statement that as a result of the review, the annual 
percentage rate on the account has been increased based on information 
from a consumer report;
    (iv) A statement that the consumer is encouraged to verify the 
accuracy of the information contained in the consumer report and has the 
right to dispute any inaccurate information in the report;
    (v) The identity of each consumer reporting agency that furnished a 
consumer report used in the account review;
    (vi) A statement that Federal law gives the consumer the right to 
obtain a copy of a consumer report from the consumer reporting agency or 
agencies identified in the notice without charge for 60 days after 
receipt of the notice;
    (vii) A statement informing the consumer how to obtain a consumer 
report from the consumer reporting agency or agencies identified in the 
notice and providing contact information (including a toll-free 
telephone number, where applicable) specified by the consumer reporting 
agency or agencies;
    (viii) A statement directing consumers to the Web site of the Bureau 
to obtain more information about consumer reports; and
    (ix) If a credit score of the consumer whose extension of credit is 
under review is used in increasing the annual percentage rate:
    (A) A statement that a credit score is a number that takes into 
account information in a consumer report, that the consumer's credit 
score was used to set the terms of credit offered, and that a credit 
score can change over time to reflect changes in the consumer's credit 
history;
    (B) The credit score used by the person in making the credit 
decision;
    (C) The range of possible credit scores under the model used to 
generate the credit score;
    (D) All of the key factors that adversely affected the credit score, 
which shall not exceed four key factors, except that if one of the key 
factors is the number of enquires made with respect to the consumer 
report, the number of key factors shall not exceed five;
    (E) The date on which the credit score was created; and
    (F) The name of the consumer reporting agency or other person that 
provided the credit score.
    (b) Form of the notice--(1) In general. The risk-based pricing 
notice required by Sec. 1022.72(a), (c), or (d) must be:
    (i) Clear and conspicuous; and
    (ii) Provided to the consumer in oral, written, or electronic form.
    (2) Model forms. Model forms of the risk-based pricing notice 
required by Sec. 1022.72(a) and (c) are contained in appendices H-1 and 
H-6 of this part. Appropriate use of Model Form H-1 or H-6 is deemed to 
comply with the requirements of Sec. 1022.72(a) and (c). Model forms of 
the risk-based pricing notice required by Sec. 1022.72(d) are contained 
in appendices H-2 and H-7 of this part. Appropriate use of Model Form H-
2 or H-7 is deemed to comply with the requirements of Sec. 1022.72(d). 
Use of the model forms is optional.
    (c) Timing--(1) General. Except as provided in paragraph (c)(3) of 
this section, a risk-based pricing notice must be provided to the 
consumer:
    (i) In the case of a grant, extension, or other provision of closed-
end credit,

[[Page 427]]

before consummation of the transaction, but not earlier than the time 
the decision to approve an application for, or a grant, extension, or 
other provision of, credit, is communicated to the consumer by the 
person required to provide the notice;
    (ii) In the case of credit granted, extended, or provided under an 
open-end credit plan, before the first transaction is made under the 
plan, but not earlier than the time the decision to approve an 
application for, or a grant, extension, or other provision of, credit is 
communicated to the consumer by the person required to provide the 
notice; or
    (iii) In the case of a review of credit that has been extended to 
the consumer, at the time the decision to increase the annual percentage 
rate (annual percentage rate referenced in Sec. 1022.71(n)(1)(ii) in 
the case of a credit card) based on a consumer report is communicated to 
the consumer by the person required to provide the notice, or if no 
notice of the increase in the annual percentage rate is provided to the 
consumer prior to the effective date of the change in the annual 
percentage rate (to the extent permitted by law), no later than five 
days after the effective date of the change in the annual percentage 
rate.
    (2) Application to certain automobile lending transactions. When a 
person to whom a credit obligation is initially payable grants, extends, 
or provides credit to a consumer for the purpose of financing the 
purchase of an automobile from an auto dealer or other party that is not 
affiliated with the person, any requirement to provide a risk-based 
pricing notice pursuant to this subpart is satisfied if the person:
    (i) Provides a notice described in Sec. 1022.72(a), Sec. 
1022.74(e), or Sec. 1022.74(f) to the consumer within the time periods 
set forth in paragraph (c)(1)(i) of this section, Sec. 1022.74(e)(3), 
or Sec. 1022.74(f)(4), as applicable; or
    (ii) Arranges to have the auto dealer or other party provide a 
notice described in Sec. 1022.72(a), Sec. 1022.74(e), or Sec. 
1022.74(f) to the consumer on its behalf within the time periods set 
forth in paragraph (c)(1)(i) of this section, Sec. 1022.74(e)(3), or 
Sec. 1022.74(f)(4), as applicable, and maintains reasonable policies 
and procedures to verify that the auto dealer or other party provides 
such notice to the consumer within the applicable time periods. If the 
person arranges to have the auto dealer or other party provide a notice 
described in Sec. 1022.74(e), the person's obligation is satisfied if 
the consumer receives a notice containing a credit score obtained by the 
dealer or other party, even if a different credit score is obtained and 
used by the person on whose behalf the notice is provided.
    (3) Timing requirements for contemporaneous purchase credit. When 
credit under an open-end credit plan is granted, extended, or provided 
to a consumer in person or by telephone for the purpose of financing the 
contemporaneous purchase of goods or services, any risk-based pricing 
notice required to be provided pursuant to this subpart (or the 
disclosures permitted under Sec. 1022.74(e) or (f)) may be provided at 
the earlier of:
    (i) The time of the first mailing by the person to the consumer 
after the decision is made to approve the grant, extension, or other 
provision of open-end credit, such as in a mailing containing the 
account agreement or a credit card; or
    (ii) Within 30 days after the decision to approve the grant, 
extension, or other provision of credit.
    (d) Multiple credit scores--(1) In general. When a person obtains or 
creates two or more credit scores and uses one of those credit scores in 
setting the material terms of credit, for example, by using the low, 
middle, high, or most recent score, the notices described in paragraphs 
(a)(1) and (2) of this section must include that credit score and 
information relating to that credit score required by paragraphs 
(a)(1)(ix) and (a)(2)(ix). When a person obtains or creates two or more 
credit scores and uses multiple credit scores in setting the material 
terms of credit by, for example, computing the average of all the credit 
scores obtained or created, the notices described in paragraphs (a)(1) 
and (2) of this section must include one of those credit scores and 
information relating to credit scores required by paragraphs (a)(1)(ix) 
and (a)(2)(ix). The notice may, at the person's option, include more 
than one credit score, along

[[Page 428]]

with the additional information specified in paragraphs (a)(1)(ix) and 
(a)(2)(ix) of this section for each credit score disclosed.
    (2) Examples. (i) A person that uses consumer reports to set the 
material terms of credit cards granted, extended, or provided to 
consumers regularly requests credit scores from several consumer 
reporting agencies and uses the low score when determining the material 
terms it will offer to the consumer. That person must disclose the low 
score in the notices described in paragraphs (a)(1) and (2) of this 
section.
    (ii) A person that uses consumer reports to set the material terms 
of automobile loans granted, extended, or provided to consumers 
regularly requests credit scores from several consumer reporting 
agencies, each of which it uses in an underwriting program in order to 
determine the material terms it will offer to the consumer. That person 
may choose one of these scores to include in the notices described in 
paragraph (a)(1) and (2) of this section.



Sec. 1022.74  Exceptions.

    (a) Application for specific terms--(1) In general. A person is not 
required to provide a risk-based pricing notice to the consumer under 
Sec. 1022.72(a) or (c) if the consumer applies for specific material 
terms and is granted those terms, unless those terms were specified by 
the person using a consumer report after the consumer applied for or 
requested credit and after the person obtained the consumer report. For 
purposes of this section, ``specific material terms'' means a single 
material term, or set of material terms, such as an annual percentage 
rate of 10 percent, and not a range of alternatives, such as an annual 
percentage rate that may be 8, 10, or 12 percent, or between 8 and 12 
percent.
    (2) Example. A consumer receives a firm offer of credit from a 
credit card issuer. The terms of the firm offer are based in whole or in 
part on information from a consumer report that the credit card issuer 
obtained under the FCRA's firm offer of credit provisions. The 
solicitation offers the consumer a credit card with a single purchase 
annual percentage rate of 12 percent. The consumer applies for and 
receives a credit card with an annual percentage rate of 12 percent. 
Other customers with the same credit card have a purchase annual 
percentage rate of 10 percent. The exception applies because the 
consumer applied for specific material terms and was granted those 
terms. Although the credit card issuer specified the annual percentage 
rate in the firm offer of credit based in whole or in part on a consumer 
report, the credit card issuer specified that material term before, not 
after, the consumer applied for or requested credit.
    (b) Adverse action notice. A person is not required to provide a 
risk-based pricing notice to the consumer under Sec. 1022.72(a), (c), 
or (d) if the person provides an adverse action notice to the consumer 
under section 615(a) of the FCRA.
    (c) Prescreened solicitations--(1) In general. A person is not 
required to provide a risk-based pricing notice to the consumer under 
Sec. 1022.72(a) or (c) if the person:
    (i) Obtains a consumer report that is a prescreened list as 
described in section 604(c)(2) of the FCRA; and
    (ii) Uses the consumer report for the purpose of making a firm offer 
of credit to the consumer.
    (2) More favorable material terms. This exception applies to any 
firm offer of credit offered by a person to a consumer, even if the 
person makes other firm offers of credit to other consumers on more 
favorable material terms.
    (3) Example. A credit card issuer obtains two prescreened lists from 
a consumer reporting agency. One list includes consumers with high 
credit scores. The other list includes consumers with low credit scores. 
The issuer mails a firm offer of credit to the high credit score 
consumers with a single purchase annual percentage rate of 10 percent. 
The issuer also mails a firm offer of credit to the low credit score 
consumers with a single purchase annual percentage rate of 14 percent. 
The credit card issuer is not required to provide a risk-based pricing 
notice to the low credit score consumers who receive the 14 percent 
offer because use of a consumer report to make a firm offer of credit 
does not trigger the risk-based pricing notice requirement.

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    (d) Loans secured by residential real property--credit score 
disclosure--(1) In general. A person is not required to provide a risk-
based pricing notice to a consumer under Sec. 1022.72(a) or (c) if:
    (i) The consumer requests from the person an extension of credit 
that is or will be secured by one to four units of residential real 
property; and
    (ii) The person provides to each consumer described in paragraph 
(d)(1)(i) of this section a notice that contains the following:
    (A) A statement that a consumer report (or credit report) is a 
record of the consumer's credit history and includes information about 
whether the consumer pays his or her obligations on time and how much 
the consumer owes to creditors;
    (B) A statement that a credit score is a number that takes into 
account information in a consumer report and that a credit score can 
change over time to reflect changes in the consumer's credit history;
    (C) A statement that the consumer's credit score can affect whether 
the consumer can obtain credit and what the cost of that credit will be;
    (D) The information required to be disclosed to the consumer 
pursuant to section 609(g) of the FCRA;
    (E) The distribution of credit scores among consumers who are scored 
under the same scoring model that is used to generate the consumer's 
credit score using the same scale as that of the credit score that is 
provided to the consumer, presented in the form of a bar graph 
containing a minimum of six bars that illustrates the percentage of 
consumers with credit scores within the range of scores reflected in 
each bar or by other clear and readily understandable graphical means, 
or a clear and readily understandable statement informing the consumer 
how his or her credit score compares to the scores of other consumers. 
Use of a graph or statement obtained from the person providing the 
credit score that meets the requirements of this paragraph (d)(1)(ii)(E) 
is deemed to comply with this requirement;
    (F) A statement that the consumer is encouraged to verify the 
accuracy of the information contained in the consumer report and has the 
right to dispute any inaccurate information in the report;
    (G) A statement that Federal law gives the consumer the right to 
obtain copies of his or her consumer reports directly from the consumer 
reporting agencies, including a free report from each of the nationwide 
consumer reporting agencies once during any 12-month period;
    (H) Contact information for the centralized source from which 
consumers may obtain their free annual consumer reports; and
    (I) A statement directing consumers to the Web site of the Bureau to 
obtain more information about consumer reports.
    (2) Form of the notice. The notice described in paragraph (d)(1)(ii) 
of this section must be:
    (i) Clear and conspicuous;
    (ii) Provided on or with the notice required by section 609(g) of 
the FCRA;
    (iii) Segregated from other information provided to the consumer, 
except for the notice required by section 609(g) of the FCRA; and
    (iv) Provided to the consumer in writing and in a form that the 
consumer may keep.
    (3) Timing. The notice described in paragraph (d)(1)(ii) of this 
section must be provided to the consumer at the time the disclosure 
required by section 609(g) of the FCRA is provided to the consumer, but 
in any event at or before consummation in the case of closed-end credit 
or before the first transaction is made under an open-end credit plan.
    (4) Multiple credit scores--(i) In general. When a person obtains 
two or more credit scores from consumer reporting agencies and uses one 
of those credit scores in setting the material terms of credit granted, 
extended, or otherwise provided to a consumer, for example, by using the 
low, middle, high, or most recent score, the notice described in 
paragraph (d)(1)(ii) of this section must include that credit score and 
the other information required by that paragraph. When a person obtains 
two or more credit scores from consumer reporting agencies and uses 
multiple credit scores in setting the material terms of credit granted, 
extended, or otherwise provided to a consumer,

[[Page 430]]

for example, by computing the average of all the credit scores obtained, 
the notice described in paragraph (d)(1)(ii) of this section must 
include one of those credit scores and the other information required by 
that paragraph. The notice may, at the person's option, include more 
than one credit score, along with the additional information specified 
in paragraph (d)(1)(ii) of this section for each credit score disclosed.
    (ii) Examples. (A) A person that uses consumer reports to set the 
material terms of mortgage credit granted, extended, or provided to 
consumers regularly requests credit scores from several consumer 
reporting agencies and uses the low score when determining the material 
terms it will offer to the consumer. That person must disclose the low 
score in the notice described in paragraph (d)(1)(ii) of this section.
    (B) A person that uses consumer reports to set the material terms of 
mortgage credit granted, extended, or provided to consumers regularly 
requests credit scores from several consumer reporting agencies, each of 
which it uses in an underwriting program in order to determine the 
material terms it will offer to the consumer. That person may choose one 
of these scores to include in the notice described in paragraph 
(d)(1)(ii) of this section.
    (5) Model form. A model form of the notice described in paragraph 
(d)(1)(ii) of this section consolidated with the notice required by 
section 609(g) of the FCRA is contained in appendix H-3 of this part. 
Appropriate use of Model Form H-3 is deemed to comply with the 
requirements of Sec. 1022.74(d). Use of the model form is optional.
    (e) Other extensions of credit--credit score disclosure--(1) In 
general. A person is not required to provide a risk-based pricing notice 
to a consumer under Sec. 1022.72(a) or (c) if:
    (i) The consumer requests from the person an extension of credit 
other than credit that is or will be secured by one to four units of 
residential real property; and
    (ii) The person provides to each consumer described in paragraph 
(e)(1)(i) of this section a notice that contains the following:
    (A) A statement that a consumer report (or credit report) is a 
record of the consumer's credit history and includes information about 
whether the consumer pays his or her obligations on time and how much 
the consumer owes to creditors;
    (B) A statement that a credit score is a number that takes into 
account information in a consumer report and that a credit score can 
change over time to reflect changes in the consumer's credit history;
    (C) A statement that the consumer's credit score can affect whether 
the consumer can obtain credit and what the cost of that credit will be;
    (D) The current credit score of the consumer or the most recent 
credit score of the consumer that was previously calculated by the 
consumer reporting agency for a purpose related to the extension of 
credit;
    (E) The range of possible credit scores under the model used to 
generate the credit score;
    (F) The distribution of credit scores among consumers who are scored 
under the same scoring model that is used to generate the consumer's 
credit score using the same scale as that of the credit score that is 
provided to the consumer, presented in the form of a bar graph 
containing a minimum of six bars that illustrates the percentage of 
consumers with credit scores within the range of scores reflected in 
each bar, or by other clear and readily understandable graphical means, 
or a clear and readily understandable statement informing the consumer 
how his or her credit score compares to the scores of other consumers. 
Use of a graph or statement obtained from the person providing the 
credit score that meets the requirements of this paragraph (e)(1)(ii)(F) 
is deemed to comply with this requirement;
    (G) The date on which the credit score was created;
    (H) The name of the consumer reporting agency or other person that 
provided the credit score;
    (I) A statement that the consumer is encouraged to verify the 
accuracy of the information contained in the consumer report and has the 
right to dispute any inaccurate information in the report;

[[Page 431]]

    (J) A statement that Federal law gives the consumer the right to 
obtain copies of his or her consumer reports directly from the consumer 
reporting agencies, including a free report from each of the nationwide 
consumer reporting agencies once during any 12-month period;
    (K) Contact information for the centralized source from which 
consumers may obtain their free annual consumer reports; and
    (L) A statement directing consumers to the Web site of the Bureau to 
obtain more information about consumer reports.
    (2) Form of the notice. The notice described in paragraph (e)(1)(ii) 
of this section must be:
    (i) Clear and conspicuous;
    (ii) Segregated from other information provided to the consumer; and
    (iii) Provided to the consumer in writing and in a form that the 
consumer may keep.
    (3) Timing. The notice described in paragraph (e)(1)(ii) of this 
section must be provided to the consumer as soon as reasonably 
practicable after the credit score has been obtained, but in any event 
at or before consummation in the case of closed-end credit or before the 
first transaction is made under an open-end credit plan.
    (4) Multiple credit scores--(i) In general. When a person obtains 
two or more credit scores from consumer reporting agencies and uses one 
of those credit scores in setting the material terms of credit granted, 
extended, or otherwise provided to a consumer, for example, by using the 
low, middle, high, or most recent score, the notice described in 
paragraph (e)(1)(ii) of this section must include that credit score and 
the other information required by that paragraph. When a person obtains 
two or more credit scores from consumer reporting agencies and uses 
multiple credit scores in setting the material terms of credit granted, 
extended, or otherwise provided to a consumer, for example, by computing 
the average of all the credit scores obtained, the notice described in 
paragraph (e)(1)(ii) of this section must include one of those credit 
scores and the other information required by that paragraph. The notice 
may, at the person's option, include more than one credit score, along 
with the additional information specified in paragraph (e)(1)(ii) of 
this section for each credit score disclosed.
    (ii) Examples. The manner in which multiple credit scores are to be 
disclosed under this section are substantially identical to the manner 
set forth in the examples contained in paragraph (d)(4)(ii) of this 
section.
    (5) Model form. A model form of the notice described in paragraph 
(e)(1)(ii) of this section is contained in appendix H-4 of this part. 
Appropriate use of Model Form H-4 is deemed to comply with the 
requirements of Sec. 1022.74(e). Use of the model form is optional.
    (f) Credit score not available--(1) In general. A person is not 
required to provide a risk-based pricing notice to a consumer under 
Sec. 1022.72(a) or (c) if the person:
    (i) Regularly obtains credit scores from a consumer reporting agency 
and provides credit score disclosures to consumers in accordance with 
paragraphs (d) or (e) of this section, but a credit score is not 
available from the consumer reporting agency from which the person 
regularly obtains credit scores for a consumer to whom the person 
grants, extends, or provides credit;
    (ii) Does not obtain a credit score from another consumer reporting 
agency in connection with granting, extending, or providing credit to 
the consumer; and
    (iii) Provides to the consumer a notice that contains the following:
    (A) A statement that a consumer report (or credit report) includes 
information about the consumer's credit history and the type of 
information included in that history;
    (B) A statement that a credit score is a number that takes into 
account information in a consumer report and that a credit score can 
change over time in response to changes in the consumer's credit 
history;
    (C) A statement that credit scores are important because consumers 
with higher credit scores generally obtain more favorable credit terms;
    (D) A statement that not having a credit score can affect whether 
the consumer can obtain credit and what the cost of that credit will be;

[[Page 432]]

    (E) A statement that a credit score about the consumer was not 
available from a consumer reporting agency, which must be identified by 
name, generally due to insufficient information regarding the consumer's 
credit history;
    (F) A statement that the consumer is encouraged to verify the 
accuracy of the information contained in the consumer report and has the 
right to dispute any inaccurate information in the consumer report;
    (G) A statement that Federal law gives the consumer the right to 
obtain copies of his or her consumer reports directly from the consumer 
reporting agencies, including a free consumer report from each of the 
nationwide consumer reporting agencies once during any 12-month period;
    (H) The contact information for the centralized source from which 
consumers may obtain their free annual consumer reports; and
    (I) A statement directing consumers to the Web site of the Bureau to 
obtain more information about consumer reports.
    (2) Example. A person that uses consumer reports to set the material 
terms of non-mortgage credit granted, extended, or provided to consumers 
regularly requests credit scores from a particular consumer reporting 
agency and provides those credit scores and additional information to 
consumers to satisfy the requirements of paragraph (e) of this section. 
That consumer reporting agency provides to the person a consumer report 
on a particular consumer that contains one trade line, but does not 
provide the person with a credit score on that consumer. If the person 
does not obtain a credit score from another consumer reporting agency 
and, based in whole or in part on information in a consumer report, 
grants, extends, or provides credit to the consumer, the person may 
provide the notice described in paragraph (f)(1)(iii) of this section. 
If, however, the person obtains a credit score from another consumer 
reporting agency, the person may not rely upon the exception in 
paragraph (f) of this section, but may satisfy the requirements of 
paragraph (e) of this section.
    (3) Form of the notice. The notice described in paragraph 
(f)(1)(iii) of this section must be:
    (i) Clear and conspicuous;
    (ii) Segregated from other information provided to the consumer; and
    (iii) Provided to the consumer in writing and in a form that the 
consumer may keep.
    (4) Timing. The notice described in paragraph (f)(1)(iii) of this 
section must be provided to the consumer as soon as reasonably 
practicable after the person has requested the credit score, but in any 
event not later than consummation of a transaction in the case of 
closed-end credit or when the first transaction is made under an open-
end credit plan.
    (5) Model form. A model form of the notice described in paragraph 
(f)(1)(iii) of this section is contained in appendix H-5 of this part. 
Appropriate use of Model Form H-5 is deemed to comply with the 
requirements of Sec. 1022.74(f). Use of the model form is optional.



Sec. 1022.75  Rules of construction.

    For purposes of this subpart, the following rules of construction 
apply:
    (a) One notice per credit extension. A consumer is entitled to no 
more than one risk-based pricing notice under Sec. 1022.72(a) or (c), 
or one notice under Sec. 1022.74(d), (e), or (f), for each grant, 
extension, or other provision of credit. Notwithstanding the foregoing, 
even if a consumer has previously received a risk-based pricing notice 
in connection with a grant, extension, or other provision of credit, 
another risk-based pricing notice is required if the conditions set 
forth in Sec. 1022.72(d) have been met.
    (b) Multi-party transactions--(1) Initial creditor. The person to 
whom a credit obligation is initially payable must provide the risk-
based pricing notice described in Sec. 1022.72(a) or (c), or satisfy 
the requirements for and provide the notice required under one of the 
exceptions in Sec. 1022.74(d), (e), or (f), even if that person 
immediately assigns the credit agreement to a third party and is not the 
source of funding for the credit.
    (2) Purchasers or assignees. A purchaser or assignee of a credit 
contract with a consumer is not subject to the requirements of this 
subpart and is not

[[Page 433]]

required to provide the risk-based pricing notice described in Sec. 
1022.72(a) or (c), or satisfy the requirements for and provide the 
notice required under one of the exceptions in Sec. 1022.74(d), (e), or 
(f).
    (3) Example. A consumer obtains credit to finance the purchase of an 
automobile. If a bank or finance company is the person to whom the loan 
obligation is initially payable, the bank or finance company must 
provide the risk-based pricing notice to the consumer (or satisfy the 
requirements for and provide the notice required under one of the 
exceptions noted above) based on the terms offered by that bank or 
finance company only. The auto dealer has no duty to provide a risk-
based pricing notice to the consumer. However, the bank or finance 
company may comply with this rule if the auto dealer has agreed to 
provide notices to consumers before consummation pursuant to an 
arrangement with the bank or finance company, as permitted under Sec. 
1022.73(c).
    (c) Multiple consumers--(1) Risk-based pricing notices. In a 
transaction involving two or more consumers who are granted, extended, 
or otherwise provided credit, a person must provide a notice to each 
consumer to satisfy the requirements of Sec. 1022.72(a) or (c). Whether 
the consumers have the same address or not, the person must provide a 
separate notice to each consumer if a notice includes a credit score(s). 
Each separate notice that includes a credit score(s) must contain only 
the credit score(s) of the consumer to whom the notice is provided, and 
not the credit score(s) of the other consumer. If the consumers have the 
same address, and the notice does not include a credit score(s), a 
person may satisfy the requirements by providing a single notice 
addressed to both consumers.
    (2) Credit score disclosure notices. In a transaction involving two 
or more consumers who are granted, extended, or otherwise provided 
credit, a person must provide a separate notice to each consumer to 
satisfy the exceptions in Sec. 1022.74(d), (e), or (f). Whether the 
consumers have the same address or not, the person must provide a 
separate notice to each consumer. Each separate notice must contain only 
the credit score(s) of the consumer to whom the notice is provided, and 
not the credit score(s) of the other consumer.
    (3) Examples. (i) Two consumers jointly apply for credit with a 
creditor. The creditor obtains credit scores on both consumers. Based in 
part on the credit scores, the creditor grants credit to the consumers 
on material terms that are materially less favorable than the most 
favorable terms available to other consumers from the creditor. The 
creditor provides risk-based pricing notices to satisfy its obligations 
under this subpart. The creditor must provide a separate risk-based 
pricing notice to each consumer whether the consumers have the same 
address or not. Each risk-based pricing notice must contain only the 
credit score(s) of the consumer to whom the notice is provided.
    (ii) Two consumers jointly apply for credit with a creditor. The two 
consumers reside at the same address. The creditor obtains credit scores 
on each of the two consumer applicants. The creditor grants credit to 
the consumers. The creditor provides credit score disclosure notices to 
satisfy its obligations under this subpart. Even though the two 
consumers reside at the same address, the creditor must provide a 
separate credit score disclosure notice to each of the consumers. Each 
notice must contain only the credit score of the consumer to whom the 
notice is provided.



 Subpart I_Duties of Users of Consumer Reports Regarding Identity Theft



Sec. Sec. 1022.80-1022.81  [Reserved]



Sec. 1022.82  Duties of users regarding address discrepancies.

    (a) Scope. This section applies to a user of consumer reports (user) 
that receives a notice of address discrepancy from a consumer reporting 
agency described in 15 U.S.C. 1681a(p), except for a person excluded 
from coverage of this part by section 1029 of the Consumer Financial 
Protection Act of 2010, Title X of the Dodd-Frank Wall Street Reform and 
Consumer Protection Act, Public Law 111-203, 124 Stat. 137.
    (b) Definition. For purposes of this section, a notice of address 
discrepancy

[[Page 434]]

means a notice sent to a user by a consumer reporting agency described 
in 15 U.S.C. 1681a(p) pursuant to 15 U.S.C. 1681c(h)(1), that informs 
the user of a substantial difference between the address for the 
consumer that the user provided to request the consumer report and the 
address(es) in the agency's file for the consumer.
    (c) Reasonable belief--(1) Requirement to form a reasonable belief. 
A user must develop and implement reasonable policies and procedures 
designed to enable the user to form a reasonable belief that a consumer 
report relates to the consumer about whom it has requested the report, 
when the user receives a notice of address discrepancy.
    (2) Examples of reasonable policies and procedures. (i) Comparing 
the information in the consumer report provided by the consumer 
reporting agency with information the user:
    (A) Obtains and uses to verify the consumer's identity in accordance 
with the requirements of the Customer Identification Program (CIP) rules 
implementing 31 U.S.C. 5318(l) (31 CFR 1020.220);
    (B) Maintains in its own records, such as applications, change of 
address notifications, other customer account records, or retained CIP 
documentation; or
    (C) Obtains from third-party sources; or
    (ii) Verifying the information in the consumer report provided by 
the consumer reporting agency with the consumer.
    (d) Consumer's address--(1) Requirement to furnish consumer's 
address to a consumer reporting agency. A user must develop and 
implement reasonable policies and procedures for furnishing an address 
for the consumer that the user has reasonably confirmed is accurate to 
the consumer reporting agency described in 15 U.S.C. 1681a(p) from whom 
it received the notice of address discrepancy when the user:
    (i) Can form a reasonable belief that the consumer report relates to 
the consumer about whom the user requested the report;
    (ii) Establishes a continuing relationship with the consumer; and
    (iii) Regularly and in the ordinary course of business furnishes 
information to the consumer reporting agency from which the notice of 
address discrepancy relating to the consumer was obtained.
    (2) Examples of confirmation methods. The user may reasonably 
confirm an address is accurate by:
    (i) Verifying the address with the consumer about whom it has 
requested the report;
    (ii) Reviewing its own records to verify the address of the 
consumer;
    (iii) Verifying the address through third-party sources; or
    (iv) Using other reasonable means.
    (3) Timing. The policies and procedures developed in accordance with 
paragraph (d)(1) of this section must provide that the user will furnish 
the consumer's address that the user has reasonably confirmed is 
accurate to the consumer reporting agency described in 15 U.S.C. 
1681a(p) as part of the information it regularly furnishes for the 
reporting period in which it establishes a relationship with the 
consumer.

Subparts J-L [Reserved]



Subpart M_Duties of Consumer Reporting Agencies Regarding Identity Theft



Sec. 1022.120  [Reserved]



Sec. 1022.121  Active duty alerts.

    (a) Duration. The duration of an active duty alert shall be twelve 
months.
    (b) [Reserved]



Sec. 1022.122  [Reserved]



Sec. 1022.123  Appropriate proof of identity.

    (a) Consumer reporting agencies shall develop and implement 
reasonable requirements for what information consumers shall provide to 
constitute proof of identity for purposes of sections 605A, 605B, and 
609(a)(1) of the FCRA. In developing these requirements, the consumer 
reporting agencies must:
    (1) Ensure that the information is sufficient to enable the consumer 
reporting agency to match consumers with their files; and

[[Page 435]]

    (2) Adjust the information to be commensurate with an identifiable 
risk of harm arising from misidentifying the consumer.
    (b) Examples of information that might constitute reasonable 
information requirements for proof of identity are provided for 
illustrative purposes only, as follows:
    (1) Consumer file match. The identification information of the 
consumer including his or her full name (first, middle initial, last, 
suffix), any other or previously used names, current and/or recent full 
address (street number and name, apt. no., city, state, and zip code), 
full nine digits of Social Security number, and/or date of birth.
    (2) Additional proof of identity. Copies of government issued 
identification documents, utility bills, and/or other methods of 
authentication of a person's identity which may include, but would not 
be limited to, answering questions to which only the consumer might be 
expected to know the answer.



Sec. Sec. 1022.124-1022.129  [Reserved]



Subpart N_Duties of Consumer Reporting Agencies Regarding Disclosures to 
                                Consumers



Sec. 1022.130  Definitions.

    For purposes of this subpart, the following definitions apply:
    (a) Annual file disclosure means a file disclosure that is provided 
to a consumer, upon consumer request and without charge, once in any 
twelve month period, in compliance with section 612(a) of the FCRA, 15 
U.S.C. 1681j(a).
    (b) Associated consumer reporting agency means a consumer reporting 
agency that owns or maintains consumer files housed within systems 
operated by one or more nationwide consumer reporting agencies.
    (c) Consumer report has the meaning provided in section 603(d) of 
the FCRA, 15 U.S.C. 1681a(d).
    (d) Consumer reporting agency has the meaning provided in section 
603(f) of the FCRA, 15 U.S.C. 1681a(f).
    (e) Extraordinary request volume occurs when the number of consumers 
requesting or attempting to request file disclosures during any twenty-
four hour period is more than 175 percent of the rolling ninety-day 
daily average of consumers requesting or attempting to request file 
disclosures. For example, if over the previous ninety days an average of 
one hundred consumers per day requested or attempted to request file 
disclosures, then extraordinary request volume would be any volume 
greater than 175 percent of one hundred, i.e., 176 or more requests in a 
single twenty-four hour period.
    (f) File disclosure means a disclosure by a consumer reporting 
agency pursuant to section 609 of the FCRA, 15 U.S.C. 1681g.
    (g) High request volume occurs when the number of consumers 
requesting or attempting to request file disclosures during any twenty-
four hour period is more than 125 percent of the rolling ninety-day 
daily average of consumers requesting or attempting to request file 
disclosures. For example, if over the previous ninety days an average of 
one hundred consumers per day requested or attempted to request file 
disclosures, then high request volume would be any volume greater than 
125 percent of one hundred, i.e., 126 or more requests in a single 
twenty-four hour period.
    (h) Nationwide consumer reporting agency means a consumer reporting 
agency that compiles and maintains files on consumers on a nationwide 
basis as defined in section 603(p) of the FCRA, 15 U.S.C. 1681a(p).
    (i) Nationwide specialty consumer reporting agency has the meaning 
provided in section 603(w) of the FCRA, 15 U.S.C. 1681a(w).
    (j) Request method means the method by which a consumer chooses to 
communicate a request for an annual file disclosure.



Sec. Sec. 1022.131-1022.135  [Reserved]



Sec. 1022.136  Centralized source for requesting annual file disclosures
from nationwide consumer reporting agencies.

    (a) Purpose. The purpose of the centralized source is to enable 
consumers to make a single request to obtain annual file disclosures 
from all nationwide consumer reporting agencies, as required under 
section 612(a) of the FCRA, 15 U.S.C. 1681j(a).

[[Page 436]]

    (b) Establishment and operation. All nationwide consumer reporting 
agencies shall jointly design, fund, implement, maintain, and operate a 
centralized source for the purpose described in Paragraph (a) of this 
section. The centralized source required by this part shall:
    (1) Enable consumers to request annual file disclosures by any of 
the following request methods, at the consumers' option:
    (i) A single, dedicated Web site,
    (ii) A single, dedicated toll-free telephone number; and
    (iii) Mail directed to a single address;
    (2) Be designed, funded, implemented, maintained, and operated in a 
manner that:
    (i) Has adequate capacity to accept requests from the reasonably 
anticipated volume of consumers contacting the centralized source 
through each request method, as determined in accordance with paragraph 
(c) of this section;
    (ii) Collects only as much personally identifiable information as is 
reasonably necessary to properly identify the consumer as required under 
the FCRA, section 610(a)(1), 15 U.S.C. 1681h(a)(1), and other applicable 
laws and regulations, and to process the transaction(s) requested by the 
consumer;
    (iii) Provides information through the centralized source Web site 
and telephone number regarding how to make a request by all request 
methods required under paragraph (b)(1) of this section; and
    (iv) Provides clear and easily understandable information and 
instructions to consumers, including, but not necessarily limited to:
    (A) Providing information on the progress of the consumer's request 
while the consumer is engaged in the process of requesting a file 
disclosure;
    (B) For a Web site request method, providing access to a ``help'' or 
``frequently asked questions'' screen, which includes specific 
information that consumers might reasonably need to request file 
disclosures, the answers to questions that consumers might reasonably 
ask, and instructions whereby a consumer may file a complaint with the 
centralized source and with the Bureau;
    (C) In the event that a consumer requesting a file disclosure 
through the centralized source cannot be properly identified in 
accordance with the FCRA, section 610(a)(1), 15 U.S.C. 1681h(a)(1), and 
other applicable laws and regulations, providing a statement that the 
consumers' identity cannot be verified; and directions on how to 
complete the request, including what additional information or 
documentation will be required to complete the request, and how to 
submit such information; and
    (D) A statement indicating that the consumer has reached the Web 
site or telephone number for ordering free annual credit reports as 
required by Federal law; and
    (3) Make available to consumers a standardized form established 
jointly by the nationwide consumer reporting agencies, which consumers 
may use to make a request for an annual file disclosure, either by mail 
or on the Web site required under paragraph (b)(1) of this section, from 
the centralized source required by this part. The form provided at 
appendix L to part 1022, may be used to comply with this section.
    (c) Requirement to anticipate. The nationwide consumer reporting 
agencies shall implement reasonable procedures to anticipate, and to 
respond to, the volume of consumers who will contact the centralized 
source through each request method, to request, or attempt to request, a 
file disclosure, including developing and implementing contingency plans 
to address circumstances that are reasonably likely to occur and that 
may materially and adversely impact the operation of the nationwide 
consumer reporting agency, a centralized source request method, or the 
centralized source.
    (1) The contingency plans required by this section shall include 
reasonable measures to minimize the impact of such circumstances on the 
operation of the centralized source and on consumers contacting, or 
attempting to contact, the centralized source.
    (i) Such reasonable measures to minimize impact shall include, but 
are not necessarily limited to:

[[Page 437]]

    (A) The extent reasonably practicable under the circumstances, 
providing information to consumers on how to use another available 
request method;
    (B) The extent reasonably practicable under the circumstances, 
communicating, to a consumer who attempts but is unable to make a 
request, the fact that a condition exists that has precluded the 
centralized source from accepting all requests, and the period of time 
after which the centralized source is reasonably anticipated to be able 
to accept the consumers' request for an annual file disclosure; and
    (C) Taking all reasonable steps to restore the centralized source to 
normal operating status as quickly as reasonably practicable under the 
circumstances.
    (ii) Reasonable measures to minimize impact may also include, as 
appropriate, collecting request information but declining to accept the 
request for processing until a reasonable later time, provided that the 
consumer is clearly and prominently informed, to the extent reasonably 
practicable under the circumstances, of when the request will be 
accepted for processing.
    (2) A nationwide consumer reporting agency shall not be deemed in 
violation of paragraph (b)(2)(i) of this section if a centralized source 
request method is unavailable to accept requests for a reasonable period 
of time for purposes of conducting maintenance on the request method, 
provided that the other required request methods remain available during 
such time.
    (d) Disclosures required. If a nationwide consumer reporting agency 
has the ability to provide a consumer report to a third party relating 
to a consumer, regardless of whether the consumer report is owned by 
that nationwide consumer reporting agency or by an associated consumer 
reporting agency, that nationwide consumer reporting agency shall, upon 
proper identification in compliance with section 610(a)(1) of the FCRA, 
15 U.S.C. 1681h(a)(1), provide an annual file disclosure to such 
consumer if the consumer makes a request through the centralized source.
    (e) High request volume and extraordinary request volume--(1) High 
request volume. Provided that a nationwide consumer reporting agency has 
implemented reasonable procedures developed in accordance with paragraph 
(c) of this section, entitled ``requirement to anticipate,'' the 
nationwide consumer reporting agency shall not be deemed in violation of 
paragraph (b)(2)(i) of this section for any period of time in which a 
centralized source request method, the centralized source, or the 
nationwide consumer reporting agency experiences high request volume, if 
the nationwide consumer reporting agency:
    (i) Collects all consumer request information and delays accepting 
the request for processing until a reasonable later time; and
    (ii) Clearly and prominently informs the consumer of when the 
request will be accepted for processing.
    (2) Extraordinary request volume. Provided that the nationwide 
consumer reporting agency has implemented reasonable procedures 
developed in compliance with paragraph (c) of this section, entitled 
``requirement to anticipate,'' the nationwide consumer reporting agency 
shall not be deemed in violation of paragraph (b)(2)(i) of this section 
for any period of time during which a particular centralized source 
request method, the centralized source, or the nationwide consumer 
reporting agency experiences extraordinary request volume.
    (f) Information use and disclosure. Any personally identifiable 
information collected from consumers as a result of a request for annual 
file disclosure, or other disclosure required by the FCRA, made through 
the centralized source, may be used or disclosed by the centralized 
source or a nationwide consumer reporting agency only:
    (1) To provide the annual file disclosure or other disclosure 
required under the FCRA requested by the consumer;
    (2) To process a transaction requested by the consumer at the same 
time as a request for annual file disclosure or other disclosure;
    (3) To comply with applicable legal requirements, including those 
imposed by the FCRA and this part; and

[[Page 438]]

    (4) To update personally identifiable information already maintained 
by the nationwide consumer reporting agency for the purpose of providing 
consumer reports, provided that the nationwide consumer reporting agency 
uses and discloses the updated personally identifiable information 
subject to the same restrictions that would apply, under any applicable 
provision of law or regulation, to the information updated or replaced.
    (g) Communications provided through centralized source. (1) Any 
advertising or marketing for products or services, any communications or 
instructions that advertise or market any products or services, or any 
request to establish an account through the centralized source must be 
delayed until after the consumer has obtained his or her annual file 
disclosure.
    (i) In the case of requests made by mail or telephone, the consumer 
``has obtained his or her annual file disclosure'' when the file 
disclosure is mailed, and the nationwide consumer reporting agency may 
include advertising for other products or services with the file 
disclosure.
    (ii) In the case of requests made through the centralized source Web 
site, the consumer ``has obtained his or her annual file disclosure'' 
when the file disclosure is delivered to the consumer through the 
Internet, and the nationwide consumer reporting agency may include 
advertising for other products or services with the file disclosure.
    (2) Any communications, instructions, or permitted advertising or 
marketing shall not interfere with, detract from, contradict, or 
otherwise undermine the purpose of the centralized source stated in 
Paragraph (a) of this section.
    (3) Examples of interfering, detracting, inconsistent, and/or 
undermining communications include:
    (i) Centralized source materials that represent, expressly or by 
implication, that a consumer must purchase a paid product or service in 
order to receive or to understand the annual file disclosure;
    (ii) Centralized source materials that represent, expressly or by 
implication, that annual file disclosures are not free, or that 
obtaining an annual file disclosure will have a negative impact on the 
consumers' credit standing; and
    (iii) Centralized source materials that falsely represent, expressly 
or by implication, that a product or service offered ancillary to 
receipt of a file disclosure, such as a credit score or credit 
monitoring service, is free, or fail to clearly and prominently disclose 
that consumers must cancel a service, advertised as free for an initial 
period of time, to avoid being charged, if such is the case.
    (h) Other practices prohibited through the centralized source. The 
centralized source shall not:
    (1) Contain hyperlinks to commercial or proprietary Web sites until 
after the consumer has obtained his or her annual file disclosure, 
except for technical transfers to a Web page on which consumers can 
request their free annual file disclosure; provided, however, that no 
hyperlinks to commercial Web sites shall appear on the initial page of 
the centralized source.
    (2) Require consumers to set up an account in connection with 
obtaining an annual file disclosure; or
    (3) Ask or require consumers to agree to terms or conditions in 
connection with obtaining an annual file disclosure.



Sec. 1022.137  Streamlined process for requesting annual file
disclosures from nationwide specialty consumer reporting agencies.

    (a) Streamlined process requirements. Any nationwide specialty 
consumer reporting agency shall have a streamlined process for accepting 
and processing consumer requests for annual file disclosures. The 
streamlined process required by this part shall:
    (1) Enable consumers to request annual file disclosures by a toll-
free telephone number that:
    (i) Provides clear and prominent instructions for requesting 
disclosures by any additional available request methods, that do not 
interfere with, detract from, contradict, or otherwise undermine the 
ability of consumers to obtain annual file disclosures through the 
streamlined process required by this part;

[[Page 439]]

    (ii) Is published, in conjunction with all other published numbers 
for the nationwide specialty consumer reporting agency, in any telephone 
directory in which any telephone number for the nationwide specialty 
consumer reporting agency is published; and
    (iii) Is clearly and prominently posted on any Web site owned or 
maintained by the nationwide specialty consumer reporting agency that is 
related to consumer reporting, along with instructions for requesting 
disclosures by any additional available request methods; and
    (2) Be designed, funded, implemented, maintained, and operated in a 
manner that:
    (i) Has adequate capacity to accept requests from the reasonably 
anticipated volume of consumers contacting the nationwide specialty 
consumer reporting agency through the streamlined process, as determined 
in compliance with paragraph (b) of this section;
    (ii) Collects only as much personal information as is reasonably 
necessary to properly identify the consumer as required under the FCRA, 
section 610(a)(1), 15 U.S.C. 1681h(a)(1), and other applicable laws and 
regulations; and
    (iii) Provides clear and easily understandable information and 
instructions to consumers, including but not necessarily limited to:
    (A) Providing information on the status of the consumers request 
while the consumer is in the process of making a request;
    (B) For a Web site request method, providing access to a ``help'' or 
``frequently asked questions'' screen, which includes more specific 
information that consumers might reasonably need to order their file 
disclosure, the answers to questions that consumers might reasonably 
ask, and instructions whereby a consumer may file a complaint with the 
nationwide specialty consumer reporting agency and with the Bureau; and
    (C) In the event that a consumer requesting a file disclosure cannot 
be properly identified in accordance with the FCRA, section 610(a)(1), 
15 U.S.C. 1681h(a)(1), and other applicable laws and regulations, 
providing a statement that the consumers identity cannot be verified; 
and directions on how to complete the request, including what additional 
information or documentation will be required to complete the request, 
and how to submit such information.
    (b) Requirement to anticipate. A nationwide specialty consumer 
reporting agency shall implement reasonable procedures to anticipate, 
and respond to, the volume of consumers who will contact the nationwide 
specialty consumer reporting agency through the streamlined process to 
request, or attempt to request, file disclosures, including developing 
and implementing contingency plans to address circumstances that are 
reasonably likely to occur and that may materially and adversely impact 
the operation of the nationwide specialty consumer reporting agency, a 
request method, or the streamlined process.
    (1) The contingency plans required by this section shall include 
reasonable measures to minimize the impact of such circumstances on the 
operation of the streamlined process and on consumers contacting, or 
attempting to contact, the nationwide specialty consumer reporting 
agency through the streamlined process.
    (i) Such reasonable measures to minimize impact shall include, but 
are not necessarily limited to:
    (A) To the extent reasonably practicable under the circumstances, 
providing information to consumers on how to use another available 
request method;
    (B) To the extent reasonably practicable under the circumstances, 
communicating, to a consumer who attempts but is unable to make a 
request, the fact that a condition exists that has precluded the 
nationwide specialty consumer reporting agency from accepting all 
requests, and the period of time after which the agency is reasonably 
anticipated to be able to accept the consumers request for an annual 
file disclosure; and
    (C) Taking all reasonable steps to restore the streamlined process 
to normal operating status as quickly as reasonably practicable under 
the circumstances.

[[Page 440]]

    (ii) Measures to minimize impact may also include, as appropriate, 
collecting request information but declining to accept the request for 
processing until a reasonable later time, provided that the consumer is 
clearly and prominently informed, to the extent reasonably practicable 
under the circumstances, of when the request will be accepted for 
processing.
    (2) A nationwide specialty consumer reporting agency shall not be 
deemed in violation of paragraph (a)(2)(i) of this section if the toll-
free telephone number required by this part is unavailable to accept 
requests for a reasonable period of time for purposes of conducting 
maintenance on the request method, provided that the nationwide 
specialty consumer reporting agency makes other request methods 
available to consumers during such time.
    (c) High request volume and extraordinary request volume--(1) High 
request volume. Provided that the nationwide specialty consumer 
reporting agency has implemented reasonable procedures developed in 
accordance with paragraph (b) of this section, entitled ``requirement to 
anticipate,'' a nationwide specialty consumer reporting agency shall not 
be deemed in violation of paragraph (a)(2)(i) of this section for any 
period of time during which a streamlined process request method or the 
nationwide specialty consumer reporting agency experiences high request 
volume, if the nationwide specialty consumer reporting agency:
    (i) Collects all consumer request information and delays accepting 
the request for processing until a reasonable later time; and
    (ii) Clearly and prominently informs the consumer of when the 
request will be accepted for processing.
    (2) Extraordinary request volume. Provided that the nationwide 
specialty consumer reporting agency has implemented reasonable 
procedures developed in accordance with paragraph (b) of this section, 
entitled ``requirement to anticipate,'' a nationwide specialty consumer 
reporting agency shall not be deemed in violation of Paragraph (a)(2)(i) 
of this section for any period of time during which a streamlined 
process request method or the nationwide specialty consumer reporting 
agency experiences extraordinary request volume.
    (d) Information use and disclosure. Any personally identifiable 
information collected from consumers as a result of a request for annual 
file disclosure, or other disclosure required by the FCRA, made through 
the streamlined process, may be used or disclosed by the nationwide 
specialty consumer reporting agency only:
    (1) To provide the annual file disclosure or other disclosure 
required under the FCRA requested by the consumer;
    (2) To process a transaction requested by the consumer at the same 
time as a request for annual file disclosure or other disclosure;
    (3) To comply with applicable legal requirements, including those 
imposed by the FCRA and this part; and
    (4) To update personally identifiable information already maintained 
by the nationwide specialty consumer reporting agency for the purpose of 
providing consumer reports, provided that the nationwide specialty 
consumer reporting agency uses and discloses the updated personally 
identifiable information subject to the same restrictions that would 
apply, under any applicable provision of law or regulation, to the 
information updated or replaced.
    (e) Requirement to accept or redirect requests. If a consumer 
requests an annual file disclosure through a method other than the 
streamlined process established by the nationwide specialty consumer 
reporting agency in compliance with this part, a nationwide specialty 
consumer reporting agency shall:
    (1) Accept the consumers request; or
    (2) Instruct the consumer how to make the request using the 
streamlined process required by this part.



Sec. 1022.138  Prevention of deceptive marketing of free credit reports.

    (a) For purposes of this section:
    (1) AnnualCreditReport.com and (877) 322-8228 means the Uniform 
Resource Locator address ``AnnualCreditReport.com'' and toll-free 
telephone number, (877) 322-8228. These are the locator address and 
toll-free telephone number currently used by the centralized source. If 
the locator address or toll-free telephone number

[[Page 441]]

changes in the future, the new address or telephone number shall be 
substituted within a reasonable time.
    (2) Free credit report means a file disclosure prepared by or 
obtained from, directly or indirectly, a nationwide consumer reporting 
agency (as defined in section 603(p) of the FCRA), that is represented, 
either expressly or impliedly, to be available to the consumer at no 
cost if the consumer purchases a product or service, or agrees to 
purchase a product or service subject to cancellation.
    (3) General requirements for disclosures. The disclosures covered by 
paragraph (b) of this section shall contain only the prescribed content 
and comply with the following requirements:
    (i) All disclosures shall be prominent;
    (ii) All disclosures shall be made in the same language as that 
principally used in the advertisement;
    (iii) Visual disclosures shall be easily readable; in a high degree 
of contrast from the immediate background on which it appears; in a 
format so that the disclosure is distinct from other text, such as 
inside a border; in a distinct type style, such as bold; and parallel to 
the base of the advertisement or screen;
    (iv) Audio disclosures shall be delivered in a slow and deliberate 
manner and in a reasonably understandable volume and pitch;
    (v) Program-length television, radio, or Internet-hosted multimedia 
advertisement disclosures shall be made at the beginning, near the 
middle, and at the end of the advertisement; and
    (vi) Nothing contrary to, inconsistent with, or that undermines the 
required disclosures shall be used in any advertisement in any medium, 
nor shall any audio, visual, or print technique be used that is likely 
to detract significantly from the communication of any disclosure.
    (b) Medium-specific disclosures. All offers of free credit reports 
shall prominently include the disclosures required by this section.
    (1) Television advertisements. (i) All advertisements for free 
credit reports broadcast on television shall include the following 
disclosure in close proximity to the first mention of a free credit 
report: ``This is not the free credit report provided for by Federal 
law.''
    (ii) The disclosure shall appear at the same time in the audio and 
visual part of the advertisement. The visual disclosure shall be at 
least four percent of the vertical picture height and appear for a 
minimum of four seconds.
    (2) Radio advertisements. All advertisements for free credit reports 
broadcast on radio shall include the following disclosure in close 
proximity to the first mention of a free credit report: ``This is not 
the free credit report provided for by Federal law.''
    (3) Print advertisements. All advertisements for free credit reports 
in print shall include the following disclosure in the form specified 
below and in close proximity to the first mention of a free credit 
report. The first line of the disclosure shall be centered and contain 
only the following language: ``THIS NOTICE IS REQUIRED BY LAW.'' 
Immediately below the first line of the disclosure the following 
language shall appear: ``You have the right to a free credit report from 
AnnualCreditReport.com or (877) 322-8228, the ONLY authorized source 
under Federal law.'' Each letter of the disclosure text shall be, at 
minimum, one-half the size of the largest character used in the 
advertisement.
    (4) Web sites. Any Web site offering free credit reports must 
display the disclosure set forth in paragraphs (b)(4)(i), (ii), and (v) 
of this section on each page that mentions a free credit report and on 
each page of the ordering process. This disclosure shall be visible 
across the top of each page where the disclosure is required to appear; 
shall appear inside a box; and shall appear in the form specified below:
    (i) The first element of the disclosure shall be a header that is 
centered and shall consist of the following text: ``THIS NOTICE IS 
REQUIRED BY LAW. Read more at consumerfinance.gov/learnmore.'' Each 
letter of the header shall be one-half the size of the largest character 
of the disclosure text required by paragraph (b)(4)(ii) of this section. 
The reference to consumerfinance.gov/learnmore shall be an operational 
hyperlink, underlined, and in a color that is a high degree of contrast 
from the color of the

[[Page 442]]

other disclosure text and background color of the box. Until January 1, 
2013, ``www.ftc.gov'' and the corresponding hyperlink may be substituted 
for ``consumerfinance.gov/learmore'' and the corresponding hyperlink;
    (ii) The second element of the disclosure shall appear below the 
header required by paragraph (b)(4)(i) and shall consist of the 
following text: ``You have the right to a free credit report from 
AnnualCreditReport.com or (877) 322-8228, the ONLY authorized source 
under Federal law.'' The reference to AnnualCreditReport.com shall be an 
operational hyperlink to the centralized source, underlined, and in the 
same color as the hyperlink to consumerfinance.gov/learnmore required in 
Sec. 1022.138(b)(4)(i);
    (iii) The color of the text required by Sec. 1022.138(b)(4)(i) and 
(ii) shall be in a high degree of contrast with the background color of 
the box;
    (iv) The background of the box shall be a solid color in a high 
degree of contrast from the background of the page and the color shall 
not appear elsewhere on the page;
    (v) The third element of the disclosure shall appear below the text 
required by paragraph (b)(4)(ii) and shall be an operational hyperlink 
to AnnualCreditReport.com that appears as a centered button containing 
the following language: ``Take me to the authorized source.'' The 
background of this button shall be the same color as the hyperlinks 
required by Sec. 1022.138(b)(4)(i) and (ii) and the text shall be in a 
high degree of contrast to the background of the button;
    (vi) Each character of the text required in paragraph (b)(4)(ii) and 
(v) of this section shall be, at minimum, the same size as the largest 
character on the page, including characters in an image or graphic 
banner;
    (vii) Each character of the disclosure shall be displayed as plain 
text and in a sans serif font, such as Arial; and
    (viii) The space between each element of the disclosure required in 
paragraph (b)(i), (ii), and (v) of this section shall be, at minimum, 
the same size as the largest character on the page, including characters 
in an image or graphic banner. The space between the boundaries of the 
box and the text or button required in Sec. 1022.138(b)(i), (ii), and 
(v) shall be, at minimum, twice the size of the vertical height of the 
largest character on the page, including characters in an image or 
graphic banner.
    (5) Internet-hosted multimedia advertising. All advertisements for 
free credit reports disseminated through Internet-hosted multimedia in 
both audio and visual formats shall include the following disclosure in 
the form specified below and in close proximity to the first mention of 
a free credit report. The first line of the disclosure shall be centered 
and contain only the following language: ``THIS NOTICE IS REQUIRED BY 
LAW.'' Immediately below the first line of the disclosure the following 
language shall appear: ``You have the right to a free credit report from 
AnnualCreditReport.com or (877) 322-8228, the ONLY authorized source 
under Federal law.'' The disclosure shall appear at the same time in the 
audio and visual part of the advertisement. If the advertisement 
contains characters, the visual disclosure shall be, at minimum, the 
same size as the largest character on the advertisement.
    (6) Telephone requests. When consumers call any telephone number, 
other than the number of the centralized source, appearing in an 
advertisement that represents free credit reports are available at the 
number, consumers must receive the following audio disclosure at the 
first mention of a free credit report: ``The following notice is 
required by law. You have the right to a free credit report from 
AnnualCreditReport.com or (877) 322-8228, the only authorized source 
under Federal law.''
    (7) Telemarketing solicitations. When telemarketing sales calls are 
made that include offers of free credit reports, the call must include 
at the first mention of a free credit report the following disclosure: 
``The following notice is required by law. You have the right to a free 
credit report from AnnualCreditReport.com or (877) 322-8228, the only 
authorized source under Federal law.''

[[Page 443]]



Sec. 1022.139  [Reserved]



      Subpart O_Miscellaneous Duties of Consumer Reporting Agencies



Sec. 1022.140  Prohibition against circumventing or evading treatment 
as a consumer reporting agency.

    (a) A consumer reporting agency shall not circumvent or evade 
treatment as a ``consumer reporting agency that compiles and maintains 
files on consumers on a nationwide basis,'' as defined under section 
603(p) of the FCRA, 15 U.S.C. 1681a(p), by any means, including, but not 
limited to:
    (1) Corporate organization, reorganization, structure, or 
restructuring, including merger, acquisition, dissolution, divestiture, 
or asset sale of a consumer reporting agency; or
    (2) Maintaining or merging public record and credit account 
information in a manner that is substantially equivalent to that 
described in Paragraphs (1) and (2) of section 603(p) of the FCRA, 15 
U.S.C. 1681a(p).
    (b) Examples:
    (1) Circumvention through reorganization by data type. XYZ Inc. is a 
consumer reporting agency that compiles and maintains files on consumers 
on a nationwide basis. It restructures its operations so that public 
record information is assembled and maintained only by its corporate 
affiliate, ABC Inc. XYZ continues operating as a consumer reporting 
agency but ceases to comply with the FCRA obligations of a consumer 
reporting agency that compiles and maintains files on consumers on a 
nationwide basis, asserting that it no longer meets the definition found 
in FCRA section 603(p), because it no longer maintains public record 
information. XYZ's conduct is a circumvention or evasion of treatment as 
a consumer reporting agency that compiles and maintains files on 
consumers on a nationwide basis, and thus violates this section.
    (2) Circumvention through reorganization by regional operations. PDQ 
Inc. is a consumer reporting agency that compiles and maintains files on 
consumers on a nationwide basis. It restructures its operations so that 
corporate affiliates separately assemble and maintain all information on 
consumers residing in each state. PDQ continues to operate as a consumer 
reporting agency but ceases to comply with the FCRA obligations of a 
consumer reporting agency that compiles and maintains files on consumers 
on a nationwide basis, asserting that it no longer meets the definition 
found in FCRA section 603(p), because it no longer operates on a 
nationwide basis. PDQ's conduct is a circumvention or evasion of 
treatment as a consumer reporting agency that compiles and maintains 
files on consumers on a nationwide basis, and thus violates this 
section.
    (3) Circumvention by a newly formed entity. Smith Co. is a new 
entrant in the marketplace for consumer reports that bear on a 
consumer's credit worthiness, standing and capacity. Smith Co. organizes 
itself into two affiliated companies: Smith Credit Co. and Smith Public 
Records Co. Smith Credit Co. assembles and maintains credit account 
information from persons who furnish that information regularly and in 
the ordinary course of business on consumers residing nationwide. Smith 
Public Records Co. assembles and maintains public record information on 
consumers nationwide. Neither Smith Co. nor its affiliated organizations 
comply with FCRA obligations of consumer reporting agencies that compile 
and maintain files on consumers on a nationwide basis. Smith Co.'s 
conduct is a circumvention or evasion of treatment as a consumer 
reporting agency that compiles and maintains files on consumers on a 
nationwide basis, and thus violates this section.
    (4) Bona fide, arm's length transaction with unaffiliated party. 
Foster Ltd. is a consumer reporting agency that compiles and maintains 
files on consumers on a nationwide basis. Foster Ltd. sells its public 
record information business to an unaffiliated company in a bona fide, 
arm's length transaction. Foster Ltd. ceases to assemble, evaluate and 
maintain public record information on consumers residing nationwide, and 
ceases to offer reports containing public record information. Foster 
Ltd.'s conduct is not a circumvention or evasion of treatment as a 
consumer reporting agency that compiles and

[[Page 444]]

maintains files on consumers on a nationwide basis. Foster Ltd.'s 
conduct does not violate this part.
    (c) Limitation on applicability. Any person who is otherwise in 
violation of paragraph (a) of this section shall be deemed to be in 
compliance with this part if such person is in compliance with all 
obligations imposed upon consumer reporting agencies that compile and 
maintain files on consumers on a nationwide basis under the FCRA, 15 
U.S.C. 1681 et seq.



                 Sec. Appendix A to Part 1022 [Reserved]



   Sec. Appendix B to Part 1022--Model Notices of Furnishing Negative 
                               Information

    a. Although use of the model notices is not required, a financial 
institution that is subject to section 623(a)(7) of the FCRA shall be 
deemed to be in compliance with the notice requirement in section 
623(a)(7) of the FCRA if the institution properly uses the model notices 
in this appendix (as applicable).
    b. A financial institution may use Model Notice B-1 if the 
institution provides the notice prior to furnishing negative information 
to a nationwide consumer reporting agency.
    c. A financial institution may use Model Notice B-2 if the 
institution provides the notice after furnishing negative information to 
a nationwide consumer reporting agency.
    d. Financial institutions may make certain changes to the language 
or format of the model notices without losing the safe harbor from 
liability provided by the model notices. The changes to the model 
notices may not be so extensive as to affect the substance, clarity, or 
meaningful sequence of the language in the model notices. Financial 
institutions making such extensive revisions will lose the safe harbor 
from liability that this appendix provides. Acceptable changes include, 
for example,
    1. Rearranging the order of the references to ``late payment(s),'' 
or ``missed payment(s).''
    2. Pluralizing the terms ``credit bureau,'' ``credit report,'' and 
``account.''
    3. Specifying the particular type of account on which information 
may be furnished, such as ``credit card account.''
    4. Rearranging in Model Notice B-1 the phrases ``information about 
your account'' and ``to credit bureaus'' such that it would read ``We 
may report to credit bureaus information about your account.''

                            Model Notice B-1

    We may report information about your account to credit bureaus. Late 
payments, missed payments, or other defaults on your account may be 
reflected in your credit report.

                            Model Notice B-2

    We have told a credit bureau about a late payment, missed payment or 
other default on your account. This information may be reflected in your 
credit report.



      Sec. Appendix C to Part 1022--Model Forms for Opt-Out Notices

    a. Although use of the model forms is not required, use of the model 
forms in this appendix (as applicable) complies with the requirement in 
section 624 of the Act for clear, conspicuous, and concise notices.
    b. Certain changes may be made to the language or format of the 
model forms without losing the protection from liability afforded by use 
of the model forms. These changes may not be so extensive as to affect 
the substance, clarity, or meaningful sequence of the language in the 
model forms. Persons making such extensive revisions will lose the safe 
harbor that this appendix provides. Acceptable changes include, for 
example:
    1. Rearranging the order of the references to ``your income,'' 
``your account history,'' and ``your credit score.''
    2. Substituting other types of information for ``income,'' ``account 
history,'' or ``credit score'' for accuracy, such as ``payment 
history,'' ``credit history,'' ``payoff status,'' or ``claims history.''
    3. Substituting a clearer and more accurate description of the 
affiliates providing or covered by the notice for phrases such as ``the 
[ABC] group of companies,'' including without limitation a statement 
that the entity providing the notice recently purchased the consumer's 
account.
    4. Substituting other types of affiliates covered by the notice for 
``credit card,'' ``insurance,'' or ``securities'' affiliates.
    5. Omitting items that are not accurate or applicable. For example, 
if a person does not limit the duration of the opt-out period, the 
notice may omit information about the renewal notice.
    6. Adding a statement informing consumers how much time they have to 
opt out before shared eligibility information may be used to make 
solicitations to them.
    7. Adding a statement that the consumer may exercise the right to 
opt out at any time.
    8. Adding the following statement, if accurate: ``If you previously 
opted out, you do not need to do so again.''
    9. Providing a place on the form for the consumer to fill in 
identifying information, such as his or her name and address.
    10. Adding disclosures regarding the treatment of opt-outs by joint 
consumers to comply with Sec. 1022.23(a)(2) of this part.


[[Page 445]]


C-1 Model Form for Initial Opt-out Notice (Single-Affiliate Notice)
C-2 Model Form for Initial Opt-out Notice (Joint Notice)
C-3 Model Form for Renewal Notice (Single-Affiliate Notice)
C-4 Model Form for Renewal Notice (Joint Notice)
C-5 Model Form for Voluntary ``No Marketing'' Notice

 C-1--Model Form for Initial Opt-Out Notice (Single-Affiliate Notice)--
          [Your Choice To Limit Marketing]/[Marketing Opt-Out]

     [Name of Affiliate] is providing this notice.
     [Optional: Federal law gives you the right to 
limit some but not all marketing from our affiliates. Federal law also 
requires us to give you this notice to tell you about your choice to 
limit marketing from our affiliates.]
     You may limit our affiliates in the [ABC] group 
of companies, such as our [credit card, insurance, and securities] 
affiliates, from marketing their products or services to you based on 
your personal information that we collect and share with them. This 
information includes your [income], your [account history with us], and 
your [credit score].
     Your choice to limit marketing offers from our 
affiliates will apply [until you tell us to change your choice]/[for x 
years from when you tell us your choice]/[for at least 5 years from when 
you tell us your choice]. [Include if the opt-out period expires.] Once 
that period expires, you will receive a renewal notice that will allow 
you to continue to limit marketing offers from our affiliates for 
[another x years]/[at least another 5 years].
     [Include, if applicable, in a subsequent notice, 
including an annual notice, for consumers who may have previously opted 
out.] If you have already made a choice to limit marketing offers from 
our affiliates, you do not need to act again until you receive the 
renewal notice.
    To limit marketing offers, contact us [include all that apply]:

 By telephone: 1-(877) -
          
 On the Web: www.--.com
 By mail: Check the box and complete the form below, 
          and send the form to:
    [Company name]
    [Company address]

    --Do not allow your affiliates to use my personal information to 
market to me.

C-2--Model Form for Initial Opt-Out Notice (Joint Notice)--[Your Choice 
                 To Limit Marketing]/[Marketing Opt-Out]

     The [ABC group of companies] is providing this 
notice.
     [Optional: Federal law gives you the right to 
limit some but not all marketing from the [ABC] companies. Federal law 
also requires us to give you this notice to tell you about your choice 
to limit marketing from the [ABC] companies.]
     You may limit the [ABC] companies, such as the 
[ABC credit card, insurance, and securities] affiliates, from marketing 
their products or services to you based on your personal information 
that they receive from other [ABC] companies. This information includes 
your [income], your [account history], and your [credit score].
     Your choice to limit marketing offers from the 
[ABC] companies will apply [until you tell us to change your choice]/
[for x years from when you tell us your choice]/[for at least 5 years 
from when you tell us your choice]. [Include if the opt-out period 
expires.] Once that period expires, you will receive a renewal notice 
that will allow you to continue to limit marketing offers from the [ABC] 
companies for [another x years]/[at least another 5 years].
     [Include, if applicable, in a subsequent notice, 
including an annual notice, for consumers who may have previously opted 
out.] If you have already made a choice to limit marketing offers from 
the [ABC] companies, you do not need to act again until you receive the 
renewal notice.
    To limit marketing offers, contact us [include all that apply]:

 By telephone: 1-(877) -

 On the Web: www.--.com
 By mail: Check the box and complete the form below, 
and send the form to:
    [Company name]
    [Company address]

    --Do not allow any company [in the ABC group of companies] to use my 
personal information to market to me.

[[Page 446]]

C-3--Model Form for Renewal Notice (Single-Affiliate Notice)--[Renewing 
    Your Choice To Limit Marketing]/[Renewing Your Marketing Opt-Out]

     [Name of Affiliate] is providing this notice.
     [Optional: Federal law gives you the right to 
limit some but not all marketing from our affiliates. Federal law also 
requires us to give you this notice to tell you about your choice to 
limit marketing from our affiliates.]
     You previously chose to limit our affiliates in 
the [ABC] group of companies, such as our [credit card, insurance, and 
securities] affiliates, from marketing their products or services to you 
based on your personal information that we share with them. This 
information includes your [income], your [account history with us], and 
your [credit score].
     Your choice has expired or is about to expire.
    To renew your choice to limit marketing for [x] more years, contact 
us [include all that apply]:

 By telephone: 1-(877) -

 On the Web: www.--.com
 By mail: Check the box and complete the form below, 
and send the form to:
    [Company name]
    [Company address]

    --Renew my choice to limit marketing for [x] more years.

C-4--Model Form for Renewal Notice (Joint Notice)--[Renewing Your Choice 
          To Limit Marketing]/[Renewing Your Marketing Opt-Out]

     The [ABC group of companies] is providing this 
notice.
     [Optional: Federal law gives you the right to 
limit some but not all marketing from the [ABC] companies. Federal law 
also requires us to give you this notice to tell you about your choice 
to limit marketing from the [ABC] companies.]
     You previously chose to limit the [ABC] 
companies, such as the [ABC credit card, insurance, and securities] 
affiliates, from marketing their products or services to you based on 
your personal information that they receive from other ABC companies. 
This information includes your [income], your [account history], and 
your [credit score].
     Your choice has expired or is about to expire.
    To renew your choice to limit marketing for [x] more years, contact 
us [include all that apply]:

 By telephone: 1-(877) -

 On the Web: www.--.com
 By mail: Check the box and complete the form below, 
and send the form to:
    [Company name]
    [Company address]

--Renew my choice to limit marketing for [x] more years.

 C-5--Model Form for Voluntary ``No Marketing'' Notice--[Your Choice To 
                             Stop Marketing]

     [Name of Affiliate] is providing this notice.
     You may choose to stop all marketing from us and 
our affiliates.
     [Your choice to stop marketing from us and our 
affiliates will apply until you tell us to change your choice.]
    To stop all marketing, contact us [include all that apply]:

 By telephone: 1 (877) -

 On the Web: www.--.com
 By mail: Check the box and complete the form below, 
and send the form to:
    [Company name]
    [Company address]

--Do not market to me.



 Sec. Appendix D to Part 1022--Model Forms for Firm Offers of Credit or 
                                Insurance

    In order to comply with Sec. 1022.54, the following model notices 
may be used:
    (a) English language model notice. (1) Short notice.

[[Page 447]]

[GRAPHIC] [TIFF OMITTED] TR21DE11.000

    (2) Long notice.

[[Page 448]]

[GRAPHIC] [TIFF OMITTED] TR21DE11.001

    (b) Spanish language model notice--(1) Short notice.

[[Page 449]]

[GRAPHIC] [TIFF OMITTED] TR21DE11.002

    (2) Long notice.

[[Page 450]]

[GRAPHIC] [TIFF OMITTED] TR21DE11.003


[[Page 451]]





  Sec. Appendix E to Part 1022--Interagency Guidelines Concerning the 
 Accuracy and Integrity of Information Furnished to Consumer Reporting 
                                Agencies

    The Bureau encourages voluntary furnishing of information to 
consumer reporting agencies. Section 1022.42 of this part requires each 
furnisher to establish and implement reasonable written policies and 
procedures concerning the accuracy and integrity of the information it 
furnishes to consumer reporting agencies. Under Sec. 1022.42(b) of this 
part, a furnisher must consider the guidelines set forth below in 
developing its policies and procedures. In establishing these policies 
and procedures, a furnisher may include any of its existing policies and 
procedures that are relevant and appropriate. Section 1022.42(c) 
requires each furnisher to review its policies and procedures 
periodically and update them as necessary to ensure their continued 
effectiveness.

       I. Nature, Scope, and Objectives of Policies and Procedures

    (a) Nature and Scope. Section 1022.42(a) of this part requires that 
a furnisher's policies and procedures be appropriate to the nature, 
size, complexity, and scope of the furnisher's activities. In developing 
its policies and procedures, a furnisher should consider, for example:
    (1) The types of business activities in which the furnisher engages;
    (2) The nature and frequency of the information the furnisher 
provides to consumer reporting agencies; and
    (3) The technology used by the furnisher to furnish information to 
consumer reporting agencies.
    (b) Objectives. A furnisher's policies and procedures should be 
reasonably designed to promote the following objectives:
    (1) To furnish information about accounts or other relationships 
with a consumer that is accurate, such that the furnished information:
    (i) Identifies the appropriate consumer;
    (ii) Reflects the terms of and liability for those accounts or other 
relationships; and
    (iii) Reflects the consumer's performance and other conduct with 
respect to the account or other relationship;
    (2) To furnish information about accounts or other relationships 
with a consumer that has integrity, such that the furnished information:
    (i) Is substantiated by the furnisher's records at the time it is 
furnished;
    (ii) Is furnished in a form and manner that is designed to minimize 
the likelihood that the information may be incorrectly reflected in a 
consumer report; thus, the furnished information should:
    (A) Include appropriate identifying information about the consumer 
to whom it pertains; and
    (B) Be furnished in a standardized and clearly understandable form 
and manner and with a date specifying the time period to which the 
information pertains; and
    (iii) Includes the credit limit, if applicable and in the 
furnisher's possession;
    (3) To conduct reasonable investigations of consumer disputes and 
take appropriate actions based on the outcome of such investigations; 
and
    (4) To update the information it furnishes as necessary to reflect 
the current status of the consumer's account or other relationship, 
including, for example:
    (i) Any transfer of an account (e.g., by sale or assignment for 
collection) to a third party; and
    (ii) Any cure of the consumer's failure to abide by the terms of the 
account or other relationship.

        II. Establishing and Implementing Policies and Procedures

    In establishing and implementing its policies and procedures, a 
furnisher should:
    (a) Identify practices or activities of the furnisher that can 
compromise the accuracy or integrity of information furnished to 
consumer reporting agencies, such as by:
    (1) Reviewing its existing practices and activities, including the 
technological means and other methods it uses to furnish information to 
consumer reporting agencies and the frequency and timing of its 
furnishing of information;
    (2) Reviewing its historical records relating to accuracy or 
integrity or to disputes; reviewing other information relating to the 
accuracy or integrity of information provided by the furnisher to 
consumer reporting agencies; and considering the types of errors, 
omissions, or other problems that may have affected the accuracy or 
integrity of information it has furnished about consumers to consumer 
reporting agencies;
    (3) Considering any feedback received from consumer reporting 
agencies, consumers, or other appropriate parties;
    (4) Obtaining feedback from the furnisher's staff; and
    (5) Considering the potential impact of the furnisher's policies and 
procedures on consumers.
    (b) Evaluate the effectiveness of existing policies and procedures 
of the furnisher regarding the accuracy and integrity of information 
furnished to consumer reporting agencies; consider whether new, 
additional, or different policies and procedures are necessary; and 
consider whether implementation of existing policies and procedures 
should be modified to enhance the accuracy

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and integrity of information about consumers furnished to consumer 
reporting agencies.
    (c) Evaluate the effectiveness of specific methods (including 
technological means) the furnisher uses to provide information to 
consumer reporting agencies; how those methods may affect the accuracy 
and integrity of the information it provides to consumer reporting 
agencies; and whether new, additional, or different methods (including 
technological means) should be used to provide information to consumer 
reporting agencies to enhance the accuracy and integrity of that 
information.

           III. Specific Components of Policies and Procedures

    In developing its policies and procedures, a furnisher should 
address the following, as appropriate:
    (a) Establishing and implementing a system for furnishing 
information about consumers to consumer reporting agencies that is 
appropriate to the nature, size, complexity, and scope of the 
furnisher's business operations.
    (b) Using standard data reporting formats and standard procedures 
for compiling and furnishing data, where feasible, such as the 
electronic transmission of information about consumers to consumer 
reporting agencies.
    (c) Maintaining records for a reasonable period of time, not less 
than any applicable recordkeeping requirement, in order to substantiate 
the accuracy of any information about consumers it furnishes that is 
subject to a direct dispute.
    (d) Establishing and implementing appropriate internal controls 
regarding the accuracy and integrity of information about consumers 
furnished to consumer reporting agencies, such as by implementing 
standard procedures and verifying random samples of information provided 
to consumer reporting agencies.
    (e) Training staff that participates in activities related to the 
furnishing of information about consumers to consumer reporting agencies 
to implement the policies and procedures.
    (f) Providing for appropriate and effective oversight of relevant 
service providers whose activities may affect the accuracy or integrity 
of information about consumers furnished to consumer reporting agencies 
to ensure compliance with the policies and procedures.
    (g) Furnishing information about consumers to consumer reporting 
agencies following mergers, portfolio acquisitions or sales, or other 
acquisitions or transfers of accounts or other obligations in a manner 
that prevents re-aging of information, duplicative reporting, or other 
problems that may similarly affect the accuracy or integrity of the 
information furnished.
    (h) Deleting, updating, and correcting information in the 
furnisher's records, as appropriate, to avoid furnishing inaccurate 
information.
    (i) Conducting reasonable investigations of disputes.
    (j) Designing technological and other means of communication with 
consumer reporting agencies to prevent duplicative reporting of 
accounts, erroneous association of information with the wrong 
consumer(s), and other occurrences that may compromise the accuracy or 
integrity of information provided to consumer reporting agencies.
    (k) Providing consumer reporting agencies with sufficient 
identifying information in the furnisher's possession about each 
consumer about whom information is furnished to enable the consumer 
reporting agency properly to identify the consumer.
    (l) Conducting a periodic evaluation of its own practices, consumer 
reporting agency practices of which the furnisher is aware, 
investigations of disputed information, corrections of inaccurate 
information, means of communication, and other factors that may affect 
the accuracy or integrity of information furnished to consumer reporting 
agencies.
    (m) Complying with applicable requirements under the FCRA and its 
implementing regulations.



               Sec. Appendices F-G to Part 1022 [Reserved]



  Sec. Appendix H to Part 1022--Appendix H--Model Forms for Risk-Based 
          Pricing and Credit Score Disclosure Exception Notices

    1. This appendix contains four model forms for risk-based pricing 
notices and three model forms for use in connection with the credit 
score disclosure exceptions. Each of the model forms is designated for 
use in a particular set of circumstances as indicated by the title of 
that model form.
    2. Model form H-1 is for use in complying with the general risk-
based pricing notice requirements in Sec. 1022.72 if a credit score is 
not used in setting the material terms of credit. Model form H-2 is for 
risk-based pricing notices given in connection with account review if a 
credit score is not used in increasing the annual percentage rate. Model 
form H-3 is for use in connection with the credit score disclosure 
exception for loans secured by residential real property. Model form H-4 
is for use in connection with the credit score disclosure exception for 
loans that are not secured by residential real property. Model form H-5 
is for use in connection with the credit score disclosure exception when 
no credit score is available for a consumer. Model form H-6 is for use 
in complying with

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the general risk-based pricing notice requirements in Sec. 1022.72 if a 
credit score is used in setting the material terms of credit. Model form 
H-7 is for risk-based pricing notices given in connection with account 
review if a credit score is used in increasing the annual percentage 
rate. All forms contained in this appendix are models; their use is 
optional.
    3. A person may change the forms by rearranging the format or by 
making technical modifications to the language of the forms, in each 
case without modifying the substance of the disclosures. Any such 
rearrangement or modification of the language of the model forms may not 
be so extensive as to materially affect the substance, clarity, 
comprehensibility, or meaningful sequence of the forms. Persons making 
revisions with that effect will lose the benefit of the safe harbor for 
appropriate use of Appendix H model forms. A person is not required to 
conduct consumer testing when rearranging the format of the model forms.
    a. Acceptable changes include, for example:
    i. Corrections or updates to telephone numbers, mailing addresses, 
or Web site addresses that may change over time.
    ii. The addition of graphics or icons, such as the person's 
corporate logo.
    iii. Alteration of the shading or color contained in the model 
forms.
    iv. Use of a different form of graphical presentation to depict the 
distribution of credit scores.
    v. Substitution of the words ``credit'' and ``creditor'' or 
``finance'' and ``finance company'' for the terms ``loan'' and 
``lender.''
    vi. Including pre-printed lists of the sources of consumer reports 
or consumer reporting agencies in a ``check-the-box'' format.
    vii. Including the name of the consumer, transaction identification 
numbers, a date, and other information that will assist in identifying 
the transaction to which the form pertains.
    viii. Including the name of an agent, such as an auto dealer or 
other party, when providing the ``Name of the Entity Providing the 
Notice.''
    ix. Until January 1, 2013, substituting ``For more information about 
credit reports and your rights under Federal law, visit the Federal 
Reserve Board's Web site at www.federalreserve.gov, or the Federal Trade 
Commission's Web site at www.ftc.gov.'' for ``For more information about 
credit reports and your rights under Federal law, visit the Consumer 
Financial Protection Bureau's Web site at www.consumerfinance.gov/
learnmore.''
    b. Unacceptable changes include, for example:
    i. Providing model forms on register receipts or interspersed with 
other disclosures.
    ii. Eliminating empty lines and extra spaces between sentences 
within the same section.
    4. If a person uses an appropriate Appendix H model form, or 
modifies a form in accordance with the above instructions, that person 
shall be deemed to be acting in compliance with the provisions of Sec. 
1022.73 or Sec. 1022.74, as applicable, of this part. It is intended 
that appropriate use of Model Form H-3 also will comply with the 
disclosure that may be required under section 609(g) of the FCRA. 
Optional language in model forms H-6 and H-7 may be used to direct the 
consumer to the entity (which may be a consumer reporting agency or the 
creditor itself, for a proprietary score that meets the definition of a 
credit score) that provided the credit score for any questions about the 
credit score, along with the entity's contact information. Creditors may 
use or not use the additional language without losing the safe harbor, 
since the language is optional.
    H-1 Model form for risk-based pricing notice.
    H-2 Model form for account review risk-based pricing notice.
    H-3 Model form for credit score disclosure exception for credit 
secured by one to four units of residential real property.
    H-4 Model form for credit score disclosure exception for loans not 
secured by residential real property.
    H-5 Model form for credit score disclosure exception for loans where 
credit score is not available.
    H-6 Model form for risk-based pricing notice with credit score 
information.
    H-7 Model form for account review risk-based pricing notice with 
credit score information.

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 Sec. Appendix I to Part 1022--Summary of Consumer Identity Theft Rights

    The prescribed form for this summary is a disclosure that is 
substantially similar to the Bureau's model summary with all information 
clearly and prominently displayed. A summary should accurately reflect 
changes to those items that may change over time (such as telephone 
numbers) to remain in compliance. Translations of this summary will be 
in compliance with the Bureau's prescribed model, provided that the 
translation is accurate and that it is provided in a language used by 
the recipient consumer.

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                 Sec. Appendix J to Part 1022 [Reserved]



        Sec. Appendix K to Part 1022--Summary of Consumer Rights

    The prescribed form for this summary is a disclosure that is 
substantially similar to the Bureau's model summary with all information 
clearly and prominently displayed. The list of Federal regulators that 
is included in the Bureau's prescribed summary may be provided 
separately so long as this is done in a clear and conspicuous way. A 
summary should accurately reflect changes to those items that may change 
over time (e.g., dollar amounts, or telephone numbers and addresses of 
Federal agencies) to remain in compliance. Translations of this summary 
will be in compliance with the Bureau's prescribed model, provided that 
the translation is accurate and that it is provided in a language used 
by the recipient consumer.
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 Sec. Appendix L to Part 1022--Standardized Form for Requesting Annual 
                            File Disclosures
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   Sec. Appendix M to Part 1022--Notice of Furnisher Responsibilities

    The prescribed form for this disclosure is a separate document that 
is substantially similar to the Bureau's model notice with all 
information clearly and prominently displayed. Consumer reporting 
agencies may limit the disclosure to only those items that they know are 
relevant to the furnisher that will receive the notice.

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      Sec. Appendix N to Part 1022--Notice of User Responsibilities

    The prescribed form for this disclosure is a separate document that 
is substantially similar to the Bureau's notice with all information 
clearly and prominently displayed. Consumer reporting agencies may limit 
the disclosure to only those items that they know are relevant to the 
user that will receive the notice.

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PART 1024_REAL ESTATE SETTLEMENT PROCEDURES ACT (REGULATION X)--Table of
Contents



Sec.
1024.1 Designation.
1024.2 Definitions.
1024.3 Questions or suggestions from public and copies of public 
          guidance documents.
1024.4 Reliance upon rule, regulation or interpretation by the Bureau.
1024.5 Coverage of RESPA.
1024.6 Special information booklet at time of loan application.
1024.7 Good faith estimate.
1024.8 Use of HUD-1 or HUD-1A settlement statements.

[[Page 485]]

1024.9 Reproduction of settlement statements.
1024.10 One-day advance inspection of HUD-1 or HUD-1A settlement 
          statement; delivery; recordkeeping.
1024.11 Mailing.
1024.12 No fee.
1024.13 Relation to state laws.
1024.14 Prohibition against kickbacks and unearned fees.
1024.15 Affiliated business arrangements.
1024.16 Title companies.
1024.17 Escrow accounts.
1024.18 Validity of contracts and liens.
1024.19 Enforcement.
1024.20 [Reserved]
1024.21 Mortgage servicing transfers.
1024.22 Severability.
1024.23 ESIGN applicability.

Appendix A to Part 1024--Instructions for Completing HUD-1 and HUD-1A 
          Settlement Statements; Sample HUD-1 and HUD-1A Statements
Appendix B to Part 1024--Illustrations of Requirements of RESPA
Appendix C to Part 1024--Instructions for Completing Good Faith Estimate 
          (GFE) Form
Appendix D to Part 1024--Affiliated Business Arrangement Disclosure 
          Statement Format
Appendix E to Part 1024--Arithmetic Steps
Appendix MS-1 to Part 1024--Servicing Disclosure Statement
Appendix MS-2 to Part 1024--Notice of Assignment, Sale, or Transfer of 
          Servicing Rights

    Authority: 12 U.S.C. 2603-2605, 2607, 2609, 2617, 5512, 5581.

    Source: 76 FR 78981, Dec. 20, 2011, unless otherwise noted.



Sec. 1024.1  Designation.

    This part, known as Regulation X, is issued by the Bureau of 
Consumer Financial Protection to implement the Real Estate Settlement 
Procedures Act of 1974, as amended, 12 U.S.C. 2601 et. seq.



Sec. 1024.2  Definitions.

    (a) Statutory terms. All terms defined in RESPA (12 U.S.C. 2602) are 
used in accordance with their statutory meaning unless otherwise defined 
in paragraph (b) of this section or elsewhere in this part.
    (b) Other terms. As used in this part:
    Application means the submission of a borrower's financial 
information in anticipation of a credit decision relating to a federally 
related mortgage loan, which shall include the borrower's name, the 
borrower's monthly income, the borrower's social security number to 
obtain a credit report, the property address, an estimate of the value 
of the property, the mortgage loan amount sought, and any other 
information deemed necessary by the loan originator. An application may 
either be in writing or electronically submitted, including a written 
record of an oral application.
    Balloon payment has the same meaning as ``balloon payment'' under 
Regulation Z (12 CFR part 1026).
    Bureau means the Bureau of Consumer Financial Protection.
    Business day means a day on which the offices of the business entity 
are open to the public for carrying on substantially all of the entity's 
business functions.
    Changed circumstances means:
    (1)(i) Acts of God, war, disaster, or other emergency;
    (ii) Information particular to the borrower or transaction that was 
relied on in providing the GFE and that changes or is found to be 
inaccurate after the GFE has been provided. This may include information 
about the credit quality of the borrower, the amount of the loan, the 
estimated value of the property, or any other information that was used 
in providing the GFE;
    (iii) New information particular to the borrower or transaction that 
was not relied on in providing the GFE; or
    (iv) Other circumstances that are particular to the borrower or 
transaction, including boundary disputes, the need for flood insurance, 
or environmental problems.
    (2) Changed circumstances do not include:
    (i) The borrower's name, the borrower's monthly income, the property 
address, an estimate of the value of the property, the mortgage loan 
amount sought, and any information contained in any credit report 
obtained by the loan originator prior to providing the GFE, unless the 
information changes or is found to be inaccurate after the GFE has been 
provided; or
    (ii) Market price fluctuations by themselves.

[[Page 486]]

    Dealer means, in the case of property improvement loans, a seller, 
contractor, or supplier of goods or services. In the case of 
manufactured home loans, ``dealer'' means one who engages in the 
business of manufactured home retail sales.
    Dealer loan or dealer consumer credit contract means, generally, any 
arrangement in which a dealer assists the borrower in obtaining a 
federally related mortgage loan from the funding lender and then assigns 
the dealer's legal interests to the funding lender and receives the net 
proceeds of the loan. The funding lender is the lender for the purposes 
of the disclosure requirements of this part. If a dealer is a 
``creditor'' as defined under the definition of ``federally related 
mortgage loan'' in this part, the dealer is the lender for purposes of 
this part.
    Effective date of transfer is defined in section 6(i)(1) of RESPA 
(12 U.S.C. 2605(i)(1)). In the case of a home equity conversion mortgage 
or reverse mortgage as referenced in this section, the effective date of 
transfer is the transfer date agreed upon by the transferee servicer and 
the transferor servicer.
    Federally related mortgage loan or mortgage loan means as follows:
    (1) Any loan (other than temporary financing, such as a construction 
loan):
    (i) That is secured by a first or subordinate lien on residential 
real property, including a refinancing of any secured loan on 
residential real property upon which there is either:
    (A) Located or, following settlement, will be constructed using 
proceeds of the loan, a structure or structures designed principally for 
occupancy of from one to four families (including individual units of 
condominiums and cooperatives and including any related interests, such 
as a share in the cooperative or right to occupancy of the unit); or
    (B) Located or, following settlement, will be placed using proceeds 
of the loan, a manufactured home; and
    (ii) For which one of the following paragraphs applies. The loan:
    (A) Is made in whole or in part by any lender that is either 
regulated by or whose deposits or accounts are insured by any agency of 
the Federal Government;
    (B) Is made in whole or in part, or is insured, guaranteed, 
supplemented, or assisted in any way:
    (1) By the Secretary of the Department of Housing and Urban 
Development (HUD) or any other officer or agency of the Federal 
Government; or
    (2) Under or in connection with a housing or urban development 
program administered by the Secretary of HUD or a housing or related 
program administered by any other officer or agency of the Federal 
Government;
    (C) Is intended to be sold by the originating lender to the Federal 
National Mortgage Association, the Government National Mortgage 
Association, the Federal Home Loan Mortgage Corporation (or its 
successors), or a financial institution from which the loan is to be 
purchased by the Federal Home Loan Mortgage Corporation (or its 
successors);
    (D) Is made in whole or in part by a ``creditor'', as defined in 
section 103(g) of the Consumer Credit Protection Act (15 U.S.C. 
1602(g)), that makes or invests in residential real estate loans 
aggregating more than $1,000,000 per year. For purposes of this 
definition, the term ``creditor'' does not include any agency or 
instrumentality of any State, and the term ``residential real estate 
loan'' means any loan secured by residential real property, including 
single-family and multifamily residential property;
    (E) Is originated either by a dealer or, if the obligation is to be 
assigned to any maker of mortgage loans specified in paragraphs 
(1)(ii)(A) through (D) of this definition, by a mortgage broker; or
    (F) Is the subject of a home equity conversion mortgage, also 
frequently called a ``reverse mortgage,'' issued by any maker of 
mortgage loans specified in paragraphs (1)(ii) (A) through (D) of this 
definition.
    (2) Any installment sales contract, land contract, or contract for 
deed on otherwise qualifying residential property is a federally related 
mortgage loan if the contract is funded in whole or in part by proceeds 
of a loan made by any maker of mortgage loans specified in paragraphs 
(1)(ii) (A) through (D) of this definition.

[[Page 487]]

    (3) If the residential real property securing a mortgage loan is not 
located in a State, the loan is not a federally related mortgage loan.
    Good faith estimate or GFE means an estimate of settlement charges a 
borrower is likely to incur, as a dollar amount, and related loan 
information, based upon common practice and experience in the locality 
of the mortgaged property, as provided on the form prescribed in Sec. 
1024.7 and prepared in accordance with the Instructions in appendix C to 
this part.
    HUD means the Department of Housing and Urban Development.
    HUD-1 or HUD-1A settlement statement (also HUD-1 or HUD-1A) means 
the statement that is prescribed in this part for setting forth 
settlement charges in connection with either the purchase or the 
refinancing (or other subordinate lien transaction) of 1- to 4-family 
residential property.
    Lender means, generally, the secured creditor or creditors named in 
the debt obligation and document creating the lien. For loans originated 
by a mortgage broker that closes a federally related mortgage loan in 
its own name in a table funding transaction, the lender is the person to 
whom the obligation is initially assigned at or after settlement. A 
lender, in connection with dealer loans, is the lender to whom the loan 
is assigned, unless the dealer meets the definition of creditor as 
defined under ``federally related mortgage loan'' in this section. See 
also Sec. 1024.5(b)(7), secondary market transactions.
    Loan originator means a lender or mortgage broker.
    Manufactured home is defined in HUD regulation 24 CFR 3280.2.
    Mortgage broker means a person (not an employee of a lender) or 
entity that renders origination services and serves as an intermediary 
between a borrower and a lender in a transaction involving a federally 
related mortgage loan, including such a person or entity that closes the 
loan in its own name in a table funded transaction. A loan correspondent 
approved under HUD regulation 24 CFR 202.8 for Federal Housing 
Administration programs is a mortgage broker for purposes of this part.
    Mortgaged property means the real property that is security for the 
federally related mortgage loan.
    Origination service means any service involved in the creation of a 
mortgage loan, including but not limited to the taking of the loan 
application, loan processing, the underwriting and funding of the loan, 
and the processing and administrative services required to perform these 
functions.
    Person is defined in section 3(5) of RESPA (12 U.S.C. 2602(5)).
    Prepayment penalty has the same meaning as ``prepayment penalty'' 
under Regulation Z (12 CFR part 1026).
    Public Guidance Documents means Federal Register documents adopted 
or published, that the Bureau may amend from time-to-time by publication 
in the Federal Register. These documents are also available from the 
Bureau at the address indicated in Sec. 1024.3.
    Refinancing means a transaction in which an existing obligation that 
was subject to a secured lien on residential real property is satisfied 
and replaced by a new obligation undertaken by the same borrower and 
with the same or a new lender. The following shall not be treated as a 
refinancing, even when the existing obligation is satisfied and replaced 
by a new obligation with the same lender (this definition of 
``refinancing'' as to transactions with the same lender is similar to 
Regulation Z, 12 CFR 1026.20(a)):
    (1) A renewal of a single payment obligation with no change in the 
original terms;
    (2) A reduction in the annual percentage rate as computed under the 
Truth in Lending Act with a corresponding change in the payment 
schedule;
    (3) An agreement involving a court proceeding;
    (4) A workout agreement, in which a change in the payment schedule 
or change in collateral requirements is agreed to as a result of the 
consumer's default or delinquency, unless the rate is increased or the 
new amount financed exceeds the unpaid balance plus earned finance 
charges and premiums for continuation of allowable insurance; and
    (5) The renewal of optional insurance purchased by the consumer that 
is

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added to an existing transaction, if disclosures relating to the initial 
purchase were provided.
    Regulation Z means the regulations issued by the Bureau (12 CFR part 
1026) to implement the Federal Truth in Lending Act (15 U.S.C. 1601 et 
seq.), and includes the Commentary on Regulation Z.
    Required use means a situation in which a person must use a 
particular provider of a settlement service in order to have access to 
some distinct service or property, and the person will pay for the 
settlement service of the particular provider or will pay a charge 
attributable, in whole or in part, to the settlement service. However, 
the offering of a package (or combination of settlement services) or the 
offering of discounts or rebates to consumers for the purchase of 
multiple settlement services does not constitute a required use. Any 
package or discount must be optional to the purchaser. The discount must 
be a true discount below the prices that are otherwise generally 
available, and must not be made up by higher costs elsewhere in the 
settlement process.
    RESPA means the Real Estate Settlement Procedures Act of 1974 (12 
U.S.C. 2601 et seq.).
    Servicer means the person responsible for the servicing of a 
mortgage loan (including the person who makes or holds a mortgage loan 
if such person also services the mortgage loan). The term does not 
include:
    (1) The Federal Deposit Insurance Corporation (FDIC), in connection 
with assets acquired, assigned, sold, or transferred pursuant to section 
13(c) of the Federal Deposit Insurance Act or as receiver or conservator 
of an insured depository institution; and
    (2) The Federal National Mortgage Corporation (FNMA); the Federal 
Home Loan Mortgage Corporation (Freddie Mac); the FDIC; HUD, including 
the Government National Mortgage Association (GNMA) and the Federal 
Housing Administration (FHA) (including cases in which a mortgage 
insured under the National Housing Act (12 U.S.C. 1701 et seq.) is 
assigned to HUD); the National Credit Union Administration (NCUA); the 
Farm Service Agency; and the Department of Veterans Affairs (VA), in any 
case in which the assignment, sale, or transfer of the servicing of the 
mortgage loan is preceded by termination of the contract for servicing 
the loan for cause, commencement of proceedings for bankruptcy of the 
servicer, or commencement of proceedings by the FDIC for conservatorship 
or receivership of the servicer (or an entity by which the servicer is 
owned or controlled).
    Servicing means receiving any scheduled periodic payments from a 
borrower pursuant to the terms of any mortgage loan, including amounts 
for escrow accounts under section 10 of RESPA (12 U.S.C. 2609), and 
making the payments to the owner of the loan or other third parties of 
principal and interest and such other payments with respect to the 
amounts received from the borrower as may be required pursuant to the 
terms of the mortgage servicing loan documents or servicing contract. In 
the case of a home equity conversion mortgage or reverse mortgage as 
referenced in this section, servicing includes making payments to the 
borrower.
    Settlement means the process of executing legally binding documents 
regarding a lien on property that is subject to a federally related 
mortgage loan. This process may also be called ``closing'' or ``escrow'' 
in different jurisdictions.
    Settlement service means any service provided in connection with a 
prospective or actual settlement, including, but not limited to, any one 
or more of the following:
    (1) Origination of a federally related mortgage loan (including, but 
not limited to, the taking of loan applications, loan processing, and 
the underwriting and funding of such loans);
    (2) Rendering of services by a mortgage broker (including 
counseling, taking of applications, obtaining verifications and 
appraisals, and other loan processing and origination services, and 
communicating with the borrower and lender);
    (3) Provision of any services related to the origination, processing 
or funding of a federally related mortgage loan;
    (4) Provision of title services, including title searches, title 
examinations,

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abstract preparation, insurability determinations, and the issuance of 
title commitments and title insurance policies;
    (5) Rendering of services by an attorney;
    (6) Preparation of documents, including notarization, delivery, and 
recordation;
    (7) Rendering of credit reports and appraisals;
    (8) Rendering of inspections, including inspections required by 
applicable law or any inspections required by the sales contract or 
mortgage documents prior to transfer of title;
    (9) Conducting of settlement by a settlement agent and any related 
services;
    (10) Provision of services involving mortgage insurance;
    (11) Provision of services involving hazard, flood, or other 
casualty insurance or homeowner's warranties;
    (12) Provision of services involving mortgage life, disability, or 
similar insurance designed to pay a mortgage loan upon disability or 
death of a borrower, but only if such insurance is required by the 
lender as a condition of the loan;
    (13) Provision of services involving real property taxes or any 
other assessments or charges on the real property;
    (14) Rendering of services by a real estate agent or real estate 
broker; and
    (15) Provision of any other services for which a settlement service 
provider requires a borrower or seller to pay.
    Special information booklet means the booklet adopted pursuant to 
section 5 of RESPA (12 U.S.C. 2604) to help persons understand the 
nature and costs of settlement services. The Bureau publishes the form 
of the special information booklet in the Federal Register or by other 
public notice. The Bureau may issue or approve additional booklets or 
alternative booklets by publication of a Notice in the Federal Register.
    State means any state of the United States, the District of 
Columbia, the Commonwealth of Puerto Rico, and any territory or 
possession of the United States.
    Table funding means a settlement at which a loan is funded by a 
contemporaneous advance of loan funds and an assignment of the loan to 
the person advancing the funds. A table-funded transaction is not a 
secondary market transaction (see Sec. 1024.5(b)(7)).
    Third party means a settlement service provider other than a loan 
originator.
    Title company means any institution, or its duly authorized agent, 
that is qualified to issue title insurance.
    Title service means any service involved in the provision of title 
insurance (lender's or owner's policy), including but not limited to: 
Title examination and evaluation; preparation and issuance of title 
commitment; clearance of underwriting objections; preparation and 
issuance of a title insurance policy or policies; and the processing and 
administrative services required to perform these functions. The term 
also includes the service of conducting a settlement.
    Tolerance means the maximum amount by which the charge for a 
category or categories of settlement costs may exceed the amount of the 
estimate for such category or categories on a GFE.



Sec. 1024.3  Questions or suggestions from public and copies of public 
guidance documents.

    Any questions or suggestions from the public regarding RESPA, or 
requests for copies of Public Guidance Documents, should be directed to 
the Associate Director, Research, Markets, and Regulations, Bureau of 
Consumer Financial Protection, 1700 G Street NW., Washington, DC 20006. 
Legal questions concerning the interpretation of this part may be 
directed to the same address.



Sec. 1024.4  Reliance upon rule, regulation or interpretation by the 
Bureau.

    (a) Rule, regulation or interpretation. (1) For purposes of sections 
19(a) and (b) of RESPA (12 U.S.C. 2617(a) and (b)), only the following 
constitute a rule, regulation or interpretation of the Bureau:
    (i) All provisions, including appendices, of this part. Any other 
document referred to in this part is not incorporated in this part 
unless it is specifically set out in this part;
    (ii) Any other document that is published in the Federal Register by 
the

[[Page 490]]

Bureau and states that it is an ``interpretation,'' ``interpretive 
rule,'' ``commentary,'' or a ``statement of policy'' for purposes of 
section 19(a) of RESPA. Such documents will be prepared by Bureau staff 
and counsel. Such documents may be revoked or amended by a subsequent 
document published in the Federal Register by the Bureau.
    (2) A ``rule, regulation, or interpretation thereof by the Bureau'' 
for purposes of section 19(b) of RESPA (12 U.S.C. 2617(b)) shall not 
include the special information booklet prescribed by the Bureau or any 
other statement or issuance, whether oral or written, by an officer or 
representative of the Bureau, letter or memorandum by the Director, 
General Counsel, or other officer or employee of the Bureau, preamble to 
a regulation or other issuance of the Bureau, Public Guidance Document, 
report to Congress, pleading, affidavit or other document in litigation, 
pamphlet, handbook, guide, telegraphic communication, explanation, 
instructions to forms, speech or other material of any nature which is 
not specifically included in paragraph (a)(1) of this section.
    (b) Unofficial interpretations; staff discretion. In response to 
requests for interpretation of matters not adequately covered by this 
part or by an official interpretation issued under paragraph (a)(1)(ii) 
of this section, unofficial staff interpretations may be provided at the 
discretion of Bureau staff or counsel. Written requests for such 
interpretations should be directed to the address indicated in Sec. 
1024.3. Such interpretations provide no protection under section 19(b) 
of RESPA (12 U.S.C. 2617(b)). Ordinarily, staff or counsel will not 
issue unofficial interpretations on matters adequately covered by this 
part or by official interpretations or commentaries issued under 
paragraph (a)(1)(ii) of this section.
    (c) All informal counsel's opinions and staff interpretations issued 
by HUD before November 2, 1992, were withdrawn as of that date. Courts 
and administrative agencies, however, may use previous opinions to 
determine the validity of conduct under the previous Regulation X.



Sec. 1024.5  Coverage of RESPA.

    (a) Applicability. RESPA and this part apply to all federally 
related mortgage loans, except for the exemptions provided in paragraph 
(b) of this section.
    (b) Exemptions. (1) A loan on property of 25 acres or more.
    (2) Business purpose loans. An extension of credit primarily for a 
business, commercial, or agricultural purpose, as defined by 12 CFR 
1026.3(a)(1) of Regulation Z. Persons may rely on Regulation Z in 
determining whether the exemption applies.
    (3) Temporary financing. Temporary financing, such as a construction 
loan. The exemption for temporary financing does not apply to a loan 
made to finance construction of 1- to 4-family residential property if 
the loan is used as, or may be converted to, permanent financing by the 
same lender or is used to finance transfer of title to the first user. 
If a lender issues a commitment for permanent financing, with or without 
conditions, the loan is covered by this part. Any construction loan for 
new or rehabilitated 1- to 4-family residential property, other than a 
loan to a bona fide builder (a person who regularly constructs 1- to 4-
family residential structures for sale or lease), is subject to this 
part if its term is for two years or more. A ``bridge loan'' or ``swing 
loan'' in which a lender takes a security interest in otherwise covered 
1- to 4-family residential property is not covered by RESPA and this 
part.
    (4) Vacant land. Any loan secured by vacant or unimproved property, 
unless within two years from the date of the settlement of the loan, a 
structure or a manufactured home will be constructed or placed on the 
real property using the loan proceeds. If a loan for a structure or 
manufactured home to be placed on vacant or unimproved property will be 
secured by a lien on that property, the transaction is covered by this 
part.
    (5) Assumption without lender approval. Any assumption in which the 
lender does not have the right expressly to approve a subsequent person 
as the borrower on an existing federally related mortgage loan. Any 
assumption in which the lender's permission is both required and 
obtained is covered by RESPA and this part, whether or not

[[Page 491]]

the lender charges a fee for the assumption.
    (6) Loan conversions. Any conversion of a federally related mortgage 
loan to different terms that are consistent with provisions of the 
original mortgage instrument, as long as a new note is not required, 
even if the lender charges an additional fee for the conversion.
    (7) Secondary market transactions. A bona fide transfer of a loan 
obligation in the secondary market is not covered by RESPA and this 
part, except as set forth in section 6 of RESPA (12 U.S.C. 2605) and 
Sec. 1024.21. In determining what constitutes a bona fide transfer, the 
Bureau will consider the real source of funding and the real interest of 
the funding lender. Mortgage broker transactions that are table-funded 
are not secondary market transactions. Neither the creation of a dealer 
loan or dealer consumer credit contract, nor the first assignment of 
such loan or contract to a lender, is a secondary market transaction 
(see Sec. 1024.2).



Sec. 1024.6  Special information booklet at time of loan application.

    (a) Lender to provide special information booklet. Subject to the 
exceptions set forth in this paragraph, the lender shall provide a copy 
of the special information booklet to a person from whom the lender 
receives, or for whom the lender prepares, a written application for a 
federally related mortgage loan. When two or more persons apply together 
for a loan, the lender is in compliance if the lender provides a copy of 
the booklet to one of the persons applying.
    (1) The lender shall provide the special information booklet by 
delivering it or placing it in the mail to the applicant not later than 
three business days (as that term is defined in Sec. 1024.2) after the 
application is received or prepared. However, if the lender denies the 
borrower's application for credit before the end of the three-business-
day period, then the lender need not provide the booklet to the 
borrower. If a borrower uses a mortgage broker, the mortgage broker 
shall distribute the special information booklet and the lender need not 
do so. The intent of this provision is that the applicant receive the 
special information booklet at the earliest possible date.
    (2) In the case of a federally related mortgage loan involving an 
open-ended credit plan, as defined in Regulation Z, 12 CFR 
1026.2(a)(20), a lender or mortgage broker that provides the borrower 
with a copy of the brochure entitled ``When Your Home is On the Line: 
What You Should Know About Home Equity Lines of Credit'', or any 
successor brochure issued by the Bureau, is deemed to be in compliance 
with this section.
    (3) In the categories of transactions set forth at the end of this 
paragraph, the lender or mortgage broker does not have to provide the 
booklet to the borrower. Under the authority of section 19(a) of RESPA 
(12 U.S.C. 2617(a)), the Bureau may issue a revised or separate special 
information booklet that deals with these transactions, or the Bureau 
may choose to endorse the forms or booklets of other Federal agencies. 
In such an event, the requirements for delivery by lenders and the 
availability of the booklet or alternate materials for these 
transactions will be set forth in a Notice in the Federal Register. This 
paragraph shall apply to the following transactions:
    (i) Refinancing transactions;
    (ii) Closed-end loans, as defined in 12 CFR 1026.2(a)(10) of 
Regulation Z, when the lender takes a subordinate lien;
    (iii) Reverse mortgages; and
    (iv) Any other federally related mortgage loan whose purpose is not 
the purchase of a 1- to 4-family residential property.
    (b) Revision. The Bureau may from time to time revise the special 
information booklet, publishing a notice in the Federal Register.
    (c) Reproduction. The special information booklet may be reproduced 
in any form, provided that no change is made other than as provided 
under paragraph (d) of this section. The special information booklet may 
not be made a part of a larger document for purposes of distribution 
under RESPA and this section. Any color, size and quality of paper, type 
of print, and method of reproduction may be used so long as the booklet 
is clearly legible.
    (d) Permissible changes. (1)(i) No changes to, deletions from, or 
additions

[[Page 492]]

to the special information booklet currently prescribed by the Bureau 
shall be made other than the permissible changes specified in paragraphs 
(d)(1)(ii) through (d)(3) of this section or changes as otherwise 
approved in writing by the Bureau in accordance with the procedures 
described in this paragraph. A request to the Bureau for approval of any 
changes other than the permissible changes specified in paragraphs 
(d)(1)(ii) through (d)(3) of this section shall be submitted in writing 
to the address indicated in Sec. 1024.3, stating the reasons why the 
applicant believes such changes, deletions or additions are necessary.
    (ii)(A) In the Complaints section of the booklet, it is a 
permissible change to substitute ``the Bureau of Consumer Financial 
Protection'' for ``HUD's Office of RESPA'' and ``the RESPA office.''
    (B) In the Avoiding Foreclosure section of the booklet, it is a 
permissible change to inform homeowners that they may find information 
on and assistance in avoiding foreclosures at http://
www.consumerfinance.gov. The deletion of the reference to the HUD Web 
page, http://www.hud.gov/foreclosure/, in the Avoiding Foreclosure 
section of the booklet is not a permissible change.
    (C) In the appendix to the booklet, it is a permissible change to 
substitute ``the Bureau of Consumer Financial Protection'' for the 
reference to the ``Board of Governors of the Federal Reserve System'' in 
the No Discrimination section of the appendix to the booklet. In the 
Contact Information section of the appendix to the booklet, it is a 
permissible change to add the following contact information for the 
Bureau: ``Bureau of Consumer Financial Protection, 1700 G Street NW., 
Washington, DC 20006; www.consumerfinance.gov/learnmore''. It is also a 
permissible change to remove the contact information for HUD's Office of 
RESPA and Interstate Land Sales from the Contact Information section of 
the appendix to the booklet.
    (2) The cover of the booklet may be in any form and may contain any 
drawings, pictures or artwork, provided that the words ``settlement 
costs'' are used in the title. Names, addresses and telephone numbers of 
the lender or others and similar information may appear on the cover, 
but no discussion of the matters covered in the booklet shall appear on 
the cover. References to HUD on the cover of the booklet may be changed 
to references to the Bureau.
    (3) The special information booklet may be translated into languages 
other than English.



Sec. 1024.7  Good faith estimate.

    (a) Lender to provide. (1) Except as otherwise provided in 
paragraphs (a), (b), or (h) of this section, not later than 3 business 
days after a lender receives an application, or information sufficient 
to complete an application, the lender must provide the applicant with a 
GFE. In the case of dealer loans, the lender must either provide the GFE 
or ensure that the dealer provides the GFE.
    (2) The lender must provide the GFE to the loan applicant by hand 
delivery, by placing it in the mail, or, if the applicant agrees, by 
fax, email, or other electronic means.
    (3) The lender is not required to provide the applicant with a GFE 
if, before the end of the 3-business-day period:
    (i) The lender denies the application; or
    (ii) The applicant withdraws the application.
    (4) The lender is not permitted to charge, as a condition for 
providing a GFE, any fee for an appraisal, inspection, or other similar 
settlement service. The lender may, at its option, charge a fee limited 
to the cost of a credit report. The lender may not charge additional 
fees until after the applicant has received the GFE and indicated an 
intention to proceed with the loan covered by that GFE. If the GFE is 
mailed to the applicant, the applicant is considered to have received 
the GFE 3 calendar days after it is mailed, not including Sundays and 
the legal public holidays specified in 5 U.S.C. 6103(a).
    (5) The lender may at any time collect from the loan applicant any 
information that it requires in addition to the required application 
information. However, the lender is not permitted to require, as a 
condition for providing a

[[Page 493]]

GFE, that an applicant submit supplemental documentation to verify the 
information provided on the application.
    (b) Mortgage broker to provide. (1) Except as otherwise provided in 
paragraphs (a), (b), or (h) of this section, either the lender or the 
mortgage broker must provide a GFE not later than 3 business days after 
a mortgage broker receives either an application or information 
sufficient to complete an application. The lender is responsible for 
ascertaining whether the GFE has been provided. If the mortgage broker 
has provided a GFE, the lender is not required to provide an additional 
GFE.
    (2) The mortgage broker must provide the GFE by hand delivery, by 
placing it in the mail, or, if the applicant agrees, by fax, email, or 
other electronic means.
    (3) The mortgage broker is not required to provide the applicant 
with a GFE if, before the end of the 3-business-day period:
    (i) The mortgage broker or lender denies the application; or
    (ii) The applicant withdraws the application.
    (4) The mortgage broker is not permitted to charge, as a condition 
for providing a GFE, any fee for an appraisal, inspection, or other 
similar settlement service. The mortgage broker may, at its option, 
charge a fee limited to the cost of a credit report. The mortgage broker 
may not charge additional fees until after the applicant has received 
the GFE and indicated an intention to proceed with the loan covered by 
that GFE. If the GFE is mailed to the applicant, the applicant is 
considered to have received the GFE 3 calendar days after it is mailed, 
not including Sundays and the legal public holidays specified in 5 
U.S.C. 6103(a).
    (5) The mortgage broker may at any time collect from the loan 
applicant any information that it requires in addition to the required 
application information. However, the mortgage broker is not permitted 
to require, as a condition for providing a GFE, that an applicant submit 
supplemental documentation to verify the information provided on the 
application.
    (c) Availability of GFE terms. Except as provided in this paragraph, 
the estimate of the charges and terms for all settlement services must 
be available for at least 10 business days from when the GFE is 
provided, but it may remain available longer, if the loan originator 
extends the period of availability. The estimate for the following 
charges are excepted from this requirement: the interest rate, charges 
and terms dependent upon the interest rate, which includes the charge or 
credit for the interest rate chosen, the adjusted origination charges, 
and per diem interest.
    (d) Content and form of GFE. The GFE form is set out in appendix C 
to this part. The loan originator must prepare the GFE in accordance 
with the requirements of this section and the Instructions in appendix C 
to this part. The instructions in appendix C to this part allow for 
flexibility in the preparation and distribution of the GFE in hard copy 
and electronic format.
    (e) Tolerances for amounts included on GFE. (1) Except as provided 
in paragraph (f) of this section, the actual charges at settlement may 
not exceed the amounts included on the GFE for:
    (i) The origination charge;
    (ii) While the borrower's interest rate is locked, the credit or 
charge for the interest rate chosen;
    (iii) While the borrower's interest rate is locked, the adjusted 
origination charge; and
    (iv) Transfer taxes.
    (2) Except as provided in paragraph (f) of this section, the sum of 
the charges at settlement for the following services may not be greater 
than 10 percent above the sum of the amounts included on the GFE:
    (i) Lender-required settlement services, where the lender selects 
the third party settlement service provider;
    (ii) Lender-required services, title services and required title 
insurance, and owner's title insurance, when the borrower uses a 
settlement service provider identified by the loan originator; and
    (iii) Government recording charges.
    (3) The amounts charged for all other settlement services included 
on the GFE may change at settlement.
    (f) Binding GFE. The loan originator is bound, within the tolerances 
provided in paragraph (e) of this section, to the settlement charges and 
terms

[[Page 494]]

listed on the GFE provided to the borrower, unless a revised GFE is 
provided prior to settlement consistent with this paragraph (f) or the 
GFE expires in accordance with paragraph (f)(4) of this section. If a 
loan originator provides a revised GFE consistent with this paragraph, 
the loan originator must document the reason that a revised GFE was 
provided. Loan originators must retain documentation of any reason for 
providing a revised GFE for no less than 3 years after settlement.
    (1) Changed circumstances affecting settlement costs. If changed 
circumstances result in increased costs for any settlement services such 
that the charges at settlement would exceed the tolerances for those 
charges, the loan originator may provide a revised GFE to the borrower. 
If a revised GFE is to be provided, the loan originator must do so 
within 3 business days of receiving information sufficient to establish 
changed circumstances. The revised GFE may increase charges for services 
listed on the GFE only to the extent that the changed circumstances 
actually resulted in higher charges.
    (2) Changed circumstances affecting loan. If changed circumstances 
result in a change in the borrower's eligibility for the specific loan 
terms identified in the GFE, the loan originator may provide a revised 
GFE to the borrower. If a revised GFE is to be provided, the loan 
originator must do so within 3 business days of receiving information 
sufficient to establish changed circumstances. The revised GFE may 
increase charges for services listed on the GFE only to the extent that 
the changed circumstances affecting the loan actually resulted in higher 
charges.
    (3) Borrower-requested changes. If a borrower requests changes to 
the mortgage loan identified in the GFE that change the settlement 
charges or the terms of the loan, the loan originator may provide a 
revised GFE to the borrower. If a revised GFE is to be provided, the 
loan originator must do so within 3 business days of the borrower's 
request. The revised GFE may increase charges for services listed on the 
GFE only to the extent that the borrower-requested changes to the 
mortgage loan identified on the GFE actually resulted in higher charges.
    (4) Expiration of GFE. If a borrower does not express an intent to 
continue with an application within 10 business days after the GFE is 
provided, or such longer time specified by the loan originator pursuant 
to paragraph (c) of this section, the loan originator is no longer bound 
by the GFE.
    (5) Interest rate-dependent charges and terms. If the interest rate 
has not been locked, or a locked interest rate has expired, the charge 
or credit for the interest rate chosen, the adjusted origination 
charges, per diem interest, and loan terms related to the interest rate 
may change. When the interest rate is later locked, a revised GFE must 
be provided showing the revised interest rate-dependent charges and 
terms. The loan originator must provide the revised GFE within 3 
business days of the interest rate being locked or, for an expired 
interest rate, re-locked. All other charges and terms must remain the 
same as on the original GFE, except as otherwise provided in paragraph 
(f) of this section.
    (6) New construction home purchases. In transactions involving new 
construction home purchases, where settlement is anticipated to occur 
more than 60 calendar days from the time a GFE is provided, the loan 
originator may provide the GFE to the borrower with a clear and 
conspicuous disclosure stating that at any time up until 60 calendar 
days prior to closing, the loan originator may issue a revised GFE. If 
no such separate disclosure is provided, the loan originator cannot 
issue a revised GFE, except as otherwise provided in paragraph (f) of 
this section.
    (g) GFE is not a loan commitment. Nothing in this section shall be 
interpreted to require a loan originator to make a loan to a particular 
borrower. The loan originator is not required to provide a GFE if the 
loan originator does not have available a loan for which the borrower is 
eligible.
    (h) Open-end lines of credit (home-equity plans) under Truth in 
Lending Act. In the case of a federally related mortgage loan involving 
an open-end line of credit (home-equity plan) covered under the Truth in 
Lending Act and Regulation Z, a lender or mortgage

[[Page 495]]

broker that provides the borrower with the disclosures required by 12 
CFR 1026.40 of Regulation Z at the time the borrower applies for such 
loan shall be deemed to satisfy the requirements of this section.
    (i) Violations of section 5 of RESPA (12 U.S.C. 2604). A loan 
originator that violates the requirements of this section shall be 
deemed to have violated section 5 of RESPA. If any charges at settlement 
exceed the charges listed on the GFE by more than the permitted 
tolerances, the loan originator may cure the tolerance violation by 
reimbursing to the borrower the amount by which the tolerance was 
exceeded, at settlement or within 30 calendar days after settlement. A 
borrower will be deemed to have received timely reimbursement if the 
loan originator delivers or places the payment in the mail within 30 
calendar days after settlement.



Sec. 1024.8  Use of HUD-1 or HUD-1A settlement statements.

    (a) Use by settlement agent. The settlement agent shall use the HUD-
1 settlement statement in every settlement involving a federally related 
mortgage loan in which there is a borrower and a seller. For 
transactions in which there is a borrower and no seller, such as 
refinancing loans or subordinate lien loans, the HUD-1 may be utilized 
by using the borrower's side of the HUD-1 statement. Alternatively, the 
form HUD-1A may be used for these transactions. The HUD-1 or HUD-1A may 
be modified as permitted under this part. Either the HUD-1 or the HUD-
1A, as appropriate, shall be used for every RESPA-covered transaction, 
unless its use is specifically exempted. The use of the HUD-1 or HUD-1A 
is exempted for open-end lines of credit (home-equity plans) covered by 
the Truth in Lending Act and Regulation Z.
    (b) Charges to be stated. The settlement agent shall complete the 
HUD-1 or HUD-1A, in accordance with the instructions set forth in 
Appendix A to this part. The loan originator must transmit to the 
settlement agent all information necessary to complete the HUD-1 or HUD-
1A.
    (1) In general. The settlement agent shall state the actual charges 
paid by the borrower and seller on the HUD-1, or by the borrower on the 
HUD-1A. The settlement agent must separately itemize each third party 
charge paid by the borrower and seller. All origination services 
performed by or on behalf of the loan originator must be included in the 
loan originator's own charge. Administrative and processing services 
related to title services must be included in the title underwriter's or 
title agent's own charge. The amount stated on the HUD-1 or HUD-1A for 
any itemized service cannot exceed the amount actually received by the 
settlement service provider for that itemized service, unless the charge 
is an average charge in accordance with paragraph (b)(2) of this 
section.
    (2) Use of average charge. (i) The average charge for a settlement 
service shall be no more than the average amount paid for a settlement 
service by one settlement service provider to another settlement service 
provider on behalf of borrowers and sellers for a particular class of 
transactions involving federally related mortgage loans. The total 
amounts paid by borrowers and sellers for a settlement service based on 
the use of an average charge may not exceed the total amounts paid to 
the providers of that service for the particular class of transactions.
    (ii) The settlement service provider shall define the particular 
class of transactions for purposes of calculating the average charge as 
all transactions involving federally related mortgage loans for:
    (A) A period of time as determined by the settlement service 
provider, but not less than 30 calendar days and not more than 6 months;
    (B) A geographic area as determined by the settlement service 
provider; and
    (C) A type of loan as determined by the settlement service provider.
    (iii) A settlement service provider may use an average charge in the 
same class of transactions for which the charge was calculated. If the 
settlement service provider uses the average charge for any transaction 
in the class, the settlement service provider must use the same average 
charge in every transaction within that class for which a GFE was 
provided.

[[Page 496]]

    (iv) The use of an average charge is not permitted for any 
settlement service if the charge for the service is based on the loan 
amount or property value. For example, an average charge may not be used 
for transfer taxes, interest charges, reserves or escrow, or any type of 
insurance, including mortgage insurance, title insurance, or hazard 
insurance.
    (v) The settlement service provider must retain all documentation 
used to calculate the average charge for a particular class of 
transactions for at least 3 years after any settlement for which that 
average charge was used.
    (c) Violations of section 4 of RESPA (12 U.S.C. 2603). A violation 
of any of the requirements of this section will be deemed to be a 
violation of section 4 of RESPA. An inadvertent or technical error in 
completing the HUD-1 or HUD-1A shall not be deemed a violation of 
section 4 of RESPA if a revised HUD-1 or HUD-1A is provided in 
accordance with the requirements of this section within 30 calendar days 
after settlement.



Sec. 1024.9  Reproduction of settlement statements.

    (a) Permissible changes--HUD-1. The following changes and insertions 
are permitted when the HUD-1 settlement statement is reproduced:
    (1) The person reproducing the HUD-1 may insert its business name 
and logo in section A and may rearrange, but not delete, the other 
information that appears in section A.
    (2) The name, address, and other information regarding the lender 
and settlement agent may be printed in sections F and H, respectively.
    (3) Reproduction of the HUD-1 must conform to the terminology, 
sequence, and numbering of line items as presented in lines 100-1400. 
However, blank lines or items listed in lines 100-1400 that are not used 
locally or in connection with mortgages by the lender may be deleted, 
except for the following: Lines 100, 120, 200, 220, 300, 301, 302, 303, 
400, 420, 500, 520, 600, 601, 602, 603, 700, 800, 900, 1000, 1100, 1200, 
1300, and 1400. The form may be shortened correspondingly. The number of 
a deleted item shall not be used for a substitute or new item, but the 
number of a blank space on the HUD-1 may be used for a substitute or new 
item.
    (4) Charges not listed on the HUD-1, but that are customary locally 
or pursuant to the lender's practice, may be inserted in blank spaces. 
Where existing blank spaces on the HUD-1 are insufficient, additional 
lines and spaces may be added and numbered in sequence with spaces on 
the HUD-1.
    (5) The following variations in layout and format are within the 
discretion of persons reproducing the HUD-1 and do not require prior HUD 
approval: size of pages; tint or color of pages; size and style of type 
or print; vertical spacing between lines or provision for additional 
horizontal space on lines (for example, to provide sufficient space for 
recording time periods used in prorations); printing of the HUD-1 
contents on separate pages, on the front and back of a single page, or 
on one continuous page; use of multicopy tear-out sets; printing on 
rolls for computer purposes; reorganization of sections B through I, 
when necessary to accommodate computer printing; and manner of placement 
of the HUD number, but not the OMB approval number, neither of which may 
be deleted. The expiration date associated with the OMB number listed on 
the form may be deleted. Any changes in the HUD number or OMB approval 
number may be announced by notice in the Federal Register, rather than 
by amendment of this part.
    (6) The borrower's information and the seller's information may be 
provided on separate pages.
    (7) Signature lines may be added.
    (8) The HUD-1 may be translated into languages other than English.
    (9) An additional page may be attached to the HUD-1 for the purpose 
of including customary recitals and information used locally in real 
estate settlements; for example, breakdown of payoff figures, a 
breakdown of the borrower's total monthly mortgage payments, check 
disbursements, a statement indicating receipt of funds, applicable 
special stipulations between buyer and seller, and the date funds are 
transferred. If space permits, such information may be added at the end 
of the HUD-1.

[[Page 497]]

    (10) As required by HUD/FHA in FHA-insured loans.
    (11) As allowed by Sec. 1024.17, relating to an initial escrow 
account statement.
    (b) Permissible changes--HUD-1A. The changes and insertions on the 
HUD-1 permitted under paragraph (a) of this section are also permitted 
when the HUD-1A settlement statement is reproduced, except the changes 
described in paragraphs (a)(3) and (6) of this section.
    (c) Written approval. Any other deviation in the HUD-1 or HUD-1A 
forms is permissible only upon receipt of written approval of the 
Bureau; provided, however, that notwithstanding contrary instructions in 
this section or appendix A, reproducing the HUD-1 or HUD-1A forms with 
the Bureau's OMB approval number displayed in place of HUD's OMB 
approval number does not require the written approval of the Bureau. A 
request to the Bureau for approval shall be submitted in writing to the 
address indicated in Sec. 1024.3 and shall state the reasons why the 
applicant believes such deviation is needed. The prescribed form(s) must 
be used until approval is received.



Sec. 1024.10  One-day advance inspection of HUD-1 or HUD-1A settlement
statement; delivery; recordkeeping.

    (a) Inspection one day prior to settlement upon request by the 
borrower. The settlement agent shall permit the borrower to inspect the 
HUD-1 or HUD-1A settlement statement, completed to set forth those items 
that are known to the settlement agent at the time of inspection, during 
the business day immediately preceding settlement. Items related only to 
the seller's transaction may be omitted from the HUD-1.
    (b) Delivery. The settlement agent shall provide a completed HUD-1 
or HUD-1A to the borrower, the seller (if there is one), the lender (if 
the lender is not the settlement agent), and/or their agents. When the 
borrower's and seller's copies of the HUD-1 or HUD-1A differ as 
permitted by the instructions in appendix A to this part, both copies 
shall be provided to the lender (if the lender is not the settlement 
agent). The settlement agent shall deliver the completed HUD-1 or HUD-1A 
at or before the settlement, except as provided in paragraphs (c) and 
(d) of this section.
    (c) Waiver. The borrower may waive the right to delivery of the 
completed HUD-1 or HUD-1A no later than at settlement by executing a 
written waiver at or before settlement. In such case, the completed HUD-
1 or HUD-1A shall be mailed or delivered to the borrower, seller, and 
lender (if the lender is not the settlement agent) as soon as 
practicable after settlement.
    (d) Exempt transactions. When the borrower or the borrower's agent 
does not attend the settlement, or when the settlement agent does not 
conduct a meeting of the parties for that purpose, the transaction shall 
be exempt from the requirements of paragraphs (a) and (b) of this 
section, except that the HUD-1 or HUD-1A shall be mailed or delivered as 
soon as practicable after settlement.
    (e) Recordkeeping. The lender shall retain each completed HUD-1 or 
HUD-1A and related documents for five years after settlement, unless the 
lender disposes of its interest in the mortgage and does not service the 
mortgage. In that case, the lender shall provide its copy of the HUD-1 
or HUD-1A to the owner or servicer of the mortgage as a part of the 
transfer of the loan file. Such owner or servicer shall retain the HUD-1 
or HUD-1A for the remainder of the five-year period. The Bureau shall 
have the right to inspect or require copies of records covered by this 
paragraph (e).



Sec. 1024.11  Mailing.

    The provisions of this part requiring or permitting mailing of 
documents shall be deemed to be satisfied by placing the document in the 
mail (whether or not received by the addressee) addressed to the 
addresses stated in the loan application or in other information 
submitted to or obtained by the lender at the time of loan application 
or submitted or obtained by the lender or settlement agent, except that 
a revised address shall be used where the lender or settlement agent has 
been expressly informed in writing of a change in address.

[[Page 498]]



Sec. 1024.12  No fee.

    No fee shall be imposed or charge made upon any other person, as a 
part of settlement costs or otherwise, by a lender in connection with a 
federally related mortgage loan made by it (or a loan for the purchase 
of a manufactured home), or by a servicer (as that term is defined under 
12 U.S.C. 2605(i)(2)) for or on account of the preparation and 
distribution of the HUD-1 or HUD-1A settlement statement, escrow account 
statements required pursuant to section 10 of RESPA (12 U.S.C. 2609), or 
statements required by the Truth in Lending Act (15 U.S.C. 1601 et 
seq.).



Sec. 1024.13  Relation to state laws.

    (a) State laws that are inconsistent with RESPA or this part are 
preempted to the extent of the inconsistency. However, RESPA and these 
regulations do not annul, alter, affect, or exempt any person subject to 
their provisions from complying with the laws of any state with respect 
to settlement practices, except to the extent of the inconsistency.
    (b) Upon request by any person, the Bureau is authorized to 
determine if inconsistencies with state law exist; in doing so, the 
Bureau shall consult with appropriate Federal agencies.
    (1) The Bureau may not determine that a state law or regulation is 
inconsistent with any provision of RESPA or this part, if the Bureau 
determines that such law or regulation gives greater protection to the 
consumer.
    (2) In determining whether provisions of state law or regulations 
concerning affiliated business arrangements are inconsistent with RESPA 
or this part, the Bureau may not construe those provisions that impose 
more stringent limitations on affiliated business arrangements as 
inconsistent with RESPA so long as they give more protection to 
consumers and/or competition.
    (c) Any person may request the Bureau to determine whether an 
inconsistency exists by submitting to the address indicated in Sec. 
1024.3, a copy of the state law in question, any other law or judicial 
or administrative opinion that implements, interprets or applies the 
relevant provision, and an explanation of the possible inconsistency. A 
determination by the Bureau that an inconsistency with state law exists 
will be made by publication of a notice in the Federal Register. ``Law'' 
as used in this section includes regulations and any enactment which has 
the force and effect of law and is issued by a state or any political 
subdivision of a State.
    (d) A specific preemption of conflicting state laws regarding 
notices and disclosures of mortgage servicing transfers is set forth in 
Sec. 1024.21(h).



Sec. 1024.14  Prohibition against kickbacks and unearned fees.

    (a) Section 8 violation. Any violation of this section is a 
violation of section 8 of RESPA (12 U.S.C. 2607).
    (b) No referral fees. No person shall give and no person shall 
accept any fee, kickback or other thing of value pursuant to any 
agreement or understanding, oral or otherwise, that business incident to 
or part of a settlement service involving a federally related mortgage 
loan shall be referred to any person. Any referral of a settlement 
service is not a compensable service, except as set forth in Sec. 
1024.14(g)(1). A company may not pay any other company or the employees 
of any other company for the referral of settlement service business.
    (c) No split of charges except for actual services performed. No 
person shall give and no person shall accept any portion, split, or 
percentage of any charge made or received for the rendering of a 
settlement service in connection with a transaction involving a 
federally related mortgage loan other than for services actually 
performed. A charge by a person for which no or nominal services are 
performed or for which duplicative fees are charged is an unearned fee 
and violates this section. The source of the payment does not determine 
whether or not a service is compensable. Nor may the prohibitions of 
this part be avoided by creating an arrangement wherein the purchaser of 
services splits the fee.
    (d) Thing of value. This term is broadly defined in section 3(2) of 
RESPA (12 U.S.C. 2602(2)). It includes, without limitation, monies, 
things, discounts, salaries, commissions, fees, duplicate payments of a 
charge, stock, dividends,

[[Page 499]]

distributions of partnership profits, franchise royalties, credits 
representing monies that may be paid at a future date, the opportunity 
to participate in a money-making program, retained or increased 
earnings, increased equity in a parent or subsidiary entity, special 
bank deposits or accounts, special or unusual banking terms, services of 
all types at special or free rates, sales or rentals at special prices 
or rates, lease or rental payments based in whole or in part on the 
amount of business referred, trips and payment of another person's 
expenses, or reduction in credit against an existing obligation. The 
term ``payment'' is used throughout Sec. Sec. 1024.14 and 1024.15 as 
synonymous with the giving or receiving of any ``thing of value'' and 
does not require transfer of money.
    (e) Agreement or understanding. An agreement or understanding for 
the referral of business incident to or part of a settlement service 
need not be written or verbalized but may be established by a practice, 
pattern or course of conduct. When a thing of value is received 
repeatedly and is connected in any way with the volume or value of the 
business referred, the receipt of the thing of value is evidence that it 
is made pursuant to an agreement or understanding for the referral of 
business.
    (f) Referral. (1) A referral includes any oral or written action 
directed to a person which has the effect of affirmatively influencing 
the selection by any person of a provider of a settlement service or 
business incident to or part of a settlement service when such person 
will pay for such settlement service or business incident thereto or pay 
a charge attributable in whole or in part to such settlement service or 
business.
    (2) A referral also occurs whenever a person paying for a settlement 
service or business incident thereto is required to use (see Sec. 
1024.2, ``required use'') a particular provider of a settlement service 
or business incident thereto.
    (g) Fees, salaries, compensation, or other payments. (1) Section 8 
of RESPA permits:
    (i) A payment to an attorney at law for services actually rendered;
    (ii) A payment by a title company to its duly appointed agent for 
services actually performed in the issuance of a policy of title 
insurance;
    (iii) A payment by a lender to its duly appointed agent or 
contractor for services actually performed in the origination, 
processing, or funding of a loan;
    (iv) A payment to any person of a bona fide salary or compensation 
or other payment for goods or facilities actually furnished or for 
services actually performed;
    (v) A payment pursuant to cooperative brokerage and referral 
arrangements or agreements between real estate agents and real estate 
brokers. (The statutory exemption restated in this paragraph refers only 
to fee divisions within real estate brokerage arrangements when all 
parties are acting in a real estate brokerage capacity, and has no 
applicability to any fee arrangements between real estate brokers and 
mortgage brokers or between mortgage brokers.);
    (vi) Normal promotional and educational activities that are not 
conditioned on the referral of business and that do not involve the 
defraying of expenses that otherwise would be incurred by persons in a 
position to refer settlement services or business incident thereto; or
    (vii) An employer's payment to its own employees for any referral 
activities.
    (2) The Bureau may investigate high prices to see if they are the 
result of a referral fee or a split of a fee. If the payment of a thing 
of value bears no reasonable relationship to the market value of the 
goods or services provided, then the excess is not for services or goods 
actually performed or provided. These facts may be used as evidence of a 
violation of section 8 and may serve as a basis for a RESPA 
investigation. High prices standing alone are not proof of a RESPA 
violation. The value of a referral (i.e., the value of any additional 
business obtained thereby) is not to be taken into account in 
determining whether the payment exceeds the reasonable value of such 
goods, facilities or services. The fact that the transfer of the thing 
of value does not result in an increase in any charge made by the person 
giving the thing of

[[Page 500]]

value is irrelevant in determining whether the act is prohibited.
    (3) Multiple services. When a person in a position to refer 
settlement service business, such as an attorney, mortgage lender, real 
estate broker or agent, or developer or builder, receives a payment for 
providing additional settlement services as part of a real estate 
transaction, such payment must be for services that are actual, 
necessary and distinct from the primary services provided by such 
person. For example, for an attorney of the buyer or seller to receive 
compensation as a title agent, the attorney must perform core title 
agent services (for which liability arises) separate from attorney 
services, including the evaluation of the title search to determine the 
insurability of the title, the clearance of underwriting objections, the 
actual issuance of the policy or policies on behalf of the title 
insurance company, and, where customary, issuance of the title 
commitment, and the conducting of the title search and closing.
    (h) Recordkeeping. Any documents provided pursuant to this section 
shall be retained for five (5) years from the date of execution.
    (i) Appendix B of this part. Illustrations in appendix B of this 
part demonstrate some of the requirements of this section.



Sec. 1024.15  Affiliated business arrangements.

    (a) General. An affiliated business arrangement is defined in 
section 3(7) of RESPA (12 U.S.C. 2602(7)).
    (b) Violation and exemption. An affiliated business arrangement is 
not a violation of section 8 of RESPA (12 U.S.C. 2607) and of Sec. 
1024.14 if the conditions set forth in this section are satisfied. 
Paragraph (b)(1) of this section shall not apply to the extent it is 
inconsistent with section 8(c)(4)(A) of RESPA (12 U.S.C. 2607(c)(4)(A)).
    (1) The person making each referral has provided to each person 
whose business is referred a written disclosure, in the format of the 
Affiliated Business Arrangement Disclosure Statement set forth in 
appendix D of this part, of the nature of the relationship (explaining 
the ownership and financial interest) between the provider of settlement 
services (or business incident thereto) and the person making the 
referral and of an estimated charge or range of charges generally made 
by such provider (which describes the charge using the same terminology, 
as far as practical, as section L of the HUD-1 settlement statement). 
The disclosures must be provided on a separate piece of paper no later 
than the time of each referral or, if the lender requires use of a 
particular provider, the time of loan application, except that:
    (i) Where a lender makes the referral to a borrower, the condition 
contained in paragraph (b)(1) of this section may be satisfied at the 
time that the good faith estimate or a statement under Sec. 1024.7(d) 
is provided; and
    (ii) Whenever an attorney or law firm requires a client to use a 
particular title insurance agent, the attorney or law firm shall provide 
the disclosures no later than the time the attorney or law firm is 
engaged by the client.
    (iii) Failure to comply with the disclosure requirements of this 
section may be overcome if the person making a referral can prove by a 
preponderance of the evidence that procedures reasonably adopted to 
result in compliance with these conditions have been maintained and that 
any failure to comply with these conditions was unintentional and the 
result of a bona fide error. An error of legal judgment with respect to 
a person's obligations under RESPA is not a bona fide error. 
Administrative and judicial interpretations of section 130(c) of the 
Truth in Lending Act shall not be binding interpretations of the 
preceding sentence or section 8(d)(3) of RESPA (12 U.S.C. 2607(d)(3)).
    (2) No person making a referral has required (as defined in Sec. 
1024.2, ``required use'') any person to use any particular provider of 
settlement services or business incident thereto, except if such person 
is a lender, for requiring a buyer, borrower or seller to pay for the 
services of an attorney, credit reporting agency, or real estate 
appraiser chosen by the lender to represent the lender's interest in a 
real estate transaction, or except if such person is an attorney or law 
firm for arranging for issuance of a title insurance policy for

[[Page 501]]

a client, directly as agent or through a separate corporate title 
insurance agency that may be operated as an adjunct to the law practice 
of the attorney or law firm, as part of representation of that client in 
a real estate transaction.
    (3) The only thing of value that is received from the arrangement 
other than payments listed in Sec. 1024.14(g) is a return on an 
ownership interest or franchise relationship.
    (i) In an affiliated business arrangement:
    (A) Bona fide dividends, and capital or equity distributions, 
related to ownership interest or franchise relationship, between 
entities in an affiliate relationship, are permissible; and
    (B) Bona fide business loans, advances, and capital or equity 
contributions between entities in an affiliate relationship (in any 
direction), are not prohibited--so long as they are for ordinary 
business purposes and are not fees for the referral of settlement 
service business or unearned fees.
    (ii) A return on an ownership interest does not include:
    (A) Any payment which has as a basis of calculation no apparent 
business motive other than distinguishing among recipients of payments 
on the basis of the amount of their actual, estimated or anticipated 
referrals;
    (B) Any payment which varies according to the relative amount of 
referrals by the different recipients of similar payments; or
    (C) A payment based on an ownership, partnership or joint venture 
share which has been adjusted on the basis of previous relative 
referrals by recipients of similar payments.
    (iii) Neither the mere labeling of a thing of value, nor the fact 
that it may be calculated pursuant to a corporate or partnership 
organizational document or a franchise agreement, will determine whether 
it is a bona fide return on an ownership interest or franchise 
relationship. Whether a thing of value is such a return will be 
determined by analyzing facts and circumstances on a case by case basis.
    (iv) A return on franchise relationship may be a payment to or from 
a franchisee but it does not include any payment which is not based on 
the franchise agreement, nor any payment which varies according to the 
number or amount of referrals by the franchisor or franchisee or which 
is based on a franchise agreement which has been adjusted on the basis 
of a previous number or amount of referrals by the franchiser or 
franchisees. A franchise agreement may not be constructed to insulate 
against kickbacks or referral fees.
    (c) Definitions. As used in this section:
    Affiliate relationship means the relationship among business 
entities where one entity has effective control over the other by virtue 
of a partnership or other agreement or is under common control with the 
other by a third entity or where an entity is a corporation related to 
another corporation as parent to subsidiary by an identity of stock 
ownership.
    Associate is defined in section 3(8) of RESPA (12 U.S.C. 2602(8)).
    Beneficial ownership means the effective ownership of an interest in 
a provider of settlement services or the right to use and control the 
ownership interest involved even though legal ownership or title may be 
held in another person's name.
    Control, as used in the definitions of ``associate'' and ``affiliate 
relationship,'' means that a person:
    (i) Is a general partner, officer, director, or employer of another 
person;
    (ii) Directly or indirectly or acting in concert with others, or 
through one or more subsidiaries, owns, holds with power to vote, or 
holds proxies representing, more than 20 percent of the voting interests 
of another person;
    (iii) Affirmatively influences in any manner the election of a 
majority of the directors of another person; or
    (iv) Has contributed more than 20 percent of the capital of the 
other person.
    Direct ownership means the holding of legal title to an interest in 
a provider of settlement service except where title is being held for 
the beneficial owner.
    Franchise is defined in FTC regulation 16 CFR 436.1(h).
    Franchisee is defined in FTC regulation 16 CFR 436.1(i).

[[Page 502]]

    Franchisor is defined in FTC regulation 16 CFR 436.1(k).
    FTC means the Federal Trade Commission.
    Person who is in a position to refer settlement service business 
means any real estate broker or agent, lender, mortgage broker, builder 
or developer, attorney, title company, title agent, or other person 
deriving a significant portion of his or her gross income from providing 
settlement services.
    (d) Recordkeeping. Any documents provided pursuant to this section 
shall be retained for 5 years after the date of execution.
    (e) Appendix B of this part. Illustrations in appendix B of this 
part demonstrate some of the requirements of this section.



Sec. 1024.16  Title companies.

    No seller of property that will be purchased with the assistance of 
a federally related mortgage loan shall violate section 9 of RESPA (12 
U.S.C. 2608). Section 1024.2 defines ``required use'' of a provider of a 
settlement service.



Sec. 1024.17  Escrow accounts.

    (a) General. This section sets out the requirements for an escrow 
account that a lender establishes in connection with a federally related 
mortgage loan. It sets limits for escrow accounts using calculations 
based on monthly payments and disbursements within a calendar year. If 
an escrow account involves biweekly or any other payment period, the 
requirements in this section shall be modified accordingly. A Public 
Guidance Document entitled ``Biweekly Payments--Example'' provides 
examples of biweekly accounting and a Public Guidance Document entitled 
``Annual Escrow Account Disclosure Statement--Example'' provides 
examples of a 3-year accounting cycle that may be used in accordance 
with paragraph (c)(9) of this section. A Public Guidance Document 
entitled ``Consumer Disclosure for Voluntary Escrow Account Payments'' 
provides a model disclosure format that originators and servicers are 
encouraged, but not required, to provide to consumers when the 
originator or servicer anticipates a substantial increase in 
disbursements from the escrow account after the first year of the loan. 
The disclosures in that model format may be combined with or included in 
the Initial Escrow Account Statement required in Sec. 1024.17(g).
    (b) Definitions. As used in this section:
    Aggregate (or) composite analysis, hereafter called aggregate 
analysis, means an accounting method a servicer uses in conducting an 
escrow account analysis by computing the sufficiency of escrow account 
funds by analyzing the account as a whole. Appendix E to this part sets 
forth examples of aggregate escrow account analyses.
    Annual escrow account statement means a statement containing all of 
the information set forth in Sec. 1024.17(i). As noted in Sec. 
1024.17(i), a servicer shall submit an annual escrow account statement 
to the borrower within 30 calendar days of the end of the escrow account 
computation year, after conducting an escrow account analysis.
    Cushion or reserve (hereafter cushion) means funds that a servicer 
may require a borrower to pay into an escrow account to cover 
unanticipated disbursements or disbursements made before the borrower's 
payments are available in the account, as limited by Sec. 1024.17(c).
    Deficiency is the amount of a negative balance in an escrow account. 
As noted in Sec. 1024.17(f), if a servicer advances funds for a 
borrower, then the servicer must perform an escrow account analysis 
before seeking repayment of the deficiency.
    Delivery means the placing of a document in the United States mail, 
first-class postage paid, addressed to the last known address of the 
recipient. Hand delivery also constitutes delivery.
    Disbursement date means the date on which the servicer actually pays 
an escrow item from the escrow account.
    Escrow account means any account that a servicer establishes or 
controls on behalf of a borrower to pay taxes, insurance premiums 
(including flood insurance), or other charges with respect to a 
federally related mortgage loan, including charges that the borrower and 
servicer have voluntarily agreed that the servicer should collect

[[Page 503]]

and pay. The definition encompasses any account established for this 
purpose, including a ``trust account'', ``reserve account'', ``impound 
account'', or other term in different localities. An ``escrow account'' 
includes any arrangement where the servicer adds a portion of the 
borrower's payments to principal and subsequently deducts from principal 
the disbursements for escrow account items. For purposes of this 
section, the term ``escrow account'' excludes any account that is under 
the borrower's total control.
    Escrow account analysis means the accounting that a servicer 
conducts in the form of a trial running balance for an escrow account 
to:
    (1) Determine the appropriate target balances;
    (2) Compute the borrower's monthly payments for the next escrow 
account computation year and any deposits needed to establish or 
maintain the account; and
    (3) Determine whether shortages, surpluses or deficiencies exist.
    Escrow account computation year is a 12-month period that a servicer 
establishes for the escrow account beginning with the borrower's initial 
payment date. The term includes each 12-month period thereafter, unless 
a servicer chooses to issue a short year statement under the conditions 
stated in Sec. 1024.17(i)(4).
    Escrow account item or separate item means any separate expenditure 
category, such as ``taxes'' or ``insurance'', for which funds are 
collected in the escrow account for disbursement. An escrow account item 
with installment payments, such as local property taxes, remains one 
escrow account item regardless of multiple disbursement dates to the tax 
authority.
    Initial escrow account statement means the first disclosure 
statement that the servicer delivers to the borrower concerning the 
borrower's escrow account. The initial escrow account statement shall 
meet the requirements of Sec. 1024.17(g) and be in substantially the 
format set forth in Sec. 1024.17(h).
    Installment payment means one of two or more payments payable on an 
escrow account item during an escrow account computation year. An 
example of an installment payment is where a jurisdiction bills 
quarterly for taxes.
    Payment due date means the date each month when the borrower's 
monthly payment to an escrow account is due to the servicer. The initial 
payment date is the borrower's first payment due date to an escrow 
account.
    Penalty means a late charge imposed by the payee for paying after 
the disbursement is due. It does not include any additional charge or 
fee imposed by the payee associated with choosing installment payments 
as opposed to annual payments or for choosing one installment plan over 
another.
    Pre-accrual is a practice some servicers use to require borrowers to 
deposit funds, needed for disbursement and maintenance of a cushion, in 
the escrow account some period before the disbursement date. Pre-accrual 
is subject to the limitations of Sec. 1024.17(c).
    Shortage means an amount by which a current escrow account balance 
falls short of the target balance at the time of escrow analysis.
    Single-item analysis means an accounting method servicers use in 
conducting an escrow account analysis by computing the sufficiency of 
escrow account funds by considering each escrow item separately. 
Appendix E to this part sets forth examples of single-item analysis.
    Submission (of an escrow account statement) means the delivery of 
the statement.
    Surplus means an amount by which the current escrow account balance 
exceeds the target balance for the account.
    System of recordkeeping means the servicer's method of keeping 
information that reflects the facts relating to that servicer's handling 
of the borrower's escrow account, including, but not limited to, the 
payment of amounts from the escrow account and the submission of initial 
and annual escrow account statements to borrowers.
    Target balance means the estimated month end balance in an escrow 
account that is just sufficient to cover the remaining disbursements 
from the escrow account in the escrow account computation year, taking 
into account the remaining scheduled periodic payments, and a cushion, 
if any.

[[Page 504]]

    Trial running balance means the accounting process that derives the 
target balances over the course of an escrow account computation year. 
Section 1024.17(d) provides a description of the steps involved in 
performing a trial running balance.
    (c) Limits on payments to escrow accounts. (1) A lender or servicer 
(hereafter servicer) shall not require a borrower to deposit into any 
escrow account, created in connection with a federally related mortgage 
loan, more than the following amounts:
    (i) Charges at settlement or upon creation of an escrow account. At 
the time a servicer creates an escrow account for a borrower, the 
servicer may charge the borrower an amount sufficient to pay the charges 
respecting the mortgaged property, such as taxes and insurance, which 
are attributable to the period from the date such payment(s) were last 
paid until the initial payment date. The ``amount sufficient to pay'' is 
computed so that the lowest month end target balance projected for the 
escrow account computation year is zero (-0-) (see Step 2 in Appendix E 
to this part). In addition, the servicer may charge the borrower a 
cushion that shall be no greater than one-sixth (\1/6\) of the estimated 
total annual payments from the escrow account.
    (ii) Charges during the life of the escrow account. Throughout the 
life of an escrow account, the servicer may charge the borrower a 
monthly sum equal to one-twelfth (\1/12\) of the total annual escrow 
payments which the servicer reasonably anticipates paying from the 
account. In addition, the servicer may add an amount to maintain a 
cushion no greater than one-sixth (\1/6\) of the estimated total annual 
payments from the account. However, if a servicer determines through an 
escrow account analysis that there is a shortage or deficiency, the 
servicer may require the borrower to pay additional deposits to make up 
the shortage or eliminate the deficiency, subject to the limitations set 
forth in Sec. 1024.17(f).
    (2) Escrow analysis at creation of escrow account. Before 
establishing an escrow account, the servicer must conduct an escrow 
account analysis to determine the amount the borrower must deposit into 
the escrow account (subject to the limitations of paragraph (c)(1)(i) of 
this section), and the amount of the borrower's periodic payments into 
the escrow account (subject to the limitations of paragraph (c)(1)(ii) 
of this section). In conducting the escrow account analysis, the 
servicer must estimate the disbursement amounts according to paragraph 
(c)(7) of this section. Pursuant to paragraph (k) of this section, the 
servicer must use a date on or before the deadline to avoid a penalty as 
the disbursement date for the escrow item and comply with any other 
requirements of paragraph (k) of this section. Upon completing the 
initial escrow account analysis, the servicer must prepare and deliver 
an initial escrow account statement to the borrower, as set forth in 
paragraph (g) of this section. The servicer must use the escrow account 
analysis to determine whether a surplus, shortage, or deficiency exists 
and must make any adjustments to the account pursuant to paragraph (f) 
of this section.
    (3) Subsequent escrow account analyses. For each escrow account, the 
servicer must conduct an escrow account analysis at the completion of 
the escrow account computation year to determine the borrower's monthly 
escrow account payments for the next computation year, subject to the 
limitations of paragraph (c)(1)(ii) of this section. In conducting the 
escrow account analysis, the servicer must estimate the disbursement 
amounts according to paragraph (c)(7) of this section. Pursuant to 
paragraph (k) of this section, the servicer must use a date on or before 
the deadline to avoid a penalty as the disbursement date for the escrow 
item and comply with any other requirements of paragraph (k) of this 
section. The servicer must use the escrow account analysis to determine 
whether a surplus, shortage, or deficiency exists, and must make any 
adjustments to the account pursuant to paragraph (f) of this section. 
Upon completing an escrow account analysis, the servicer must prepare 
and submit an annual escrow account statement to the borrower, as set 
forth in paragraph (i) of this section.

[[Page 505]]

    (4) Aggregate accounting required. All servicers must use the 
aggregate accounting method in conducting escrow account analyses.
    (5) Cushion. The cushion must be no greater than one-sixth (\1/6\) 
of the estimated total annual disbursements from the escrow account.
    (6) Restrictions on pre-accrual. A servicer must not practice pre-
accrual.
    (7) Servicer estimates of disbursement amounts. To conduct an escrow 
account analysis, the servicer shall estimate the amount of escrow 
account items to be disbursed. If the servicer knows the charge for an 
escrow item in the next computation year, then the servicer shall use 
that amount in estimating disbursement amounts. If the charge is unknown 
to the servicer, the servicer may base the estimate on the preceding 
year's charge, or the preceding year's charge as modified by an amount 
not exceeding the most recent year's change in the national Consumer 
Price Index for all urban consumers (CPI, all items). In cases of 
unassessed new construction, the servicer may base an estimate on the 
assessment of comparable residential property in the market area.
    (8) Provisions in mortgage documents. The servicer must examine the 
mortgage loan documents to determine the applicable cushion for each 
escrow account. If the mortgage loan documents provide for lower cushion 
limits, then the terms of the loan documents apply. Where the terms of 
any mortgage loan document allow greater payments to an escrow account 
than allowed by this section, then this section controls the applicable 
limits. Where the mortgage loan documents do not specifically establish 
an escrow account, whether a servicer may establish an escrow account 
for the loan is a matter for determination by other Federal or state 
law. If the mortgage loan document is silent on the escrow account 
limits and a servicer establishes an escrow account under other Federal 
or state law, then the limitations of this section apply unless 
applicable Federal or state law provides for a lower amount. If the loan 
documents provide for escrow accounts up to the RESPA limits, then the 
servicer may require the maximum amounts consistent with this section, 
unless an applicable Federal or state law sets a lesser amount.
    (9) Assessments for periods longer than one year. Some escrow 
account items may be billed for periods longer than one year. For 
example, servicers may need to collect flood insurance or water 
purification escrow funds for payment every three years. In such cases, 
the servicer shall estimate the borrower's payments for a full cycle of 
disbursements. For a flood insurance premium payable every 3 years, the 
servicer shall collect the payments reflecting 36 equal monthly amounts. 
For two out of the three years, however, the account balance may not 
reach its low monthly balance because the low point will be on a three-
year cycle, as compared to an annual one. The annual escrow account 
statement shall explain this situation (see example in the Public 
Guidance Document entitled ``Annual Escrow Account Disclosure 
Statement--Example'', available in accordance with Sec. 1024.3).
    (d) Methods of escrow account analysis. (1) The following sets forth 
the steps servicers must use to determine whether their use of aggregate 
analysis conforms with the limitations in Sec. 1024.17(c)(1). The steps 
set forth in this section result in maximum limits. Servicers may use 
accounting procedures that result in lower target balances. In 
particular, servicers may use a cushion less than the permissible 
cushion or no cushion at all. This section does not require the use of a 
cushion.
    (2) Aggregate analysis. (i) In conducting the escrow account 
analysis using aggregate analysis, the target balances may not exceed 
the balances computed according to the following arithmetic operations:
    (A) The servicer first projects a trial balance for the account as a 
whole over the next computation year (a trial running balance). In doing 
so the servicer assumes that it will make estimated disbursements on or 
before the earlier of the deadline to take advantage of discounts, if 
available, or the deadline to avoid a penalty. The servicer does not use 
pre-accrual on these disbursement dates. The servicer also assumes that 
the borrower will make monthly payments equal to one-twelfth of the

[[Page 506]]

estimated total annual escrow account disbursements.
    (B) The servicer then examines the monthly trial balances and adds 
to the first monthly balance an amount just sufficient to bring the 
lowest monthly trial balance to zero, and adjusts all other monthly 
balances accordingly.
    (C) The servicer then adds to the monthly balances the permissible 
cushion. The cushion is two months of the borrower's escrow payments to 
the servicer or a lesser amount specified by state law or the mortgage 
document (net of any increases or decreases because of prior year 
shortages or surpluses, respectively).
    (ii) Lowest monthly balance. Under aggregate analysis, the lowest 
monthly target balance for the account shall be less than or equal to 
one-sixth of the estimated total annual escrow account disbursements or 
a lesser amount specified by state law or the mortgage document. The 
target balances that the servicer derives using these steps yield the 
maximum limit for the escrow account. Appendix E to this part 
illustrates these steps.
    (e) Transfer of servicing. (1) If the new servicer changes either 
the monthly payment amount or the accounting method used by the 
transferor (old) servicer, then the new servicer shall provide the 
borrower with an initial escrow account statement within 60 days of the 
date of servicing transfer.
    (i) Where a new servicer provides an initial escrow account 
statement upon the transfer of servicing, the new servicer shall use the 
effective date of the transfer of servicing to establish the new escrow 
account computation year.
    (ii) Where the new servicer retains the monthly payments and 
accounting method used by the transferor servicer, then the new servicer 
may continue to use the escrow account computation year established by 
the transferor servicer or may choose to establish a different 
computation year using a short-year statement. At the completion of the 
escrow account computation year or any short year, the new servicer 
shall perform an escrow analysis and provide the borrower with an annual 
escrow account statement.
    (2) The new servicer shall treat shortages, surpluses and 
deficiencies in the transferred escrow account according to the 
procedures set forth in Sec. 1024.17(f).
    (f) Shortages, surpluses, and deficiencies requirements--(1) Escrow 
account analysis. For each escrow account, the servicer shall conduct an 
escrow account analysis to determine whether a surplus, shortage or 
deficiency exists.
    (i) As noted in Sec. 1024.17(c)(2) and (3), the servicer shall 
conduct an escrow account analysis upon establishing an escrow account 
and at completion of the escrow account computation year.
    (ii) The servicer may conduct an escrow account analysis at other 
times during the escrow computation year. If a servicer advances funds 
in paying a disbursement, which is not the result of a borrower's 
payment default under the underlying mortgage document, then the 
servicer shall conduct an escrow account analysis to determine the 
extent of the deficiency before seeking repayment of the funds from the 
borrower under this paragraph (f).
    (2) Surpluses. (i) If an escrow account analysis discloses a 
surplus, the servicer shall, within 30 days from the date of the 
analysis, refund the surplus to the borrower if the surplus is greater 
than or equal to 50 dollars ($50). If the surplus is less than 50 
dollars ($50), the servicer may refund such amount to the borrower, or 
credit such amount against the next year's escrow payments.
    (ii) These provisions regarding surpluses apply if the borrower is 
current at the time of the escrow account analysis. A borrower is 
current if the servicer receives the borrower's payments within 30 days 
of the payment due date. If the servicer does not receive the borrower's 
payment within 30 days of the payment due date, then the servicer may 
retain the surplus in the escrow account pursuant to the terms of the 
mortgage loan documents.
    (iii) After an initial or annual escrow analysis has been performed, 
the servicer and the borrower may enter into a voluntary agreement for 
the forthcoming escrow accounting year for the borrower to deposit funds 
into the escrow account for that year greater than the limits 
established under

[[Page 507]]

paragraph (c) of this section. Such an agreement shall cover only one 
escrow accounting year, but a new voluntary agreement may be entered 
into after the next escrow analysis is performed. The voluntary 
agreement may not alter how surpluses are to be treated when the next 
escrow analysis is performed at the end of the escrow accounting year 
covered by the voluntary agreement.
    (3) Shortages. (i) If an escrow account analysis discloses a 
shortage of less than one month's escrow account payment, then the 
servicer has three possible courses of action:
    (A) The servicer may allow a shortage to exist and do nothing to 
change it;
    (B) The servicer may require the borrower to repay the shortage 
amount within 30 days; or
    (C) The servicer may require the borrower to repay the shortage 
amount in equal monthly payments over at least a 12-month period.
    (ii) If an escrow account analysis discloses a shortage that is 
greater than or equal to one month's escrow account payment, then the 
servicer has two possible courses of action:
    (A) The servicer may allow a shortage to exist and do nothing to 
change it; or
    (B) The servicer may require the borrower to repay the shortage in 
equal monthly payments over at least a 12-month period.
    (4) Deficiency. If the escrow account analysis confirms a 
deficiency, then the servicer may require the borrower to pay additional 
monthly deposits to the account to eliminate the deficiency.
    (i) If the deficiency is less than one month's escrow account 
payment, then the servicer:
    (A) May allow the deficiency to exist and do nothing to change it;
    (B) May require the borrower to repay the deficiency within 30 days; 
or
    (C) May require the borrower to repay the deficiency in 2 or more 
equal monthly payments.
    (ii) If the deficiency is greater than or equal to 1 month's escrow 
payment, the servicer may allow the deficiency to exist and do nothing 
to change it or may require the borrower to repay the deficiency in two 
or more equal monthly payments.
    (iii) These provisions regarding deficiencies apply if the borrower 
is current at the time of the escrow account analysis. A borrower is 
current if the servicer receives the borrower's payments within 30 days 
of the payment due date. If the servicer does not receive the borrower's 
payment within 30 days of the payment due date, then the servicer may 
recover the deficiency pursuant to the terms of the mortgage loan 
documents.
    (5) Notice of shortage or deficiency in escrow account. The servicer 
shall notify the borrower at least once during the escrow account 
computation year if there is a shortage or deficiency in the escrow 
account. The notice may be part of the annual escrow account statement 
or it may be a separate document.
    (g) Initial escrow account statement--(1) Submission at settlement, 
or within 45 calendar days of settlement. As noted in Sec. 
1024.17(c)(2), the servicer shall conduct an escrow account analysis 
before establishing an escrow account to determine the amount the 
borrower shall deposit into the escrow account, subject to the 
limitations of Sec. 1024.17(c)(1)(i). After conducting the escrow 
account analysis for each escrow account, the servicer shall submit an 
initial escrow account statement to the borrower at settlement or within 
45 calendar days of settlement for escrow accounts that are established 
as a condition of the loan.
    (i) The initial escrow account statement shall include the amount of 
the borrower's monthly mortgage payment and the portion of the monthly 
payment going into the escrow account and shall itemize the estimated 
taxes, insurance premiums, and other charges that the servicer 
reasonably anticipates to be paid from the escrow account during the 
escrow account computation year and the anticipated disbursement dates 
of those charges. The initial escrow account statement shall indicate 
the amount that the servicer selects as a cushion. The statement shall 
include a trial running balance for the account.

[[Page 508]]

    (ii) Pursuant to Sec. 1024.17(h)(2), the servicer may incorporate 
the initial escrow account statement into the HUD-1 or HUD-1A settlement 
statement. If the servicer does not incorporate the initial escrow 
account statement into the HUD-1 or HUD-1A settlement statement, then 
the servicer shall submit the initial escrow account statement to the 
borrower as a separate document.
    (2) Time of submission of initial escrow account statement for an 
escrow account established after settlement. For escrow accounts 
established after settlement (and which are not a condition of the 
loan), a servicer shall submit an initial escrow account statement to a 
borrower within 45 calendar days of the date of establishment of the 
escrow account.
    (h) Format for initial escrow account statement. (1) The format and 
a completed example for an initial escrow account statement are set out 
in Public Guidance Documents entitled ``Initial Escrow Account 
Disclosure Statement--Format'' and ``Initial Escrow Account Disclosure 
Statement--Example'', available in accordance with Sec. 1024.3.
    (2) Incorporation of initial escrow account statement into HUD-1 or 
HUD-1A settlement statement. Pursuant to Sec. 1024.9(a)(11), a servicer 
may add the initial escrow account statement to the HUD-1 or HUD-1A 
settlement statement. The servicer may include the initial escrow 
account statement in the basic text or may attach the initial escrow 
account statement as an additional page to the HUD-1 or HUD-1A 
settlement statement.
    (3) Identification of payees. The initial escrow account statement 
need not identify a specific payee by name if it provides sufficient 
information to identify the use of the funds. For example, appropriate 
entries include: county taxes, hazard insurance, condominium dues, etc. 
If a particular payee, such as a taxing body, receives more than one 
payment during the escrow account computation year, the statement shall 
indicate each payment and disbursement date. If there are several taxing 
authorities or insurers, the statement shall identify each taxing body 
or insurer (e.g., ``City Taxes'', ``School Taxes'', ``Hazard 
Insurance'', or ``Flood Insurance,'' etc.).
    (i) Annual escrow account statements. For each escrow account, a 
servicer shall submit an annual escrow account statement to the borrower 
within 30 days of the completion of the escrow account computation year. 
The servicer shall also submit to the borrower the previous year's 
projection or initial escrow account statement. The servicer shall 
conduct an escrow account analysis before submitting an annual escrow 
account statement to the borrower.
    (1) Contents of annual escrow account statement. The annual escrow 
account statement shall provide an account history, reflecting the 
activity in the escrow account during the escrow account computation 
year, and a projection of the activity in the account for the next year. 
In preparing the statement, the servicer may assume scheduled payments 
and disbursements will be made for the final 2 months of the escrow 
account computation year. The annual escrow account statement must 
include, at a minimum, the following (the items in paragraphs (i)(1)(i) 
through (i)(1)(iv) must be clearly itemized):
    (i) The amount of the borrower's current monthly mortgage payment 
and the portion of the monthly payment going into the escrow account;
    (ii) The amount of the past year's monthly mortgage payment and the 
portion of the monthly payment that went into the escrow account;
    (iii) The total amount paid into the escrow account during the past 
computation year;
    (iv) The total amount paid out of the escrow account during the same 
period for taxes, insurance premiums, and other charges (as separately 
identified);
    (v) The balance in the escrow account at the end of the period;
    (vi) An explanation of how any surplus is being handled by the 
servicer;
    (vii) An explanation of how any shortage or deficiency is to be paid 
by the borrower; and
    (viii) If applicable, the reason(s) why the estimated low monthly 
balance was

[[Page 509]]

not reached, as indicated by noting differences between the most recent 
account history and last year's projection. Public Guidance Documents 
entitled ``Annual Escrow Account Disclosure Statement--Format'' and 
``Annual Escrow Account Disclosure Statement--Example'' set forth an 
acceptable format and methodology for conveying this information.
    (2) No annual statements in the case of default, foreclosure, or 
bankruptcy. This paragraph (i)(2) contains an exemption from the 
provisions of Sec. 1024.17(i)(1). If at the time the servicer conducts 
the escrow account analysis the borrower is more than 30 days overdue, 
then the servicer is exempt from the requirements of submitting an 
annual escrow account statement to the borrower under Sec. 1024.17(i). 
This exemption also applies in situations where the servicer has brought 
an action for foreclosure under the underlying mortgage loan, or where 
the borrower is in bankruptcy proceedings. If the servicer does not 
issue an annual statement pursuant to this exemption and the loan 
subsequently is reinstated or otherwise becomes current, the servicer 
shall provide a history of the account since the last annual statement 
(which may be longer than 1 year) within 90 days of the date the account 
became current.
    (3) Delivery with other material. The servicer may deliver the 
annual escrow account statement to the borrower with other statements or 
materials, including the Substitute 1098, which is provided for Federal 
income tax purposes.
    (4) Short year statements. A servicer may issue a short year annual 
escrow account statement (``short year statement'') to change one escrow 
account computation year to another. By using a short year statement a 
servicer may adjust its production schedule or alter the escrow account 
computation year for the escrow account.
    (i) Effect of short year statement. The short year statement shall 
end the ``escrow account computation year'' for the escrow account and 
establish the beginning date of the new escrow account computation year. 
The servicer shall deliver the short year statement to the borrower 
within 60 days from the end of the short year.
    (ii) Short year statement upon servicing transfer. Upon the transfer 
of servicing, the transferor (old) servicer shall submit a short year 
statement to the borrower within 60 days of the effective date of 
transfer.
    (iii) Short year statement upon loan payoff. If a borrower pays off 
a mortgage loan during the escrow account computation year, the servicer 
shall submit a short year statement to the borrower within 60 days after 
receiving the pay-off funds.
    (j) Formats for annual escrow account statement. The formats and 
completed examples for annual escrow account statements using single-
item analysis (pre-rule accounts) and aggregate analysis are set out in 
Public Guidance Documents entitled ``Annual Escrow Account Disclosure 
Statement--Format'' and ``Annual Escrow Account Disclosure Statement--
Example''.
    (k) Timely payments. (1) If the terms of any federally related 
mortgage loan require the borrower to make payments to an escrow 
account, the servicer must pay the disbursements in a timely manner, 
that is, on or before the deadline to avoid a penalty, as long as the 
borrower's payment is not more than 30 days overdue.
    (2) The servicer must advance funds to make disbursements in a 
timely manner as long as the borrower's payment is not more than 30 days 
overdue. Upon advancing funds to pay a disbursement, the servicer may 
seek repayment from the borrower for the deficiency pursuant to 
paragraph (f) of this section.
    (3) For the payment of property taxes from the escrow account, if a 
taxing jurisdiction offers a servicer a choice between annual and 
installment disbursements, the servicer must also comply with this 
paragraph (k)(3). If the taxing jurisdiction neither offers a discount 
for disbursements on a lump sum annual basis nor imposes any additional 
charge or fee for installment disbursements, the servicer must make 
disbursements on an installment basis. If, however, the taxing 
jurisdiction offers a discount for disbursements on a lump sum annual 
basis or imposes any additional charge or fee for installment 
disbursements, the servicer may, at the

[[Page 510]]

servicer's discretion (but is not required by RESPA to), make lump sum 
annual disbursements in order to take advantage of the discount for the 
borrower or avoid the additional charge or fee for installments, as long 
as such method of disbursement complies with paragraphs (k)(1) and 
(k)(2) of this section. The Bureau encourages, but does not require, the 
servicer to follow the preference of the borrower, if such preference is 
known to the servicer.
    (4) Notwithstanding paragraph (k)(3) of this section, a servicer and 
borrower may mutually agree, on an individual case basis, to a different 
disbursement basis (installment or annual) or disbursement date for 
property taxes from that required under paragraph (k)(3) of this 
section, so long as the agreement meets the requirements of paragraphs 
(k)(1) and (k)(2) of this section. The borrower must voluntarily agree; 
neither loan approval nor any term of the loan may be conditioned on the 
borrower's agreeing to a different disbursement basis or disbursement 
date.
    (l) System of recordkeeping. (1) Each servicer shall keep records, 
which may involve electronic storage, microfiche storage, or any method 
of computerized storage, so long as the information is easily 
retrievable, reflecting the servicer's handling of each borrower's 
escrow account. The servicer's records shall include, but not be limited 
to, the payment of amounts into and from the escrow account and the 
submission of initial and annual escrow account statements to the 
borrower.
    (2) The servicer responsible for servicing the borrower's escrow 
account shall maintain the records for that account for a period of at 
least five years after the servicer last serviced the escrow account.
    (3) A servicer shall provide the Bureau with information contained 
in the servicer's records for a specific escrow account, or for a number 
or class of escrow accounts, within 30 days of the Bureau's written 
request for the information. At the Bureau's request, the servicer shall 
convert any information contained in electronic storage, microfiche or 
computerized storage to paper copies for review by the Bureau.
    (4) Borrowers may seek information contained in the servicer's 
records by complying with the provisions set forth in 12 U.S.C. 2605(e) 
and Sec. 1024.21(e).
    (5) After receiving a request from the Bureau for information 
relating to whether a servicer submitted an escrow account statement to 
the borrower, the servicer shall respond within 30 days. If the servicer 
is unable to provide the Bureau with such information, the Bureau shall 
deem that lack of information to be evidence of the servicer's failure 
to submit the statement to the borrower.
    (m) Discretionary payments. Any borrower's discretionary payment 
(such as credit life or disability insurance) made as part of a monthly 
mortgage payment is to be noted on the initial and annual statements. If 
a discretionary payment is established or terminated during the escrow 
account computation year, this change should be noted on the next annual 
statement. A discretionary payment is not part of the escrow account 
unless the payment is required by the lender, in accordance with the 
definition of ``settlement service'' in Sec. 1024.2, or the servicer 
chooses to place the discretionary payment in the escrow account. If a 
servicer has not established an escrow account for a federally related 
mortgage loan and only receives payments for discretionary items, this 
section is not applicable.



Sec. 1024.18  Validity of contracts and liens.

    Section 17 of RESPA (12 U.S.C. 2615) governs the validity of 
contracts and liens under RESPA.



Sec. 1024.19  Enforcement.

    (a) Enforcement policy. It is the policy of the Bureau regarding 
RESPA enforcement matters to cooperate with Federal, state, or local 
agencies having supervisory powers over lenders or other persons with 
responsibilities under RESPA. Federal agencies with supervisory powers 
over lenders may use their powers to require compliance with RESPA. In 
addition, failure to comply with RESPA may be grounds for administrative 
action by HUD under HUD regulation 2 CFR part 2424 concerning debarment, 
suspension, ineligibility of contractors and grantees, or under HUD 
regulation 24 CFR part

[[Page 511]]

25 concerning the HUD Mortgagee Review Board. Nothing in this paragraph 
is a limitation on any other form of enforcement that may be legally 
available.
    (b) Investigations. The procedures for investigations and 
investigational proceedings are set forth in part 1080 of this title.



Sec. 1024.20  [Reserved]



Sec. 1024.21  Mortgage servicing transfers.

    (a) Definitions. As used in this section:
    Master servicer means the owner of the right to perform servicing, 
which may actually perform the servicing itself or may do so through a 
subservicer.
    Mortgage servicing loan means a federally related mortgage loan, as 
that term is defined in Sec. 1024.2, subject to the exemptions in Sec. 
1024.5, when the mortgage loan is secured by a first lien. The 
definition does not include subordinate lien loans or open-end lines of 
credit (home equity plans) covered by the Truth in Lending Act and 
Regulation Z, including open-end lines of credit secured by a first 
lien.
    Qualified written request means a written correspondence from the 
borrower to the servicer prepared in accordance with paragraph (e)(2) of 
this section.
    Subservicer means a servicer who does not own the right to perform 
servicing, but who does so on behalf of the master servicer.
    Transferee servicer means a servicer who obtains or who will obtain 
the right to perform servicing functions pursuant to an agreement or 
understanding.
    Transferor servicer means a servicer, including a table funding 
mortgage broker or dealer on a first lien dealer loan, who transfers or 
will transfer the right to perform servicing functions pursuant to an 
agreement or understanding.
    (b) Servicing Disclosure Statement; Requirements. (1) At the time an 
application for a mortgage servicing loan is submitted, or within 3 
business days after submission of the application, the lender, mortgage 
broker who anticipates using table funding, or dealer who anticipates a 
first lien dealer loan shall provide to each person who applies for such 
a loan a Servicing Disclosure Statement. A format for the Servicing 
Disclosure Statement appears as appendix MS-1 to this part. The specific 
language of the Servicing Disclosure Statement is not required to be 
used. The information set forth in ``Instructions to Preparer'' on the 
Servicing Disclosure Statement need not be included with the information 
given to applicants, and material in square brackets is optional or 
alternative language. The model format may be annotated with additional 
information that clarifies or enhances the model language. The lender, 
table funding mortgage broker, or dealer should use the language that 
best describes the particular circumstances.
    (2) The Servicing Disclosure Statement must indicate whether the 
servicing of the loan may be assigned, sold, or transferred to any other 
person at any time while the loan is outstanding. If the lender, table 
funding mortgage broker, or dealer in a first lien dealer loan will 
engage in the servicing of the mortgage loan for which the applicant has 
applied, the disclosure may consist of a statement that the entity will 
service such loan and does not intend to sell, transfer, or assign the 
servicing of the loan. If the lender, table funding mortgage broker, or 
dealer in a first lien dealer loan will not engage in the servicing of 
the mortgage loan for which the applicant has applied, the disclosure 
may consist of a statement that such entity intends to assign, sell, or 
transfer servicing of such mortgage loan before the first payment is 
due. In all other instances, the disclosure must state that the 
servicing of the loan may be assigned, sold or transferred while the 
loan is outstanding.
    (c) Servicing Disclosure Statement; Delivery. The lender, table 
funding mortgage broker, or dealer that anticipates a first lien dealer 
loan shall deliver the Servicing Disclosure Statement within 3 business 
days from receipt of the application by hand delivery, by placing it in 
the mail, or, if the applicant agrees, by fax, email, or other 
electronic means. In the event the borrower is denied credit within the 
3

[[Page 512]]

business-day period, no servicing disclosure statement is required to be 
delivered. If co-applicants indicate the same address on their 
application, one copy delivered to that address is sufficient. If 
different addresses are shown by co-applicants on the application, a 
copy must be delivered to each of the co-applicants.
    (d) Notices of Transfer; loan servicing--(1) Requirement for notice. 
(i) Except as provided in this paragraph (d)(1)(i) or paragraph 
(d)(1)(ii) of this section, each transferor servicer and transferee 
servicer of any mortgage servicing loan shall deliver to the borrower a 
written Notice of Transfer, containing the information described in 
paragraph (d)(3) of this section, of any assignment, sale, or transfer 
of the servicing of the loan. The following transfers are not considered 
an assignment, sale, or transfer of mortgage loan servicing for purposes 
of this requirement if there is no change in the payee, address to which 
payment must be delivered, account number, or amount of payment due:
    (A) Transfers between affiliates;
    (B) Transfers resulting from mergers or acquisitions of servicers or 
subservicers; and
    (C) Transfers between master servicers, where the subservicer 
remains the same.
    (ii) The Federal Housing Administration (FHA) is not required under 
paragraph (d) of this section to submit to the borrower a Notice of 
Transfer in cases where a mortgage insured under the National Housing 
Act is assigned to FHA.
    (2) Time of notice. (i) Except as provided in paragraph (d)(2)(ii) 
of this section:
    (A) The transferor servicer shall deliver the Notice of Transfer to 
the borrower not less than 15 days before the effective date of the 
transfer of the servicing of the mortgage servicing loan;
    (B) The transferee servicer shall deliver the Notice of Transfer to 
the borrower not more than 15 days after the effective date of the 
transfer; and
    (C) The transferor and transferee servicers may combine their 
notices into one notice, which shall be delivered to the borrower not 
less than 15 days before the effective date of the transfer of the 
servicing of the mortgage servicing loan.
    (ii) The Notice of Transfer shall be delivered to the borrower by 
the transferor servicer or the transferee servicer not more than 30 days 
after the effective date of the transfer of the servicing of the 
mortgage servicing loan in any case in which the transfer of servicing 
is preceded by:
    (A) Termination of the contract for servicing the loan for cause;
    (B) Commencement of proceedings for bankruptcy of the servicer; or
    (C) Commencement of proceedings by the Federal Deposit Insurance 
Corporation (FDIC) for conservatorship or receivership of the servicer 
or an entity that owns or controls the servicer.
    (iii) Notices of Transfer delivered at settlement by the transferor 
servicer and transferee servicer, whether as separate notices or as a 
combined notice, will satisfy the timing requirements of paragraph 
(d)(2) of this section.
    (3) Notices of Transfer; contents. The Notices of Transfer required 
under paragraph (d) of this section shall include the following 
information:
    (i) The effective date of the transfer of servicing;
    (ii) The name, consumer inquiry addresses (including, at the option 
of the servicer, a separate address where qualified written requests 
must be sent), and a toll-free or collect-call telephone number for an 
employee or department of the transferee servicer;
    (iii) A toll-free or collect-call telephone number for an employee 
or department of the transferor servicer that can be contacted by the 
borrower for answers to servicing transfer inquiries;
    (iv) The date on which the transferor servicer will cease to accept 
payments relating to the loan and the date on which the transferee 
servicer will begin to accept such payments. These dates shall either be 
the same or consecutive days;
    (v) Information concerning any effect the transfer may have on the 
terms or the continued availability of mortgage life or disability 
insurance, or any other type of optional insurance, and any action the 
borrower must take to maintain coverage;

[[Page 513]]

    (vi) A statement that the transfer of servicing does not affect any 
other term or condition of the mortgage documents, other than terms 
directly related to the servicing of the loan; and
    (vii) A statement of the borrower's rights in connection with 
complaint resolution, including the information set forth in paragraph 
(e) of this section. Appendix MS-2 of this part illustrates a statement 
satisfactory to the Bureau.
    (4) Notices of Transfer; sample notice. Sample language that may be 
used to comply with the requirements of paragraph (d) of this section is 
set out in appendix MS-2 of this part. Minor modifications to the sample 
language may be made to meet the particular circumstances of the 
servicer, but the substance of the sample language shall not be omitted 
or substantially altered.
    (5) Consumer protection during transfer of servicing. During the 60-
day period beginning on the effective date of transfer of the servicing 
of any mortgage servicing loan, if the transferor servicer (rather than 
the transferee servicer that should properly receive payment on the 
loan) receives payment on or before the applicable due date (including 
any grace period allowed under the loan documents), a late fee may not 
be imposed on the borrower with respect to that payment and the payment 
may not be treated as late for any other purposes.
    (e) Duty of loan servicer to respond to borrower inquiries--(1) 
Notice of receipt of inquiry. Within 20 business days of a servicer of a 
mortgage servicing loan receiving a qualified written request from the 
borrower for information relating to the servicing of the loan, the 
servicer shall provide to the borrower a written response acknowledging 
receipt of the qualified written request. This requirement shall not 
apply if the action requested by the borrower is taken within that 
period and the borrower is notified of that action in accordance with 
the paragraph (f)(3) of this section. By notice either included in the 
Notice of Transfer or separately delivered by first-class mail, postage 
prepaid, a servicer may establish a separate and exclusive office and 
address for the receipt and handling of qualified written requests.
    (2) Qualified written request; defined. (i) For purposes of 
paragraph (e) of this section, a qualified written request means a 
written correspondence (other than notice on a payment coupon or other 
payment medium supplied by the servicer) that includes, or otherwise 
enables the servicer to identify, the name and account of the borrower, 
and includes a statement of the reasons that the borrower believes the 
account is in error, if applicable, or that provides sufficient detail 
to the servicer regarding information relating to the servicing of the 
loan sought by the borrower.
    (ii) A written request does not constitute a qualified written 
request if it is delivered to a servicer more than 1 year after either 
the date of transfer of servicing or the date that the mortgage 
servicing loan amount was paid in full, whichever date is applicable.
    (3) Action with respect to the inquiry. Not later than 60 business 
days after receiving a qualified written request from the borrower, and, 
if applicable, before taking any action with respect to the inquiry, the 
servicer shall:
    (i) Make appropriate corrections in the account of the borrower, 
including the crediting of any late charges or penalties, and transmit 
to the borrower a written notification of the correction. This written 
notification shall include the name and telephone number of a 
representative of the servicer who can provide assistance to the 
borrower; or
    (ii) After conducting an investigation, provide the borrower with a 
written explanation or clarification that includes:
    (A) To the extent applicable, a statement of the servicer's reasons 
for concluding the account is correct and the name and telephone number 
of an employee, office, or department of the servicer that can provide 
assistance to the borrower; or
    (B) Information requested by the borrower, or an explanation of why 
the information requested is unavailable or cannot be obtained by the 
servicer, and the name and telephone number of an employee, office, or 
department of the

[[Page 514]]

servicer that can provide assistance to the borrower.
    (4) Protection of credit rating. (i) During the 60-business day 
period beginning on the date of the servicer receiving from a borrower a 
qualified written request relating to a dispute on the borrower's 
payments, a servicer may not provide adverse information regarding any 
payment that is the subject of the qualified written request to any 
consumer reporting agency (as that term is defined in section 603 of the 
Fair Credit Reporting Act, 15 U.S.C. 1681a).
    (ii) In accordance with section 17 of RESPA (12 U.S.C. 2615), the 
protection of credit rating provision of paragraph (e)(4)(i) of this 
section does not impede a lender or servicer from pursuing any of its 
remedies, including initiating foreclosure, allowed by the underlying 
mortgage loan instruments.
    (f) Damages and costs. (1) Whoever fails to comply with any 
provision of this section shall be liable to the borrower for each 
failure in the following amounts:
    (i) Individuals. In the case of any action by an individual, an 
amount equal to the sum of any actual damages sustained by the 
individual as the result of the failure and, when there is a pattern or 
practice of noncompliance with the requirements of this section, any 
additional damages in an amount not to exceed $1,000.
    (ii) Class actions. In the case of a class action, an amount equal 
to the sum of any actual damages to each borrower in the class that 
result from the failure and, when there is a pattern or practice of 
noncompliance with the requirements of this section, any additional 
damages in an amount not greater than $1,000 for each class member. 
However, the total amount of any additional damages in a class action 
may not exceed the lesser of $500,000 or 1 percent of the net worth of 
the servicer.
    (iii) Costs. In addition, in the case of any successful action under 
paragraph (f) of this section, the costs of the action and any 
reasonable attorneys' fees incurred in connection with the action.
    (2) Nonliability. A transferor or transferee servicer shall not be 
liable for any failure to comply with the requirements of this section, 
if within 60 days after discovering an error (whether pursuant to a 
final written examination report or the servicer's own procedures) and 
before commencement of an action under this section and the receipt of 
written notice of the error from the borrower, the servicer notifies the 
person concerned of the error and makes whatever adjustments are 
necessary in the appropriate account to ensure that the person will not 
be required to pay an amount in excess of any amount that the person 
otherwise would have paid.
    (g) Timely payments by servicer. If the terms of any mortgage 
servicing loan require the borrower to make payments to the servicer of 
the loan for deposit into an escrow account for the purpose of assuring 
payment of taxes, insurance premiums, and other charges with respect to 
the mortgaged property, the servicer shall make payments from the escrow 
account in a timely manner for the taxes, insurance premiums, and other 
charges as the payments become due, as governed by the requirements in 
Sec. 1024.17(k).
    (h) Preemption of state laws. A lender who makes a mortgage 
servicing loan or a servicer shall be considered to have complied with 
the provisions of any state law or regulation requiring notice to a 
borrower at the time of application for a loan or transfer of servicing 
of a loan if the lender or servicer complies with the requirements of 
this section. Any state law requiring notice to the borrower at the time 
of application or at the time of transfer of servicing of the loan is 
preempted, and there shall be no additional borrower disclosure 
requirements. Provisions of state law, such as those requiring 
additional notices to insurance companies or taxing authorities, are not 
preempted by section 6 of RESPA or this section, and this additional 
information may be added to a notice prepared under this section, if the 
procedure is allowable under state law.



Sec. 1024.22  Severability.

    If any particular provision of this part or the application of any 
particular provision to any person or circumstance is held invalid, the 
remainder of this part and the application of

[[Page 515]]

such provisions to other persons or circumstances shall not be affected 
by such holding.



Sec. 1024.23  ESIGN applicability.

    The Electronic Signatures in Global and National Commerce Act 
(``ESIGN''), 15 U.S.C. 7001-7031, shall apply to this part.



Sec. Appendix A to Part 1024--Instructions for Completing HUD-1 and HUD-
      1A Settlement Statements; Sample HUD-1 and HUD-1A Statements

    The following are instructions for completing the HUD-1 settlement 
statement, required under section 4 of RESPA and 12 CFR part 1024 
(Regulation X) of the Bureau of Consumer Financial Protection (Bureau) 
regulations. This form is to be used as a statement of actual charges 
and adjustments paid by the borrower and the seller, to be given to the 
parties in connection with the settlement. The instructions for 
completion of the HUD-1 are primarily for the benefit of the settlement 
agents who prepare the statements and need not be transmitted to the 
parties as an integral part of the HUD-1. There is no objection to the 
use of the HUD-1 in transactions in which its use is not legally 
required. Refer to the definitions section of the regulations (12 CFR 
1024.2) for specific definitions of many of the terms that are used in 
these instructions.

                          General Instructions

    Information and amounts may be filled in by typewriter, hand 
printing, computer printing, or any other method producing clear and 
legible results. Refer to the Bureau's regulations (Regulation X) 
regarding rules applicable to reproduction of the HUD-1 for the purpose 
of including customary recitals and information used locally in 
settlements; for example, a breakdown of payoff figures, a breakdown of 
the Borrower's total monthly mortgage payments, check disbursements, a 
statement indicating receipt of funds, applicable special stipulations 
between Borrower and Seller, and the date funds are transferred.
    The settlement agent shall complete the HUD-1 to itemize all charges 
imposed upon the Borrower and the Seller by the loan originator and all 
sales commissions, whether to be paid at settlement or outside of 
settlement, and any other charges which either the Borrower or the 
Seller will pay at settlement. Charges for loan origination and title 
services should not be itemized except as provided in these 
instructions. For each separately identified settlement service in 
connection with the transaction, the name of the person ultimately 
receiving the payment must be shown together with the total amount paid 
to such person. Items paid to and retained by a loan originator are 
disclosed as required in the instructions for lines in the 800-series of 
the HUD-1 (and for per diem interest, in the 900-series of the HUD-1).
    As a general rule, charges that are paid for by the seller must be 
shown in the seller's column on page 2 of the HUD-1 (unless paid outside 
closing), and charges that are paid for by the borrower must be shown in 
the borrower's column (unless paid outside closing). However, in order 
to promote comparability between the charges on the GFE and the charges 
on the HUD-1, if a seller pays for a charge that was included on the 
GFE, the charge should be listed in the borrower's column on page 2 of 
the HUD-1. That charge should also be offset by listing a credit in that 
amount to the borrower on lines 204-209 on page 1 of the HUD-1, and by a 
charge to the seller in lines 506-509 on page 1 of the HUD-1. If a loan 
originator (other than for no-cost loans), real estate agent, other 
settlement service provider, or other person pays for a charge that was 
included on the GFE, the charge should be listed in the borrower's 
column on page 2 of the HUD-1, with an offsetting credit reported on 
page 1 of the HUD-1, identifying the party paying the charge.
    Charges paid outside of settlement by the borrower, seller, loan 
originator, real estate agent, or any other person, must be included on 
the HUD-1 but marked ``P.O.C.'' for ``Paid Outside of Closing'' 
(settlement) and must not be included in computing totals. However, 
indirect payments from a lender to a mortgage broker may not be 
disclosed as P.O.C., and must be included as a credit on Line 802. 
P.O.C. items must not be placed in the Borrower or Seller columns, but 
rather on the appropriate line outside the columns. The settlement agent 
must indicate whether P.O.C. items are paid for by the Borrower, Seller, 
or some other party by marking the items paid for by whoever made the 
payment as ``P.O.C.'' with the party making the payment identified in 
parentheses, such as ``P.O.C. (borrower)'' or ``P.O.C. (seller)''.
    In the case of ``no cost'' loans where ``no cost'' encompasses third 
party fees as well as the upfront payment to the loan originator, the 
third party services covered by the ``no cost'' provisions must be 
itemized and listed in the borrower's column on the HUD-1/1A with the 
charge for the third party service. These itemized charges must be 
offset with a negative adjusted origination charge on Line 803 and 
recorded in the columns.
    Blank lines are provided in section L for any additional settlement 
charges. Blank lines are also provided for additional insertions in 
sections J and K. The names of the

[[Page 516]]

recipients of the settlement charges in section L and the names of the 
recipients of adjustments described in section J or K should be included 
on the blank lines.
    Lines and columns in section J which relate to the Borrower's 
transaction may be left blank on the copy of the HUD-1 which will be 
furnished to the Seller. Lines and columns in section K which relate to 
the Seller's transaction may be left blank on the copy of the HUD-1 
which will be furnished to the Borrower.

                         Line Item Instructions

    Instructions for completing the individual items on the HUD-1 
follow.
    Section A. This section requires no entry of information.
    Section B. Check appropriate loan type and complete the remaining 
items as applicable.
    Section C. This section provides a notice regarding settlement costs 
and requires no additional entry of information.
    Sections D and E. Fill in the names and current mailing addresses 
and zip codes of the Borrower and the Seller. Where there is more than 
one Borrower or Seller, the name and address of each one is required. 
Use a supplementary page if needed to list multiple Borrowers or 
Sellers.
    Section F. Fill in the name, current mailing address and zip code of 
the Lender.
    Section G. The street address of the property being sold should be 
listed. If there is no street address, a brief legal description or 
other location of the property should be inserted. In all cases give the 
zip code of the property.
    Section H. Fill in name, address, zip code and telephone number of 
settlement agent, and address and zip code of ``place of settlement.''
    Section I. Fill in date of settlement.
    Section J. Summary of Borrower's Transaction. Line 101 is for the 
contract sales price of the property being sold, excluding the price of 
any items of tangible personal property if Borrower and Seller have 
agreed to a separate price for such items.
    Line 102 is for the sales price of any items of tangible personal 
property excluded from Line 101. Personal property could include such 
items as carpets, drapes, stoves, refrigerators, etc. What constitutes 
personal property varies from state to state. Manufactured homes are not 
considered personal property for this purpose.
    Line 103 is used to record the total charges to Borrower detailed in 
section L and totaled on Line 1400.
    Lines 104 and 105 are for additional amounts owed by the Borrower, 
such as charges that were not listed on the GFE or items paid by the 
Seller prior to settlement but reimbursed by the Borrower at settlement. 
For example, the balance in the Seller's reserve account held in 
connection with an existing loan, if assigned to the Borrower in a loan 
assumption case, will be entered here. These lines will also be used 
when a tenant in the property being sold has not yet paid the rent, 
which the Borrower will collect, for a period of time prior to the 
settlement. The lines will also be used to indicate the treatment for 
any tenant security deposit. The Seller will be credited on Lines 404-
405.
    Lines 106 through 112 are for items which the Seller had paid in 
advance, and for which the Borrower must therefore reimburse the Seller. 
Examples of items for which adjustments will be made may include taxes 
and assessments paid in advance for an entire year or other period, when 
settlement occurs prior to the expiration of the year or other period 
for which they were paid. Additional examples include flood and hazard 
insurance premiums, if the Borrower is being substituted as an insured 
under the same policy; mortgage insurance in loan assumption cases; 
planned unit development or condominium association assessments paid in 
advance; fuel or other supplies on hand, purchased by the Seller, which 
the Borrower will use when Borrower takes possession of the property; 
and ground rent paid in advance.
    Line 120 is for the total of Lines 101 through 112.
    Line 201 is for any amount paid against the sales price prior to 
settlement.
    Line 202 is for the amount of the new loan made by the Lender when a 
loan to finance construction of a new structure constructed for sale is 
used as or converted to a loan to finance purchase. Line 202 should also 
be used for the amount of the first user loan, when a loan to purchase a 
manufactured home for resale is converted to a loan to finance purchase 
by the first user. For other loans covered by 12 CFR part 1024 
(Regulation X) which finance construction of a new structure or purchase 
of a manufactured home, list the sales price of the land on Line 104, 
the construction cost or purchase price of manufactured home on Line 105 
(Line 101 would be left blank in this instance) and amount of the loan 
on Line 202. The remainder of the form should be completed taking into 
account adjustments and charges related to the temporary financing and 
permanent financing and which are known at the date of settlement.
    Line 203 is used for cases in which the Borrower is assuming or 
taking title subject to an existing loan or lien on the property.
    Lines 204-209 are used for other items paid by or on behalf of the 
Borrower. Lines 204-209 should be used to indicate any financing 
arrangements or other new loan not listed in Line 202. For example, if 
the Borrower is using a second mortgage or note to finance part of the 
purchase price, whether from the

[[Page 517]]

same lender, another lender or the Seller, insert the principal amount 
of the loan with a brief explanation on Lines 204-209. Lines 204-209 
should also be used where the Borrower receives a credit from the Seller 
for closing costs, including seller-paid GFE charges. They may also be 
used in cases in which a Seller (typically a builder) is making an 
``allowance'' to the Borrower for items that the Borrower is to purchase 
separately.
    Lines 210 through 219 are for items which have not yet been paid, 
and which the Borrower is expected to pay, but which are attributable in 
part to a period of time prior to the settlement. In jurisdictions in 
which taxes are paid late in the tax year, most cases will show the 
proration of taxes in these lines. Other examples include utilities used 
but not paid for by the Seller, rent collected in advance by the Seller 
from a tenant for a period extending beyond the settlement date, and 
interest on loan assumptions.
    Line 220 is for the total of Lines 201 through 219.
    Lines 301 and 302 are summary lines for the Borrower. Enter total in 
Line 120 on Line 301. Enter total in Line 220 on Line 302.
    Line 303 must indicate either the cash required from the Borrower at 
settlement (the usual case in a purchase transaction), or cash payable 
to the Borrower at settlement (if, for example, the Borrower's earnest 
money exceeds the Borrower's cash obligations in the transaction or 
there is a cash-out refinance). Subtract Line 302 from Line 301 and 
enter the amount of cash due to or from the Borrower at settlement on 
Line 303. The appropriate box should be checked. If the Borrower's 
earnest money is applied toward the charge for a settlement service, the 
amount so applied should not be included on Line 303 but instead should 
be shown on the appropriate line for the settlement service, marked 
``P.O.C. (Borrower)'', and must not be included in computing totals.
    Section K. Summary of Seller's Transaction. Instructions for the use 
of Lines 101 and 102 and 104-112 above, apply also to Lines 401-412. 
Line 420 is for the total of Lines 401 through 412.
    Line 501 is used if the Seller's real estate broker or other party 
who is not the settlement agent has received and holds a deposit against 
the sales price (earnest money) which exceeds the fee or commission owed 
to that party. If that party will render the excess deposit directly to 
the Seller, rather than through the settlement agent, the amount of 
excess deposit should be entered on Line 501 and the amount of the total 
deposit (including commissions) should be entered on Line 201.
    Line 502 is used to record the total charges to the Seller detailed 
in section L and totaled on Line 1400.
    Line 503 is used if the Borrower is assuming or taking title subject 
to existing liens which are to be deducted from sales price.
    Lines 504 and 505 are used for the amounts (including any accrued 
interest) of any first and/or second loans which will be paid as part of 
the settlement.
    Line 506 is used for deposits paid by the Borrower to the Seller or 
other party who is not the settlement agent. Enter the amount of the 
deposit in Line 201 on Line 506 unless Line 501 is used or the party who 
is not the settlement agent transfers all or part of the deposit to the 
settlement agent, in which case the settlement agent will note in 
parentheses on Line 507 the amount of the deposit that is being 
disbursed as proceeds and enter in the column for Line 506 the amount 
retained by the above-described party for settlement services. If the 
settlement agent holds the deposit, insert a note in Line 507 which 
indicates that the deposit is being disbursed as proceeds.
    Lines 506 through 509 may be used to list additional liens which 
must be paid off through the settlement to clear title to the property. 
Other Seller obligations should be shown on Lines 506-509, including 
charges that were disclosed on the GFE but that are actually being paid 
for by the Seller. These Lines may also be used to indicate funds to be 
held by the settlement agent for the payment of either repairs, or 
water, fuel, or other utility bills that cannot be prorated between the 
parties at settlement because the amounts used by the Seller prior to 
settlement are not yet known. Subsequent disclosure of the actual amount 
of these post-settlement items to be paid from settlement funds is 
optional. Any amounts entered on Lines 204-209 including Seller 
financing arrangements should also be entered on Lines 506-509.
    Instructions for the use of Lines 510 through 519 are the same as 
those for Lines 210 to 219 above.
    Line 520 is for the total of Lines 501 through 519.
    Lines 601 and 602 are summary lines for the Seller. Enter the total 
in Line 420 on Line 601. Enter the total in Line 520 on Line 602.
    Line 603 must indicate either the cash required to be paid to the 
Seller at settlement (the usual case in a purchase transaction), or the 
cash payable by the Seller at settlement. Subtract Line 602 from Line 
601 and enter the amount of cash due to or from the Seller at settlement 
on Line 603. The appropriate box should be checked.

                      Section L. Settlement Charges

    Line 700 is used to enter the sales commission charged by the sales 
agent or real estate broker.
    Lines 701-702 are to be used to state the split of the commission 
where the settlement agent disburses portions of the commission

[[Page 518]]

to two or more sales agents or real estate brokers.
    Line 703 is used to enter the amount of sales commission disbursed 
at settlement. If the sales agent or real estate broker is retaining a 
part of the deposit against the sales price (earnest money) to apply 
towards the sales agent's or real estate broker's commission, include in 
Line 703 only that part of the commission being disbursed at settlement 
and insert a note on Line 704 indicating the amount the sales agent or 
real estate broker is retaining as a ``P.O.C.'' item.
    Line 704 may be used for additional charges made by the sales agent 
or real estate broker, or for a sales commission charged to the 
Borrower, which will be disbursed by the settlement agent.
    Line 801 is used to record ``Our origination charge,'' which 
includes all charges received by the loan originator, except any charge 
for the specific interest rate chosen (points). This number must not be 
listed in either the buyer's or seller's column. The amount shown in 
Line 801 must include any amounts received for origination services, 
including administrative and processing services, performed by or on 
behalf of the loan originator.
    Line 802 is used to record ``Your credit or charge (points) for the 
specific interest rate chosen,'' which states the charge or credit 
adjustment as applied to ``Our origination charge,'' if applicable. This 
number must not be listed in either column or shown on page one of the 
HUD-1.
    For a mortgage broker originating a loan in its own name, the amount 
shown on Line 802 will be the difference between the initial loan amount 
and the total payment to the mortgage broker from the lender. The total 
payment to the mortgage broker will be the sum of the price paid for the 
loan by the lender and any other payments to the mortgage broker from 
the lender, including any payments based on the loan amount or loan 
terms, and any flat rate payments. For a mortgage broker originating a 
loan in another entity's name, the amount shown on Line 802 will be the 
sum of all payments to the mortgage broker from the lender, including 
any payments based on the loan amount or loan terms, and any flat rate 
payments.
    In either case, when the amount paid to the mortgage broker exceeds 
the initial loan amount, there is a credit to the borrower and it is 
entered as a negative amount. When the initial loan amount exceeds the 
amount paid to the mortgage broker, there is a charge to the borrower 
and it is entered as a positive amount. For a lender, the amount shown 
on Line 802 may include any credit or charge (points) to the Borrower.
    Line 803 is used to record ``Your adjusted origination charges,'' 
which states the net amount of the loan origination charges, the sum of 
the amounts shown in Lines 801 and 802. This amount must be listed in 
the columns as either a positive number (for example, where the 
origination charge shown in Line 801 exceeds any credit for the interest 
rate shown in Line 802 or where there is an origination charge in Line 
801 and a charge for the interest rate (points) is shown on Line 802) or 
as a negative number (for example, where the credit for the interest 
rate shown in Line 802 exceeds the origination charges shown in Line 
801).
    In the case of ``no cost'' loans, where ``no cost'' refers only to 
the loan originator's fees, the amounts shown in Lines 801 and 802 
should offset, so that the charge shown on Line 803 is zero. Where ``no 
cost'' includes third party settlement services, the credit shown in 
Line 802 will more than offset the amount shown in Line 801. The amount 
shown in Line 803 will be a negative number to offset the settlement 
charges paid indirectly through the loan originator.
    Lines 804-808 may be used to record each of the ``Required services 
that we select.'' Each settlement service provider must be identified by 
name and the amount paid recorded either inside the columns or as paid 
to the provider outside closing (``P.O.C.''), as described in the 
General Instructions.
    Line 804 is used to record the appraisal fee.
    Line 805 is used to record the fee for all credit reports.
    Line 806 is used to record the fee for any tax service.
    Line 807 is used to record any flood certification fee.
    Lines 808 and additional sequentially numbered lines, as needed, are 
used to record other third party services required by the loan 
originator. These Lines may also be used to record other required 
disclosures from the loan originator. Any such disclosures must be 
listed outside the columns.
    Lines 901-904. This series is used to record the items which the 
Lender requires to be paid at the time of settlement, but which are not 
necessarily paid to the lender (e.g., FHA mortgage insurance premium), 
other than reserves collected by the Lender and recorded in the 1000-
series.
    Line 901 is used if interest is collected at settlement for a part 
of a month or other period between settlement and the date from which 
interest will be collected with the first regular monthly payment. Enter 
that amount here and include the per diem charges. If such interest is 
not collected until the first regular monthly payment, no entry should 
be made on Line 901.
    Line 902 is used for mortgage insurance premiums due and payable at 
settlement, including any monthly amounts due at settlement and any 
upfront mortgage insurance premium, but not including any reserves 
collected by the Lender and recorded in the 1000-series. If a lump sum 
mortgage insurance premium paid at settlement is included

[[Page 519]]

on Line 902, a note should indicate that the premium is for the life of 
the loan.
    Line 903 is used for homeowner's insurance premiums that the Lender 
requires to be paid at the time of settlement, except reserves collected 
by the Lender and recorded in the 1000-series.
    Lines 904 and additional sequentially numbered lines are used to 
list additional items required by the Lender (except for reserves 
collected by the Lender and recorded in the 1000-series), including 
premiums for flood or other insurance. These lines are also used to list 
amounts paid at settlement for insurance not required by the Lender.
    Lines 1000-1007. This series is used for amounts collected by the 
Lender from the Borrower and held in an account for the future payment 
of the obligations listed as they fall due. Include the time period 
(number of months) and the monthly assessment. In many jurisdictions 
this is referred to as an ``escrow'', ``impound'', or ``trust'' account. 
In addition to the property taxes and insurance listed, some Lenders may 
require reserves for flood insurance, condominium owners' association 
assessments, etc. The amount in line 1001 must be listed in the columns, 
and the itemizations in lines 1002 through 1007 must be listed outside 
the columns.
    After itemizing individual deposits in the 1000 series, the servicer 
shall make an adjustment based on aggregate accounting. This adjustment 
equals the difference between the deposit required under aggregate 
accounting and the sum of the itemized deposits. The computation steps 
for aggregate accounting are set out in 12 CFR 1024.17(d). The 
adjustment will always be a negative number or zero (-0-), except for 
amounts due to rounding. The settlement agent shall enter the aggregate 
adjustment amount outside the columns on a final line of the 1000 series 
of the HUD-1 or HUD-1A statement. Appendix E to this part sets out an 
example of aggregate analysis.
    Lines 1100-1108. This series covers title charges and charges by 
attorneys and closing or settlement agents. The title charges include a 
variety of services performed by title companies or others, and include 
fees directly related to the transfer of title (title examination, title 
search, document preparation), fees for title insurance, and fees for 
conducting the closing. The legal charges include fees for attorneys 
representing the lender, seller, or borrower, and any attorney preparing 
title work. The series also includes any settlement, notary, and 
delivery fees related to the services covered in this series. 
Disbursements to third parties must be broken out in the appropriate 
lines or in blank lines in the series, and amounts paid to these third 
parties must be shown outside of the columns if included in Line 1101. 
Charges not included in Line 1101 must be listed in the columns.
    Line 1101 is used to record the total for the category of ``Title 
services and lender's title insurance.'' This amount must be listed in 
the columns.
    Line 1102 is used to record the settlement or closing fee.
    Line 1103 is used to record the charges for the owner's title 
insurance and related endorsements. This amount must be listed in the 
columns.
    Line 1104 is used to record the lender's title insurance premium and 
related endorsements.
    Line 1105 is used to record the amount of the lender's title policy 
limit. This amount is recorded outside of the columns.
    Line 1106 is used to record the amount of the owner's title policy 
limit. This amount is recorded outside of the columns.
    Line 1107 is used to record the amount of the total title insurance 
premium, including endorsements, that is retained by the title agent. 
This amount is recorded outside of the columns.
    Line 1108 used to record the amount of the total title insurance 
premium, including endorsements, that is retained by the title 
underwriter. This amount is recorded outside of the columns.
    Additional sequentially numbered lines in the 1100-series may be 
used to itemize title charges paid to other third parties, as identified 
by name and type of service provided.
    Lines 1200-1206. This series covers government recording and 
transfer charges. Charges paid by the borrower must be listed in the 
columns as described for lines 1201 and 1203, with itemizations shown 
outside the columns. Any amounts that are charged to the seller and that 
were not included on the Good Faith Estimate must be listed in the 
columns.
    Line 1201 is used to record the total ``Government recording 
charges,'' and the amount must be listed in the columns.
    Line 1202 is used to record, outside of the columns, the itemized 
recording charges.
    Line 1203 is used to record the transfer taxes, and the amount must 
be listed in the columns.
    Line 1204 is used to record, outside of the columns, the amounts for 
local transfer taxes and stamps.
    Line 1205 is used to record, outside of the columns, the amounts for 
state transfer taxes and stamps.
    Line 1206 and additional sequentially numbered lines may be used to 
record specific itemized third party charges for government recording 
and transfer services, but the amounts must be listed outside the 
columns.
    Line 1301 and additional sequentially numbered lines must be used to 
record required services that the borrower can shop for, such as fees 
for survey, pest inspection, or other

[[Page 520]]

similar inspections. These lines may also be used to record additional 
itemized settlement charges that are not included in a specific 
category, such as fees for structural and environmental inspections; 
pre-sale inspections of heating, plumbing or electrical equipment; or 
insurance or warranty coverage. The amounts must be listed in either the 
borrower's or seller's column.
    Line 1400 must state the total settlement charges as calculated by 
adding the amounts within each column.

                                 Page 3

      Comparison of Good Faith Estimate (GFE) and HUD-1/1A Charges

    The HUD-1/1-A is a statement of actual charges and adjustments. The 
comparison chart on page 3 of the HUD-1 must be prepared using the exact 
information and amounts for the services that were purchased or provided 
as part of the transaction, as that information and those amounts are 
shown on the GFE and in the HUD-1. If a service that was listed on the 
GFE was not obtained in connection with the transaction, pages 1 and 2 
of the HUD-1 should not include any amount for that service, and the 
estimate on the GFE of the charge for the service should not be included 
in any amounts shown on the comparison chart on Page 3 of the HUD-1. The 
comparison chart is comprised of three sections: ``Charges That Cannot 
Increase'', ``Charges That Cannot Increase More Than 10%'', and 
``Charges That Can Change''.
    ``Charges That Cannot Increase''. The amounts shown in Blocks 1 and 
2, in Line A, and in Block 8 on the borrower's GFE must be entered in 
the appropriate line in the Good Faith Estimate column. The amounts 
shown on Lines 801, 802, 803 and 1203 of the HUD-1/1A must be entered in 
the corresponding line in the HUD-1/1A column. The HUD-1/1A column must 
include any amounts shown on page 2 of the HUD-1 in the column as paid 
for by the borrower, plus any amounts that are shown as P.O.C. by or on 
behalf of the borrower. If there is a credit in Block 2 of the GFE or 
Line 802 of the HUD-1/1A, the credit should be entered as a negative 
number.
    ``Charges That Cannot Increase More Than 10%''. A description of 
each charge included in Blocks 3 and 7 on the borrower's GFE must be 
entered on separate lines in this section, with the amount shown on the 
borrower's GFE for each charge entered in the corresponding line in the 
Good Faith Estimate column. For each charge included in Blocks 4, 5 and 
6 on the borrower's GFE for which the loan originator selected the 
provider or for which the borrower selected a provider identified by the 
loan originator, a description must be entered on a separate line in 
this section, with the amount shown on the borrower's GFE for each 
charge entered in the corresponding line in the Good Faith Estimate 
column. The loan originator must identify any third party settlement 
services for which the borrower selected a provider other than one 
identified by the loan originator so that the settlement agent can 
include those charges in the appropriate category. Additional lines may 
be added if necessary. The amounts shown on the HUD-1/1A for each line 
must be entered in the HUD-1/1A column next to the corresponding charge 
from the GFE, along with the appropriate HUD-1/1A line number. The HUD-
1/1A column must include any amounts shown on page 2 of the HUD-1 in the 
column as paid for by the borrower, plus any amounts that are shown as 
P.O.C. by or on behalf of the borrower.
    The amounts shown in the Good Faith Estimate and HUD-1/1A columns 
for this section must be separately totaled and entered in the 
designated line. If the total for the HUD-1/1A column is greater than 
the total for the Good Faith Estimate column, then the amount of the 
increase must be entered both as a dollar amount and as a percentage 
increase in the appropriate line.
    ``Charges That Can Change''. The amounts shown in Blocks 9, 10 and 
11 on the borrower's GFE must be entered in the appropriate lines in the 
Good Faith Estimate column. Any third party settlement services for 
which the borrower selected a provider other than one identified by the 
loan originator must also be included in this section. The amounts shown 
on the HUD-1/1A for each charge in this section must be entered in the 
corresponding line in the HUD-1/1A column, along with the appropriate 
HUD-1/1A line number. The HUD-1/1A column must include any amounts shown 
on page 2 of the HUD-1 in the column as paid for by the borrower, plus 
any amounts that are shown as P.O.C. by or on behalf of the borrower. 
Additional lines may be added if necessary.

                               Loan Terms

    This section must be completed in accordance with the information 
and instructions provided by the lender. The lender must provide this 
information in a format that permits the settlement agent to simply 
enter the necessary information in the appropriate spaces, without the 
settlement agent having to refer to the loan documents themselves.

                   Instructions for Completing HUD-1A

    Note: The HUD-1A is an optional form that may be used for 
refinancing and subordinate-lien federally related mortgage loans, as 
well as for any other one-party transaction that does not involve the 
transfer of title to residential real property. The HUD-1 form may also 
be used for such transactions, by utilizing the borrower's side of

[[Page 521]]

the HUD-1 and following the relevant parts of the instructions as set 
forth above. The use of either the HUD-1 or HUD-1A is not mandatory for 
open-end lines of credit (home-equity plans), as long as the provisions 
of Regulation Z are followed.

                               Background

    The HUD-1A settlement statement is to be used as a statement of 
actual charges and adjustments to be given to the borrower at 
settlement, as defined in this part. The instructions for completion of 
the HUD-1A are for the benefit of the settlement agent who prepares the 
statement; the instructions are not a part of the statement and need not 
be transmitted to the borrower. There is no objection to using the HUD-
1A in transactions in which it is not required, and its use in open-end 
lines of credit transactions (home-equity plans) is encouraged. It may 
not be used as a substitute for a HUD-1 in any transaction that has a 
seller.
    Refer to the ``definitions'' section (Sec. 1024.2) of 12 CFR part 
1024 (Regulation X) for specific definitions of terms used in these 
instructions.

                          General Instructions

    Information and amounts may be filled in by typewriter, hand 
printing, computer printing, or any other method producing clear and 
legible results. Refer to 12 CFR 1024.9 regarding rules for reproduction 
of the HUD-1A. Additional pages may be attached to the HUD-1A for the 
inclusion of customary recitals and information used locally for 
settlements or if there are insufficient lines on the HUD-1A. The 
settlement agent shall complete the HUD-1A in accordance with the 
instructions for the HUD-1 to the extent possible, including the 
instructions for disclosing items paid outside closing and for no cost 
loans.
    Blank lines are provided in section L for any additional settlement 
charges. Blank lines are also provided in section M for recipients of 
all or portions of the loan proceeds. The names of the recipients of the 
settlement charges in section L and the names of the recipients of the 
loan proceeds in section M should be set forth on the blank lines.

                         Line-Item Instructions

                                 Page 1

    The identification information at the top of the HUD-1A should be 
completed as follows: The borrower's name and address is entered in the 
space provided. If the property securing the loan is different from the 
borrower's address, the address or other location information on the 
property should be entered in the space provided. The loan number is the 
lender's identification number for the loan. The settlement date is the 
date of settlement in accordance with 12 CFR 1024.2, not the end of any 
applicable rescission period. The name and address of the lender should 
be entered in the space provided.
    Section L. Settlement Charges. This section of the HUD-1A is similar 
to section L of the HUD-1, with minor changes or omissions, including 
deletion of lines 700 through 704, relating to real estate broker 
commissions. The instructions for section L in the HUD-1 should be 
followed insofar as possible. Inapplicable charges should be ignored, as 
should any instructions regarding seller items.
    Line 1400 in the HUD-1A is for the total settlement charges charged 
to the borrower. Enter this total on line 1601. This total should 
include section L amounts from additional pages, if any are attached to 
this HUD-1A.
    Section M. Disbursement to Others. This section is used to list 
payees, other than the borrower, of all or portions of the loan proceeds 
(including the lender, if the loan is paying off a prior loan made by 
the same lender), when the payee will be paid directly out of the 
settlement proceeds. It is not used to list payees of settlement 
charges, nor to list funds disbursed directly to the borrower, even if 
the lender knows the borrower's intended use of the funds.
    For example, in a refinancing transaction, the loan proceeds are 
used to pay off an existing loan. The name of the lender for the loan 
being paid off and the pay-off balance would be entered in section M. In 
a home improvement transaction when the proceeds are to be paid to the 
home improvement contractor, the name of the contractor and the amount 
paid to the contractor would be entered in section M. In a consolidation 
loan, or when part of the loan proceeds is used to pay off other 
creditors, the name of each creditor and the amount paid to that 
creditor would be entered in section M. If the proceeds are to be given 
directly to the borrower and the borrower will use the proceeds to pay 
off existing obligations, this would not be reflected in section M.
    Section N. Net Settlement. Line 1600 normally sets forth the 
principal amount of the loan as it appears on the related note for this 
loan. In the event this form is used for an open-ended home equity line 
whose approved amount is greater than the initial amount advanced at 
settlement, the amount shown on Line 1600 will be the loan amount 
advanced at settlement. Line 1601 is used for all settlement charges 
that both are included in the totals for lines 1400 and 1602, and are 
not financed as part of the principal amount of the loan. This is the 
amount normally received by the lender from the borrower at settlement, 
which would occur when some or all of the settlement charges were paid 
in cash by the borrower at settlement, instead of being financed as part 
of the principal amount of the loan. Failure to include any

[[Page 522]]

such amount in line 1601 will result in an error in the amount 
calculated on line 1604. Items paid outside of closing (P.O.C.) should 
not be included in Line 1601.
    Line 1602 is the total amount from line 1400.
    Line 1603 is the total amount from line 1520.
    Line 1604 is the amount disbursed to the borrower. This is 
determined by adding together the amounts for lines 1600 and 1601, and 
then subtracting any amounts listed on lines 1602 and 1603.

                                 Page 2

    This section of the HUD-1A is similar to page 3 of the HUD-1. The 
instructions for page 3 of the HUD-1 should be followed insofar as 
possible. The HUD-1/1A Column should include any amounts shown on page 1 
of the HUD-1A in the column as paid for by the borrower, plus any 
amounts that are shown as P.O.C. by the borrower. Inapplicable charges 
should be ignored.

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[[Page 528]]





  Sec. Appendix B to Part 1024--Illustrations of Requirements of RESPA

    The following illustrations provide additional guidance on the 
meaning and coverage of the provisions of RESPA. Other provisions of 
Federal or state law may also be applicable to the practices and 
payments discussed in the following illustrations.
    1. Facts: A, a provider of settlement services, provides settlement 
services at abnormally low rates or at no charge at all to B, a builder, 
in connection with a subdivision being developed by B. B agrees to refer 
purchasers of the completed homes in the subdivision to A for the 
purchase of settlement services in connection with the sale of 
individual lots by B.
    Comments: The rendering of services by A to B at little or no charge 
constitutes a thing of value given by A to B in return for the referral 
of settlement services business, and both A and B are in violation of 
section 8 of RESPA.
    2. Facts: B, a lender, encourages persons who receive federally 
related mortgage loans from it to employ A, an attorney, to perform 
title searches and related settlement services in connection with their 
transaction. B and A have an understanding that in return for the 
referral of this business A provides legal services to B or B's officers 
or employees at abnormally low rates or for no charge.
    Comments: Both A and B are in violation of section 8 of RESPA. 
Similarly, if an attorney gives a portion of his or her fees to another 
attorney, a lender, a real estate broker or any other provider of 
settlement services, who had referred prospective clients to the 
attorney, section 8 would be violated by both persons.
    3. Facts: A, a real estate broker, obtains all necessary licenses 
under state law to act as a title insurance agent. A refers individuals 
who are purchasing homes in transactions in which A participates as a 
broker to B, an unaffiliated title company, for the purchase of title 
insurance services. A performs minimal, if any, title services in 
connection with the issuance of the title insurance policy (such as 
placing an application with the title company). B pays A a commission 
(or A retains a portion of the title insurance premium) for the 
transactions or alternatively B receives a portion of the premium paid 
directly from the purchaser.
    Comments: The payment of a commission or portion of the title 
insurance premium by B to A, or receipt of a portion of the payment for 
title insurance under circumstances where no substantial services are 
being performed by A, is a violation of section 8 of RESPA. It makes no 
difference whether the payment comes from B or the purchaser. The amount 
of the payment must bear a reasonable relationship to the services 
rendered. Here A really is being compensated for a referral of business 
to B.
    4. Facts: A is an attorney who, as a part of his legal 
representation of clients in residential real estate transactions, 
orders and reviews title insurance policies for his clients. A enters 
into a contract with B, a title company, to be an agent of B under a 
program set up by B. Under the agreement, A agrees to prepare and 
forward title insurance applications to B, to re-examine the preliminary 
title commitment for accuracy and if he chooses to attempt to clear 
exceptions to the title policy before closing. A agrees to assume 
liability for waiving certain exceptions to title, but never exercises 
this authority. B performs the necessary title search and examination 
work, determines insurability of title, prepares documents containing 
substantive information in title commitments, handles closings for A's 
clients and issues title policies. A receives a fee from his client for 
legal services and an additional fee for his title agent ``services'' 
from the client's title insurance premium to B.
    Comments: A and B are violating section 8 of RESPA. Here, A's 
clients are being double billed because the work A performs as a ``title 
agent'' is that which he already performs for his client in his capacity 
as an attorney. For A to receive a separate payment as a title agent, A 
must perform necessary core title work and may not contract out the 
work. To receive additional compensation as a title agent for this 
transaction, A must provide his client with core title agent services 
for which he assumes liability, and which includes at a minimum, the 
evaluation of the title search to determine insurability of the title, 
and the issuance of a title commitment where customary, the clearance of 
underwriting objections, and the actual issuance of the policy or 
policies on behalf of the title company. A may not be compensated for 
the mere re-examination of work performed by B. Here, A is not 
performing these services and may not be compensated as a title agent 
under section 8(c)(1)(B). Referral fees or splits of fees may not be 
disguised as title agent commissions when the core title agent work is 
not performed. Further, because B created the program and gave A the 
opportunity to collect fees (a thing of value) in exchange for the 
referral of settlement service business, it has violated section 8 of 
RESPA.
    5. Facts: A, a ``mortgage originator,'' receives loan applications, 
funds the loans with its own money or with a wholesale line of credit 
for which A is liable, and closes the loans in A's own name. 
Subsequently, B, a mortgage lender, purchases the loans and compensates 
A for the value of the loans, as well as for any mortgage servicing 
rights.
    Comments: Compensation for the sale of a mortgage loan and servicing 
rights constitutes a secondary market transaction,

[[Page 529]]

rather than a referral fee, and is beyond the scope of section 8 of 
RESPA. For purposes of section 8, in determining whether a bona fide 
transfer of the loan obligation has taken place, the Bureau examines the 
real source of funding, and the real interest of the named settlement 
lender.
    6. Facts. A, a credit reporting company, places a facsimile 
transmission machine (FAX) in the office of B, a mortgage lender, so 
that B can easily transmit requests for credit reports and A can 
respond. A supplies the FAX machine at no cost or at a reduced rental 
rate based on the number of credit reports ordered.
    Comments: Either situation violates section 8 of RESPA. The FAX 
machine is a thing of value that A provides in exchange for the referral 
of business from B. Copying machines, computer terminals, printers, or 
other like items which have general use to the recipient and which are 
given in exchange for referrals of business also violate RESPA.
    7. Facts: A, a real estate broker, refers title business to B, a 
company that is a licensed title agent for C, a title insurance company. 
A owns more than 1% of B. B performs the title search and examination, 
makes determinations of insurability, issues the commitment, clears 
underwriting objections, and issues a policy of title insurance on 
behalf of C, for which C pays B a commission. B pays annual dividends to 
its owners, including A, based on the relative amount of business each 
of its owners refers to B.
    Comments: The facts involve an affiliated business arrangement. The 
payment of a commission by C to B is not a violation of section 8 of 
RESPA if the amount of the commission constitutes reasonable 
compensation for the services performed by B for C. The payment of a 
dividend or the giving of any other thing of value by B to A that is 
based on the amount of business referred to B by A does not meet the 
affiliated business agreement exemption provisions and such actions 
violate section 8. Similarly, if the amount of stock held by A in B (or, 
if B were a partnership, the distribution of partnership profits by B to 
A) varies based on the amount of business referred or expected to be 
referred, or if B retained any funds for subsequent distribution to A 
where such funds were generally in proportion to the amount of business 
A referred to B relative to the amount referred by other owners, such 
arrangements would violate section 8. The exemption for controlled 
business arrangements would not be available because the payments here 
would not be considered returns on ownership interests. Further, the 
required disclosure of the affiliated business arrangement and estimated 
charges have not been provided.
    8. Facts: Same as illustration 7, but B pays annual dividends in 
proportion to the amount of stock held by its owners, including A, and 
the distribution of annual dividends is not based on the amount of 
business referred or expected to be referred.
    Comments: If A and B meet the requirements of the affiliated 
business arrangement exemption there is not a violation of RESPA. Since 
the payment is a return on ownership interests, A and B will be exempt 
from section 8 if (1) A also did not require anyone to use the services 
of B, and (2) A disclosed its ownership interest in B on a separate 
disclosure form and provided an estimate of B's charges to each person 
referred by A to B (see Appendix D of this part), and (3) B makes no 
payment (nor is there any other thing of value exchanged) to A other 
than dividends.
    9. Facts: A, a franchisor for franchised real estate brokers, owns 
B, a provider of settlement services. C, a franchisee of A, refers 
business to B.
    Comments: This is an affiliated business arrangement. A, B and C 
will all be exempt from section 8 if C discloses its franchise 
relationship with the owner of B on a separate disclosure form and 
provides an estimate of B's charges to each person referred to B (see 
Appendix D of this part) and C does not require anyone to use B's 
services and A gives no thing a value to C under the franchise agreement 
(such as an adjusted level of franchise payment based on the referrals), 
and B makes no payments to A other than dividends representing a return 
on ownership interest (rather than, e.g., an adjusted level of payment 
being based on the referrals). Nor may B pay C anything of value for the 
referral.
    10. Facts: A is a real estate broker who refers business to its 
affiliate title company B. A makes all required written disclosures to 
the homebuyer of the arrangement and estimated charges and the homebuyer 
is not required to use B. B refers or contracts out business to C who 
does all the title work and splits the fee with B. B passes its fee to A 
in the form of dividends, a return on ownership interest.
    Comments: The relationship between A and B is an affiliated business 
arrangement. However, the affiliated business arrangement exemption does 
not provide exemption between an affiliated entity, B, and a third 
party, C. Here, B is a mere ``shell'' and provides no substantive 
services for its portion of the fee. The arrangement between B and C 
would be in violation of section 8(a) and (b). Even if B had an 
affiliate relationship with C, the required exemption criteria have not 
been met and the relationship would be subject to section 8.
    11. Facts: A, a mortgage lender is affiliated with B, a title 
company, and C, an escrow company and offers consumers a package of 
mortgage title and escrow services at a discount from the prices at 
which such services

[[Page 530]]

would be sold if purchased separately. Neither A, B, nor C requires 
consumers to purchase the services of their sister companies and each 
company sells such services separately and as part of the package. A 
also pays its employees (e.g., loan officers, secretaries, etc.) a bonus 
for each loan, title insurance or closing that A's employees generate 
for A, B, or C respectively. A pays such employee bonuses out of its own 
funds and receives no payments or reimbursements for such bonuses from B 
or C. At or before the time that customers are told by A or its 
employees about the services offered by B and C and/or the package of 
services that is available, the customers are provided with an 
affiliated business disclosure form.
    Comments: A's selling of a package of settlement services at a 
discount to a settlement service purchaser does not violate section 8 of 
RESPA. A's employees are making appropriate affiliated business 
disclosures and since the services are available separately and as part 
of a package, there is not ``required use'' of the additional services. 
A's payments of bonuses to its employees for the referral of business to 
A or A's affiliates, B and C, are exempt from section 8 under Sec. 
1024.14(g)(1). However, if B or C reimbursed A for any bonuses that A 
paid to its employees for referring business to B or C, such 
reimbursements would violate section 8. Similarly, if B or C paid 
bonuses to A's employees directly for generating business for them, such 
payments would violate section 8.
    12. Facts. A is a mortgage broker who provides origination services 
to submit a loan to a Lender for approval. The mortgage broker charges 
the borrower a uniform fee for the total origination services, as well 
as a direct up-front charge for reimbursement of credit reporting, 
appraisal services or similar charges.
    Comment. The mortgage broker's fee must be itemized in the Good 
Faith Estimate and on the HUD-1 Settlement Statement. Other charges 
which are paid for by the borrower and paid in advance are listed as 
P.O.C. on the HUD-1 Settlement Statement, and reflect the actual 
provider charge for such services. Also, any other fee or payment 
received by the mortgage broker from either the lender or the borrower 
arising from the initial funding transaction, including a servicing 
release premium or yield spread premium, is to be noted on the Good 
Faith Estimate and listed in the 800 series of the HUD-1 Settlement 
Statement.
    13. Facts. A is a dealer in home improvements who has established 
funding arrangements with several lenders. Customers for home 
improvements receive a proposed contract from A. The proposal requires 
that customers both execute forms authorizing a credit check and 
employment verification, and frequently, execute a dealer consumer 
credit contract secured by a lien on the customer's (borrower's) 1- to 
4-family residential property. Simultaneously with the completion and 
certification of the home improvement work, the note is assigned by the 
dealer to a funding lender.
    Comments. The loan that is assigned to the funding lender is a loan 
covered by RESPA, when a lien is placed on the borrower's 1- to 4-family 
residential structure. The dealer loan or consumer credit contract 
originated by a dealer is also a RESPA-covered transaction, except when 
the dealer is not a ``creditor'' under the definition of ``federally 
related mortgage loan'' in Sec. 1024.2. The lender to whom the loan 
will be assigned is responsible for assuring that the lender or the 
dealer delivers to the borrower a Good Faith Estimate of closing costs 
consistent with Regulation X, and that the HUD-1 or HUD-1A Settlement 
Statement is used in conjunction with the settlement of the loan to be 
assigned. A dealer who, under Sec. 1024.2, is covered by RESPA as a 
creditor is responsible for the Good Faith Estimate of Closing Costs and 
the use of the appropriate settlement statement in connection with the 
loan.



  Sec. Appendix C to Part 1024--Instructions for Completing Good Faith 
                           Estimate (GFE) Form

    The following are instructions for completing the GFE required under 
section 5 of RESPA and 12 CFR 1024.7 of the Bureau regulations. The 
standardized form set forth in this Appendix is the required GFE form 
and must be provided exactly as specified; provided, however, preparers 
may replace HUD's OMB approval number listed on the form with the 
Bureau's OMB approval number when they reproduce the GFE form. The 
instructions for completion of the GFE are primarily for the benefit of 
the loan originator who prepares the form and need not be transmitted to 
the borrower(s) as an integral part of the GFE. The required 
standardized GFE form must be prepared completely and accurately. A 
separate GFE must be provided for each loan where a transaction will 
involve more than one mortgage loan.

                          General Instructions

    The loan originator preparing the GFE may fill in information and 
amounts on the form by typewriter, hand printing, computer printing, or 
any other method producing clear and legible results. Under these 
instructions, the ``form'' refers to the required standardized GFE form. 
Although the standardized GFE is a prescribed form, Blocks 3, 6, and 11 
on page 2 may be adapted for use in particular loan situations, so that 
additional lines may be inserted there, and unused lines may be deleted.
    All fees for categories of charges shall be disclosed in U.S. dollar 
and cent amounts.

[[Page 531]]

                          Specific Instructions

                                 Page 1

    Top of the Form--The loan originator must enter its name, business 
address, telephone number, and email address, if any, on the top of the 
form, along with the applicant's name, the address or location of the 
property for which financing is sought, and the date of the GFE.
    ``Purpose.''--This section describes the general purpose of the GFE 
as well as additional information available to the applicant.
    ``Shopping for your loan.'' --This section requires no loan 
originator action.
    ``Important dates. ''--This section briefly states important 
deadlines after which the loan terms that are the subject of the GFE may 
not be available to the applicant. In Line 1, the loan originator must 
state the date and, if necessary, time until which the interest rate for 
the GFE will be available. In Line 2, the loan originator must state the 
date until which the estimate of all other settlement charges for the 
GFE will be available. This date must be at least 10 business days from 
the date of the GFE. In Line 3, the loan originator must state how many 
calendar days within which the applicant must go to settlement once the 
interest rate is locked. In Line 4, the loan originator must state how 
many calendar days prior to settlement the interest rate would have to 
be locked, if applicable.
    ``Summary of your loan''--In this section, for all loans the loan 
originator must fill in, where indicated:
    (i) The initial loan amount;
    (ii) The loan term; and
    (iii) The initial interest rate.
    The loan originator must fill in the initial monthly amount owed for 
principal, interest, and any mortgage insurance. The amount shown must 
be the greater of: (1) The required monthly payment for principal and 
interest for the first regularly scheduled payment, plus any monthly 
mortgage insurance payment; or (2) the accrued interest for the first 
regularly scheduled payment, plus any monthly mortgage insurance 
payment.
    The loan originator must indicate whether the interest rate can 
rise, and, if it can, must insert the maximum rate to which it can rise 
over the life of the loan. The loan originator must also indicate the 
period of time after which the interest rate can first change.
    The loan originator must indicate whether the loan balance can rise 
even if the borrower makes payments on time, for example in the case of 
a loan with negative amortization. If it can, the loan originator must 
insert the maximum amount to which the loan balance can rise over the 
life of the loan. For Federal, state, local, or tribal housing programs 
that provide payment assistance, any repayment of such program 
assistance should be excluded from consideration in completing this 
item. If the loan balance will increase only because escrow items are 
being paid through the loan balance, the loan originator is not required 
to check the box indicating that the loan balance can rise.
    The loan originator must indicate whether the monthly amount owed 
for principal, interest, and any mortgage insurance can rise even if the 
borrower makes payments on time. If the monthly amount owed can rise 
even if the borrower makes payments on time, the loan originator must 
indicate the period of time after which the monthly amount owed can 
first change, the maximum amount to which the monthly amount owed can 
rise at the time of the first change, and the maximum amount to which 
the monthly amount owed can rise over the life of the loan. The amount 
used for the monthly amount owed must be the greater of: (1) The 
required monthly payment for principal and interest for that month, plus 
any monthly mortgage insurance payment; or (2) the accrued interest for 
that month, plus any monthly mortgage insurance payment.
    The loan originator must indicate whether the loan includes a 
prepayment penalty, and, if so, the maximum amount that it could be.
    The loan originator must indicate whether the loan requires a 
balloon payment and, if so, the amount of the payment and in how many 
years it will be due.
    ``Escrow account information.''--The loan originator must indicate 
whether the loan includes an escrow account for property taxes and other 
financial obligations. The amount shown in the ``Summary of your loan'' 
section for ``Your initial monthly amount owed for principal, interest, 
and any mortgage insurance'' must be entered in the space for the 
monthly amount owed in this section.
    ``Summary of your settlement charges.''--On this line, the loan 
originator must state the Adjusted Origination Charges from subtotal A 
of page 2, the Charges for All Other Settlement Services from subtotal B 
of page 2, and the Total Estimated Settlement Charges from the bottom of 
page 2.

                                 Page 2

    ``Understanding your estimated settlement charges.''--This section 
details 11 settlement cost categories and amounts associated with the 
mortgage loan. For purposes of determining whether a tolerance has been 
met, the amount on the GFE should be compared with the total of any 
amounts shown on the HUD-1 in the borrower's column and any amounts paid 
outside closing by or on behalf of the borrower.

                  ``Your Adjusted Origination Charges''

    Block 1, ``Our origination charge.''--The loan originator must state 
here all charges

[[Page 532]]

that all loan originators involved in this transaction will receive, 
except for any charge for the specific interest rate chosen (points). A 
loan originator may not separately charge any additional fees for 
getting this loan, including for application, processing, or 
underwriting. The amount stated in Block 1 is subject to zero tolerance, 
i.e., the amount may not increase at settlement.
    Block 2, ``Your credit or charge (points) for the specific interest 
rate chosen.''--For transactions involving mortgage brokers, the 
mortgage broker must indicate through check boxes whether there is a 
credit to the borrower for the interest rate chosen on the loan, the 
interest rate, and the amount of the credit, or whether there is an 
additional charge (points) to the borrower for the interest rate chosen 
on the loan, the interest rate, and the amount of that charge. Only one 
of the boxes may be checked; a credit and charge cannot occur together 
in the same transaction.
    For transactions without a mortgage broker, the lender may choose 
not to separately disclose in this block any credit or charge for the 
interest rate chosen on the loan; however, if this block does not 
include any positive or negative figure, the lender must check the first 
box to indicate that ``The credit or charge for the interest rate you 
have chosen'' is included in ``Our origination charge'' above (see Block 
1 instructions above), must insert the interest rate, and must also 
insert ``0'' in Block 2. Only one of the boxes may be checked; a credit 
and charge cannot occur together in the same transaction.
    For a mortgage broker, the credit or charge for the specific 
interest rate chosen is the net payment to the mortgage broker from the 
lender (i.e., the sum of all payments to the mortgage broker from the 
lender, including payments based on the loan amount, a flat rate, or any 
other computation, and in a table funded transaction, the loan amount 
less the price paid for the loan by the lender). When the net payment to 
the mortgage broker from the lender is positive, there is a credit to 
the borrower and it is entered as a negative amount in Block 2 of the 
GFE. When the net payment to the mortgage broker from the lender is 
negative, there is a charge to the borrower and it is entered as a 
positive amount in Block 2 of the GFE. If there is no net payment (i.e., 
the credit or charge for the specific interest rate chosen is zero), the 
mortgage broker must insert ``0'' in Block 2 and may check either the 
box indicating there is a credit of ``0'' or the box indicating there is 
a charge of ``0''.
    The amount stated in Block 2 is subject to zero tolerance while the 
interest rate is locked, i.e., any credit for the interest rate chosen 
cannot decrease in absolute value terms and any charge for the interest 
rate chosen cannot increase. (Note: An increase in the credit is allowed 
since this increase is a reduction in cost to the borrower. A decrease 
in the credit is not allowed since it is an increase in cost to the 
borrower.)
    Line A, ``Your Adjusted Origination Charges.''--The loan originator 
must add the numbers in Blocks 1 and 2 and enter this subtotal at 
highlighted Line A. The subtotal at Line A will be a negative number if 
there is a credit in Block 2 that exceeds the charge in Block 1. The 
amount stated in Line A is subject to zero tolerance while the interest 
rate is locked.
    In the case of ``no cost'' loans, where ``no cost'' refers only to 
the loan originator's fees, Line A must show a zero charge as the 
adjusted origination charge. In the case of ``no cost'' loans where ``no 
cost'' encompasses third party fees as well as the upfront payment to 
the loan originator, all of the third party fees listed in Block 3 
through Block 11 to be paid for by the loan originator (or borrower, if 
any) must be itemized and listed on the GFE. The credit for the interest 
rate chosen must be large enough that the total for Line A will result 
in a negative number to cover the third party fees.

           ``Your Charges for All Other Settlement Services''

    There is a 10 percent tolerance applied to the sum of the prices of 
each service listed in Block 3, Block 4, Block 5, Block 6, and Block 7, 
where the loan originator requires the use of a particular provider or 
the borrower uses a provider selected or identified by the loan 
originator. Any services in Block 4, Block 5, or Block 6 for which the 
borrower selects a provider other than one identified by the loan 
originator are not subject to any tolerance and, at settlement, would 
not be included in the sum of the charges on which the 10 percent 
tolerance is based. Where a loan originator permits a borrower to shop 
for third party settlement services, the loan originator must provide 
the borrower with a written list of settlement services providers at the 
time of the GFE, on a separate sheet of paper.
    Block 3, ``Required services that we select.''--In this block, the 
loan originator must identify each third party settlement service 
required and selected by the loan originator (excluding title services), 
along with the estimated price to be paid to the provider of each 
service. Examples of such third party settlement services might include 
provision of credit reports, appraisals, flood checks, tax services, and 
any upfront mortgage insurance premium. The loan originator must 
identify the specific required services and provide an estimate of the 
price of each service. Loan originators are also required to add the 
individual charges disclosed in this block and place that total in the 
column of this

[[Page 533]]

block. The charge shown in this block is subject to an overall 10 
percent tolerance as described above.
    Block 4, ``Title services and lender's title insurance.''--In this 
block, the loan originator must state the estimated total charge for 
third party settlement service providers for all closing services, 
regardless of whether the providers are selected or paid for by the 
borrower, seller, or loan originator. The loan originator must also 
include any lender's title insurance premiums, when required, regardless 
of whether the provider is selected or paid for by the borrower, seller, 
or loan originator. All fees for title searches, examinations, and 
endorsements, for example, would be included in this total. The charge 
shown in this block is subject to an overall 10 percent tolerance as 
described above.
    Block 5, ``Owner's title insurance.''--In this block, for all 
purchase transactions the loan originator must provide an estimate of 
the charge for the owner's title insurance and related endorsements, 
regardless of whether the providers are selected or paid for by the 
borrower, seller, or loan originator. For non-purchase transactions, the 
loan originator may enter ``NA'' or ``Not Applicable'' in this Block. 
The charge shown in this block is subject to an overall 10 percent 
tolerance as described above.
    Block 6, ``Required services that you can shop for.''--In this 
block, the loan originator must identify each third party settlement 
service required by the loan originator where the borrower is permitted 
to shop for and select the settlement service provider (excluding title 
services), along with the estimated charge to be paid to the provider of 
each service. The loan originator must identify the specific required 
services (e.g., survey, pest inspection) and provide an estimate of the 
charge of each service. The loan originator must also add the individual 
charges disclosed in this block and place the total in the column of 
this block. The charge shown in this block is subject to an overall 10 
percent tolerance as described above.
    Block 7, ``Government recording charge.''--In this block, the loan 
originator must estimate the state and local government fees for 
recording the loan and title documents that can be expected to be 
charged at settlement. The charge shown in this block is subject to an 
overall 10 percent tolerance as described above.
    Block 8, ``Transfer taxes.''--In this block, the loan originator 
must estimate the sum of all state and local government fees on 
mortgages and home sales that can be expected to be charged at 
settlement, based upon the proposed loan amount or sales price and on 
the property address. A zero tolerance applies to the sum of these 
estimated fees.
    Block 9, ``Initial deposit for your escrow account.''--In this 
block, the loan originator must estimate the amount that it will require 
the borrower to place into a reserve or escrow account at settlement to 
be applied to recurring charges for property taxes, homeowner's and 
other similar insurance, mortgage insurance, and other periodic charges. 
The loan originator must indicate through check boxes if the reserve or 
escrow account will cover future payments for all tax, all hazard 
insurance, and other obligations that the loan originator requires to be 
paid as they fall due. If the reserve or escrow account includes some, 
but not all, property taxes or hazard insurance, or if it includes 
mortgage insurance, the loan originator should check ``other'' and then 
list the items included.
    Block 10, ``Daily interest charges.''--In this block, the loan 
originator must estimate the total amount that will be due at settlement 
for the daily interest on the loan from the date of settlement until the 
first day of the first period covered by scheduled mortgage payments. 
The loan originator must also indicate how this total amount is 
calculated by providing the amount of the interest charges per day and 
the number of days used in the calculation, based on a stated projected 
closing date.
    Block 11, ``Homeowner's insurance.''--The loan originator must 
estimate in this block the total amount of the premiums for any hazard 
insurance policy and other similar insurance, such as fire or flood 
insurance that must be purchased at or before settlement to meet the 
loan originator's requirements. The loan originator must also separately 
indicate the nature of each type of insurance required along with the 
charges. To the extent a loan originator requires that such insurance be 
part of an escrow account, the amount of the initial escrow deposit must 
be included in Block 9.
    Line B, ``Your Charges for All Other Settlement Services.''--The 
loan originator must add the numbers in Blocks 3 through 11 and enter 
this subtotal in the column at highlighted Line B.
    Line A+B, ``Total Estimated Settlement Charges.''--The loan 
originator must add the subtotals in the right-hand column at 
highlighted Lines A and B and enter this total in the column at 
highlighted Line A+B.

                                 Page 3

                            ``Instructions''

    ``Understanding which charges can change at settlement.''--This 
section informs the applicant about which categories of settlement 
charges can increase at closing, and by how much, and which categories 
of settlement charges cannot increase at closing. This section requires 
no loan originator action.

[[Page 534]]

    ``Using the tradeoff table.''--This section is designed to make 
borrowers aware of the relationship between their total estimated 
settlement charges on one hand, and the interest rate and resulting 
monthly payment on the other hand. The loan originator must complete the 
left hand column using the loan amount, interest rate, monthly payment 
figure, and the total estimated settlement charges from page 1 of the 
GFE. The loan originator, at its option, may provide the borrower with 
the same information for two alternative loans, one with a higher 
interest rate, if available, and one with a lower interest rate, if 
available, from the loan originator. The loan originator should list in 
the tradeoff table only alternative loans for which it would presently 
issue a GFE based on the same information the loan originator considered 
in issuing this GFE. The alternative loans must use the same loan amount 
and be otherwise identical to the loan in the GFE. The alternative loans 
must have, for example, the identical number of payment periods; the 
same margin, index, and adjustment schedule if the loans are adjustable 
rate mortgages; and the same requirements for prepayment penalty and 
balloon payments. If the loan originator fills in the tradeoff table, 
the loan originator must show the borrower the loan amount, alternative 
interest rate, alternative monthly payment, the change in the monthly 
payment from the loan in this GFE to the alternative loan, the change in 
the total settlement charges from the loan in this GFE to the 
alternative loan, and the total settlement charges for the alternative 
loan. If these options are available, an applicant may request a new 
GFE, and a new GFE must be provided by the loan originator.
    ``Using the shopping chart.''--This chart is a shopping tool to be 
provided by the loan originator for the borrower to complete, in order 
to compare GFEs.
    ``If your loan is sold in the future.''--This section requires no 
loan originator action.

[[Page 535]]

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[[Page 536]]


[GRAPHIC] [TIFF OMITTED] TR20DE11.007


[[Page 537]]


[GRAPHIC] [TIFF OMITTED] TR20DE11.008


[[Page 538]]





Sec. Appendix D to Part 1024--Affiliated Business Arrangement Disclosure 
                            Statement Format

   Affiliated Business Arrangement Disclosure Statement Format Notice

 To:____________________________________________________________________
 From:__________________________________________________________________
 (Entity Making Statement)
 Property:______________________________________________________________
 Date:__________________________________________________________________

    This is to give you notice that [referring party] has a business 
relationship with [settlement services provider(s)]. [Describe the 
nature of the relationship between the referring party and the 
provider(s), including percentage of ownership interest, if applicable.] 
Because of this relationship, this referral may provide [referring 
party] a financial or other benefit.
    [A.] Set forth below is the estimated charge or range of charges for 
the settlement services listed. You are NOT required to use the listed 
provider(s) as a condition for [settlement of your loan on] [or] 
[purchase, sale, or refinance of] the subject property. THERE ARE 
FREQUENTLY OTHER SETTLEMENT SERVICE PROVIDERS AVAILABLE WITH SIMILAR 
SERVICES. YOU ARE FREE TO SHOP AROUND TO DETERMINE THAT YOU ARE 
RECEIVING THE BEST SERVICES AND THE BEST RATE FOR THESE SERVICES.

 [provider and settlement service]______________________________________
________________________________________________________________________
________________________________________________________________________
 [charge or range of charges]___________________________________________
________________________________________________________________________
________________________________________________________________________

    [B.] Set forth below is the estimated charge or range of charges for 
the settlement services of an attorney, credit reporting agency, or real 
estate appraiser that we, as your lender, will require you to use, as a 
condition of your loan on this property, to represent our interests in 
the transaction.

 [provider and settlement service]______________________________________
________________________________________________________________________
________________________________________________________________________
 [charge or range of charges]___________________________________________
________________________________________________________________________
________________________________________________________________________

                             ACKNOWLEDGMENT

    I/we have read this disclosure form, and understand that referring 
party is referring me/us to purchase the above-described settlement 
service(s) and may receive a financial or other benefit as the result of 
this referral.
________________________________________________________________________
Signature

[INSTRUCTIONS TO PREPARER:] [Use paragraph A for referrals other than 
those by a lender to an attorney, a credit reporting agency, or a real 
estate appraiser that a lender is requiring a borrower to use to 
represent the lender's interests in the transaction. Use paragraph B for 
those referrals to an attorney, credit reporting agency, or real estate 
appraiser that a lender is requiring a borrower to use to represent the 
lender's interests in the transaction. When applicable, use both 
paragraphs. Specific timing rules for delivery of the affiliated 
business disclosure statement are set forth in 12 CFR 1024.15(b)(1) of 
Regulation X). These INSTRUCTIONS TO PREPARER should not appear on the 
statement.]



             Sec. Appendix E to Part 1024--Arithmetic Steps

               I. Example Illustrating Aggregate Analysis

                               Assumptions

                             Disbursements:

$360 for school taxes disbursed on September 20
$1,200 for county property taxes:
$500 disbursed on July 25
$700 disbursed on December 10

          Cushion: One-sixth of estimated annual disbursements

                           Settlement: May 15

                          First Payment: July 1

                      Step 1--Initial Trial Balance
------------------------------------------------------------------------
                                                       Aggregate
                                              --------------------------
                                                 pmt      disb     bal
------------------------------------------------------------------------
Jun..........................................        0        0        0
Jul..........................................      130      500     -370
Aug..........................................      130        0     -240
Sep..........................................      130      360     -470
Oct..........................................      130        0     -340
Nov..........................................      130        0     -210
Dec..........................................      130      700     -780
Jan..........................................      130        0     -650
Feb..........................................      130        0     -520
Mar..........................................      130        0     -390
Apr..........................................      130        0     -260
May..........................................      130        0     -130
Jun..........................................      130        0        0
------------------------------------------------------------------------


                     Step 2--Adjusted Trial Balance
       [Increase monthly balances to eliminate negative balances]
------------------------------------------------------------------------
                                                       Aggregate
                                              --------------------------
                                                 pmt      disb     bal
------------------------------------------------------------------------
Jun..........................................        0        0      780
Jul..........................................      130      500      410
Aug..........................................      130        0      540
Sep..........................................      130      360      310
Oct..........................................      130        0      440
Nov..........................................      130        0      570
Dec..........................................      130      700        0
Jan..........................................      130        0      130
Feb..........................................      130        0      260

[[Page 539]]

 
Mar..........................................      130        0      390
Apr..........................................      130        0      520
May..........................................      130        0      650
Jun..........................................      130        0      780
------------------------------------------------------------------------


                   Step 3--Trial Balance With Cushion
------------------------------------------------------------------------
                                                       Aggregate
                                              --------------------------
                                                 pmt      disb     bal
------------------------------------------------------------------------
Jun..........................................        0        0     1040
Jul..........................................      130      500      670
Aug..........................................      130        0      800
Sep..........................................      130      360      570
Oct..........................................      130        0      700
Nov..........................................      130        0      830
Dec..........................................      130      700      260
Jan..........................................      130        0      390
Feb..........................................      130        0      520
Mar..........................................      130        0      650
Apr..........................................      130        0      780
May..........................................      130        0      910
Jun..........................................      130        0     1040
------------------------------------------------------------------------

              II. Example Illustrating Single-Item Analysis

                               Assumptions

                             Disbursements:

$360 for school taxes disbursed on September 20
$1,200 for county property taxes:
$500 disbursed on July 25
$700 disbursed on December 10

          Cushion: One-sixth of estimated annual disbursements

                           Settlement: May 15

                          First Payment: July 1

                                          Step 1--Initial Trial Balance
----------------------------------------------------------------------------------------------------------------
                                                                     Single-item
                                   -----------------------------------------------------------------------------
                                                    Taxes                               School taxes
                                   -----------------------------------------------------------------------------
                                        pmt          disb         bal          pmt          disb         bal
----------------------------------------------------------------------------------------------------------------
June..............................            0            0            0            0            0            0
July..............................          100          500         -400           30            0           30
August............................          100            0         -300           30            0           60
September.........................          100            0         -200           30          360         -270
October...........................          100            0         -100           30            0         -240
November..........................          100            0            0           30            0         -210
December..........................          100          700         -600           30            0         -180
January...........................          100            0         -500           30            0         -150
February..........................          100            0         -400           30            0         -120
March.............................          100            0         -300           30            0          -90
April.............................          100            0         -200           30            0          -60
May...............................          100            0         -100           30            0          -30
June..............................          100            0            0           30            0            0
----------------------------------------------------------------------------------------------------------------


                                         Step 2--Adjusted Trial Balance
                           [Increase monthly balances to eliminate negative balances]
----------------------------------------------------------------------------------------------------------------
                                                                     Single-item
                                   -----------------------------------------------------------------------------
                                                    Taxes                               School taxes
                                   -----------------------------------------------------------------------------
                                        pmt          disb         bal          pmt          disb         bal
----------------------------------------------------------------------------------------------------------------
Jun...............................            0            0          600            0            0          270
Jul...............................          100          500          200           30            0          300
Aug...............................          100            0          300           30            0          330
Sep...............................          100            0          400           30          360            0
Oct...............................          100            0          500           30            0           30
Nov...............................          100            0          600           30            0           60
Dec...............................          100          700            0           30            0           90
Jan...............................          100            0          100           30            0          120
Feb...............................          100            0          200           30            0          150
Mar...............................          100            0          300           30            0          180
Apr...............................          100            0          400           30            0          210
May...............................          100            0          500           30            0          240
Jun...............................          100            0          600           30            0          270
----------------------------------------------------------------------------------------------------------------


[[Page 540]]


                                       Step 3--Trial Balance With Cushion
----------------------------------------------------------------------------------------------------------------
                                                                     Single-item
                                   -----------------------------------------------------------------------------
                                                    Taxes                               School taxes
                                   -----------------------------------------------------------------------------
                                        pmt          disb         bal          pmt          disb         bal
----------------------------------------------------------------------------------------------------------------
Jun...............................            0            0          800            0            0          330
Jul...............................          100          500          400           30            0          360
Aug...............................          100            0          500           30            0          390
Sep...............................          100            0          600           30          360           60
Oct...............................          100            0          700           30            0           90
Nov...............................          100            0          800           30            0          120
Dec...............................          100          700          200           30            0          150
Jan...............................          100            0          300           30            0          180
Feb...............................          100            0          400           30            0          210
Mar...............................          100            0          500           30            0          240
Apr...............................          100            0          600           30            0          270
May...............................          100            0          700           30            0          300
Jun...............................          100            0          800           30            0          330
----------------------------------------------------------------------------------------------------------------



     Sec. Appendix MS-1 to Part 1024--Servicing Disclosure Statement

    [Sample language; use business stationery or similar heading]
    [Date]

   SERVICING DISCLOSURE STATEMENT NOTICE TO FIRST LIEN MORTGAGE LOAN 
  APPLICANTS: THE RIGHT TO COLLECT YOUR MORTGAGE LOAN PAYMENTS MAY BE 
                               TRANSFERRED

    You are applying for a mortgage loan covered by the Real Estate 
Settlement Procedures Act (RESPA) (12 U.S.C. 2601 et seq.). RESPA gives 
you certain rights under Federal law. This statement describes whether 
the servicing for this loan may be transferred to a different loan 
servicer. ``Servicing'' refers to collecting your principal, interest, 
and escrow payments, if any, as well as sending any monthly or annual 
statements, tracking account balances, and handling other aspects of 
your loan. You will be given advance notice before a transfer occurs.

                     Servicing Transfer Information

    [We may assign, sell, or transfer the servicing of your loan while 
the loan is outstanding.]
    [or]
    [We do not service mortgage loans of the type for which you applied. 
We intend to assign, sell, or transfer the servicing of your mortgage 
loan before the first payment is due.]
    [or]
    [The loan for which you have applied will be serviced at this 
financial institution and we do not intend to sell, transfer, or assign 
the servicing of the loan.]
    [INSTRUCTIONS TO PREPARER: Insert the date and select the 
appropriate language under ``Servicing Transfer Information.'' The model 
format may be annotated with further information that clarifies or 
enhances the model language.]



Sec. Appendix MS-2 to Part 1024--Notice of Assignment, Sale, or Transfer 
                           of Servicing Rights

      [Sample language; use business stationery or similar heading]

       NOTICE OF ASSIGNMENT, SALE, OR TRANSFER OF SERVICING RIGHTS

    You are hereby notified that the servicing of your mortgage loan, 
that is, the right to collect payments from you, is being assigned, sold 
or transferred from -------------------- to -------------------- 
effective --------------------.
    The assignment, sale or transfer of the servicing of the mortgage 
loan does not affect any term or condition of the mortgage instruments, 
other than terms directly related to the servicing of your loan.
    Except in limited circumstances, the law requires that your present 
servicer send you this notice at least 15 days before the effective date 
of transfer, or at closing. Your new servicer must also send you this 
notice no later than 15 days after this effective date or at closing. 
[In this case, all necessary information is combined in this one 
notice].
    Your present servicer is --------------------. If you have any 
question relating to the transfer of servicing from your present 
servicer call -------------------- [enter the name of an individual or 
department here] between ---- a.m. and ---- p.m. on the following days 
--------------------.
    This is a [toll-free] or [collect call] number.
    Your new servicer will be --------------------.
    The business address for your new servicer is:
________________________________________________________________________


[[Page 541]]

________________________________________________________________________
------------------------------------------ .

    The [toll-free] [collect call] telephone number of your new servicer 
is --------------------. If you have any question relating to the 
transfer of servicing to your new servicer call -------------------- 
[enter the name of an individual or department here] at ----------------
---- [toll free or collect call telephone number] between ---- a.m. and 
---- p.m. on the following days --------------------.
    The date that your present servicer will stop accepting payments 
form you is --------------------. The date that your new servicer will 
start accepting payments from you is --------------------. Send all 
payments due on or after that date to your new servicer.
    [Use the paragraph if appropriate; otherwise omit.] The transfer of 
servicing rights may affect the term of or the continued availability of 
mortgage life or disability insurance or any other type of optional 
insurance in the following manner:
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________

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

and you should take the following action to maintain coverage:
________________________________________________________________________
________________________________________________________________________

--------------------.

    You should also be aware of the following information, which is set 
out in more detail in Section 6 of the Real Estate Settlement Procedures 
Act (RESPA) (12 U.S.C. 2605):
    During the 60-day period following the effective date of the 
transfer of the loan servicing, a loan payment received by your old 
servicer before its due date may not be treated by the new loan servicer 
as late, and a late fee may not be imposed on you.
    Section 6 of RESPA (12 U.S.C. 2605) gives you certain consumer 
rights. If you send a ``qualified written request'' to your loan 
servicer concerning the servicing of your loan, your servicer must 
provide you with a written acknowledgment within 20 Business Days of 
receipt of your request. A ``qualified written request'' is a written 
correspondence, other than notice on a payment coupon or other payment 
medium supplied by the servicer, which includes your name and account 
number, and your reasons for the request. [If you want to send a 
``qualified written request'' regarding the servicing of your loan, it 
must be sent to this address:

---------------------------------------- ]

    Not later than 60 Business Days after receiving your request, your 
servicer must make any appropriate corrections to your account, and must 
provide you with a written clarification regarding any dispute. During 
this 60-Business Day period, your servicer may not provide information 
to a consumer reporting agency concerning any overdue payment related to 
such period or qualified written request. However, this does not prevent 
the servicer from initiating foreclosure if proper grounds exist under 
the mortgage documents.
    A Business Day is a day on which the offices of the business entity 
are open to the public for carrying on substantially all of its business 
functions.
    Section 6 of RESPA also provides for damages and costs for 
individuals or classes of individuals in circumstances where servicers 
are shown to have violated the requirements of that section. You should 
seek legal advice if you believe your rights have been violated.

[INSTRUCTIONS TO PREPARER: Delivery means placing the notice in the 
mail, first class postage prepaid, prior to 15 days before the effective 
date of transfer (transferor) or prior to 15 days after the effective 
date of transfer (transferee). However, this notice may be sent not more 
than 30 days after the effective date of the transfer of servicing 
rights if certain emergency business situations occur. See 12 CFR Sec. 
1024.21(d)(1)(ii). ``Lender'' may be substituted for ``present 
servicer'' where appropriate. These instructions should not appear on 
the format.]
________________________________________________________________________
PRESENT SERVICER
[Signature not required]
________________________________________________________________________
Date

[and][or]
________________________________________________________________________
FUTURE SERVICER
[Signature not required]
________________________________________________________________________
Date



PART 1026_TRUTH IN LENDING (REGULATION Z)--Table of Contents



                            Subpart A_General

Sec.
1026.1 Authority, purpose, coverage, organization, enforcement, and 
          liability.
1026.2 Definitions and rules of construction.
1026.3 Exempt transactions.
1026.4 Finance charge.

                        Subpart B_Open-End Credit

1026.5 General disclosure requirements.
1026.6 Account-opening disclosures.
1026.7 Periodic statement.
1026.8 Identifying transactions on periodic statements.
1026.9 Subsequent disclosure requirements.
1026.10 Payments.

[[Page 542]]

1026.11 Treatment of credit balances; account termination.
1026.12 Special credit card provisions.
1026.13 Billing error resolution.
1026.14 Determination of annual percentage rate.
1026.15 Right of rescission.
1026.16 Advertising.

                       Subpart C_Closed-End Credit

1026.17 General disclosure requirements.
1026.18 Content of disclosures.
1026.19 Certain mortgage and variable-rate transactions.
1026.20 Subsequent disclosure requirements.
1026.21 Treatment of credit balances.
1026.22 Determination of annual percentage rate.
1026.23 Right of rescission.
1026.24 Advertising.

                         Subpart D_Miscellaneous

1026.25 Record retention.
1026.26 Use of annual percentage rate in oral disclosures.
1026.27 Language of disclosures.
1026.28 Effect on state laws.
1026.29 State exemptions.
1026.30 Limitation on rates.

     Subpart E_Special Rules for Certain Home Mortgage Transactions

1026.31 General rules.
1026.32 Requirements for certain closed-end home mortgages.
1026.33 Requirements for reverse mortgages.
1026.34 Prohibited acts or practices in connection with high-cost 
          mortgages.
1026.35 Prohibited acts or practices in connection with higher-priced 
          mortgage loans.
1026.36 Prohibited acts or practices in connection with credit secured 
          by a dwelling.
1026.37-1026.38 [Reserved]
1026.39 Mortgage transfer disclosures.
1026.40 Requirements for home equity plans.
1026.41 [Reserved]
1026.42 Valuation independence.
1026.43-1026.45 [Reserved]

           Subpart F_Special Rules for Private Education Loans

1026.46 Special disclosure requirements for private education loans.
1026.47 Content of disclosures.
1026.48 Limitations on private education loans.

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

1026.51 Ability to pay.
1026.52 Limitations on fees.
1026.53 Allocation of payments.
1026.54 Limitations on the imposition of finance charges.
1026.55 Limitations on increasing annual percentage rates, fees, and 
          charges.
1026.56 Requirements for over-the-limit transactions.
1026.57 Reporting and marketing rules for college student open-end 
          credit.
1026.58 Internet posting of credit card agreements.
1026.59 Reevaluation of rate increases.
1026.60 Credit and charge card applications and solicitations.

Appendix A to Part 1026--Effect on State Laws
Appendix B to Part 1026--State Exemptions
Appendix C to Part 1026--Issuance of Official Interpretations
Appendix D to Part 1026--Multiple Advance Construction Loans
Appendix E to Part 1026--Rules for Card Issuers That Bill on a 
          Transaction-by-Transaction Basis
Appendix F to Part 1026--Optional Annual Percentage Rate Computations 
          for Creditors Offering Open-End Credit Plans Secured by a 
          Consumer's Dwelling
Appendix G to Part 1026--Open-End Model Forms and Clauses
Appendix H to Part 1026-- Closed-End Model Forms and Clauses
Appendix I to Part 1026 [Reserved]
Appendix J to Part 1026--Annual Percentage Rate Computations for Closed-
          End Credit Transactions
Appendix K to Part 1026--Total Annual Loan Cost Rate Computations for 
          Reverse Mortgage Transactions
Appendix L to Part 1026--Assumed Loan Periods for Computations of Total 
          Annual Loan Cost Rates
Appendix M1 to Part 1026--Repayment Disclosures
Appendix M2 to Part 1026--Sample Calculations of Repayment Disclosures
Supplement I to Part 1026--Official Interpretations

    Authority: 12 U.S.C. 5512, 5581; 15 U.S.C. 1601 et seq.

    Source: 76 FR 79772, Dec. 22, 2011, unless otherwise noted.



                            Subpart A_General



Sec. 1026.1  Authority, purpose, coverage, organization, enforcement, and liability.

    (a) Authority. This part, known as Regulation Z, is issued by the 
Bureau of Consumer Financial Protection to

[[Page 543]]

implement the Federal Truth in Lending Act, which is contained in Title 
I of the Consumer Credit Protection Act, as amended (15 U.S.C. 1601 et 
seq.). This part also implements Title XII, section 1204 of the 
Competitive Equality Banking Act of 1987 (Pub. L. 100-86, 101 Stat. 
552). Information-collection requirements contained in this part have 
been approved by the Office of Management and Budget under the 
provisions of 44 U.S.C. 3501 et seq. and have been assigned OMB No. 
3170-0015.
    (b) Purpose. The purpose of this part is to promote the informed use 
of consumer credit by requiring disclosures about its terms and cost. 
The regulation also includes substantive protections. It gives consumers 
the right to cancel certain credit transactions that involve a lien on a 
consumer's principal dwelling, regulates certain credit card practices, 
and provides a means for fair and timely resolution of credit billing 
disputes. The regulation does not generally govern charges for consumer 
credit, except that several provisions in subpart G set forth special 
rules addressing certain charges applicable to credit card accounts 
under an open-end (not home-secured) consumer credit plan. The 
regulation requires a maximum interest rate to be stated in variable-
rate contracts secured by the consumer's dwelling. It also imposes 
limitations on home-equity plans that are subject to the requirements of 
Sec. 1026.40 and mortgages that are subject to the requirements of 
Sec. 1026.32. The regulation prohibits certain acts or practices in 
connection with credit secured by a dwelling in Sec. 1026.36, and 
credit secured by a consumer's principal dwelling in Sec. 1026.35. The 
regulation also regulates certain practices of creditors who extend 
private education loans as defined in Sec. 1026.46(b)(5).
    (c) Coverage. (1) In general, this part applies to each individual 
or business that offers or extends credit, other than a person excluded 
from coverage of this part by section 1029 of the Consumer Financial 
Protection Act of 2010, Title X of the Dodd-Frank Wall Street Reform and 
Consumer Protection Act, Public Law 111-203, 124 Stat. 1376, when four 
conditions are met:
    (i) The credit is offered or extended to consumers;
    (ii) The offering or extension of credit is done regularly;
    (iii) The credit is subject to a finance charge or is payable by a 
written agreement in more than four installments; and
    (iv) The credit is primarily for personal, family, or household 
purposes.
    (2) If a credit card is involved, however, certain provisions apply 
even if the credit is not subject to a finance charge, or is not payable 
by a written agreement in more than four installments, or if the credit 
card is to be used for business purposes.
    (3) In addition, certain requirements of Sec. 1026.40 apply to 
persons who are not creditors but who provide applications for home-
equity plans to consumers.
    (4) Furthermore, certain requirements of Sec. 1026.57 apply to 
institutions of higher education.
    (d) Organization. The regulation is divided into subparts and 
appendices as follows:
    (1) Subpart A contains general information. It sets forth:
    (i) The authority, purpose, coverage, and organization of the 
regulation;
    (ii) The definitions of basic terms;
    (iii) The transactions that are exempt from coverage; and
    (iv) The method of determining the finance charge.
    (2) Subpart B contains the rules for open-end credit. It requires 
that account-opening disclosures and periodic statements be provided, as 
well as additional disclosures for credit and charge card applications 
and solicitations and for home-equity plans subject to the requirements 
of Sec. 1026.60 and Sec. 1026.40, respectively. It also describes 
special rules that apply to credit card transactions, treatment of 
payments and credit balances, procedures for resolving credit billing 
errors, annual percentage rate calculations, rescission requirements, 
and advertising.
    (3) Subpart C relates to closed-end credit. It contains rules on 
disclosures, treatment of credit balances, annual percentage rate 
calculations, rescission requirements, and advertising.
    (4) Subpart D contains rules on oral disclosures, disclosures in 
languages other than English, record retention, effect on state laws, 
state exemptions, and rate limitations.

[[Page 544]]

    (5) Subpart E contains special rules for mortgage transactions. 
Section 1026.32 requires certain disclosures and provides limitations 
for closed-end loans that have rates or fees above specified amounts. 
Section 1026.33 requires special disclosures, including the total annual 
loan cost rate, for reverse mortgage transactions. Section 1026.34 
prohibits specific acts and practices in connection with closed-end 
mortgage transactions that are subject to Sec. 1026.32. Section 1026.35 
prohibits specific acts and practices in connection with closed-end 
higher-priced mortgage loans, as defined in Sec. 1026.35(a). Section 
1026.36 prohibits specific acts and practices in connection with an 
extension of credit secured by a dwelling.
    (6) Subpart F relates to private education loans. It contains rules 
on disclosures, limitations on changes in terms after approval, the 
right to cancel the loan, and limitations on co-branding in the 
marketing of private education loans.
    (7) Subpart G relates to credit card accounts under an open-end (not 
home-secured) consumer credit plan (except for Sec. 1026.57(c), which 
applies to all open-end credit plans). Section 1026.51 contains rules on 
evaluation of a consumer's ability to make the required payments under 
the terms of an account. Section 1026.52 limits the fees that a consumer 
can be required to pay with respect to an open-end (not home-secured) 
consumer credit plan during the first year after account opening. 
Section 1026.53 contains rules on allocation of payments in excess of 
the minimum payment. Section 1026.54 sets forth certain limitations on 
the imposition of finance charges as the result of a loss of a grace 
period. Section 1026.55 contains limitations on increases in annual 
percentage rates, fees, and charges for credit card accounts. Section 
1026.56 prohibits the assessment of fees or charges for over-the-limit 
transactions unless the consumer affirmatively consents to the 
creditor's payment of over-the-limit transactions. Section 1026.57 sets 
forth rules for reporting and marketing of college student open-end 
credit. Section 1026.58 sets forth requirements for the Internet posting 
of credit card accounts under an open-end (not home-secured) consumer 
credit plan.
    (8) Several appendices contain information such as the procedures 
for determinations about state laws, state exemptions and issuance of 
official interpretations, special rules for certain kinds of credit 
plans, and the rules for computing annual percentage rates in closed-end 
credit transactions and total-annual-loan-cost rates for reverse 
mortgage transactions.
    (e) Enforcement and liability. Section 108 of the Act contains the 
administrative enforcement provisions. Sections 112, 113, 130, 131, and 
134 contain provisions relating to liability for failure to comply with 
the requirements of the Act and the regulation. Section 1204(c) of Title 
XII of the Competitive Equality Banking Act of 1987, Public Law 100-86, 
101 Stat. 552, incorporates by reference administrative enforcement and 
civil liability provisions of sections 108 and 130 of the Act.



Sec. 1026.2  Definitions and rules of construction.

    (a) Definitions. For purposes of this part, the following 
definitions apply:
    (1) Act means the Truth in Lending Act (15 U.S.C. 1601 et seq.).
    (2) Advertisement means a commercial message in any medium that 
promotes, directly or indirectly, a credit transaction.
    (3) [Reserved]
    (4) Billing cycle or cycle means the interval between the days or 
dates of regular periodic statements. These intervals shall be equal and 
no longer than a quarter of a year. An interval will be considered equal 
if the number of days in the cycle does not vary more than four days 
from the regular day or date of the periodic statement.
    (5) Bureau means the Bureau of Consumer Financial Protection.
    (6) Business day means a day on which the creditor's offices are 
open to the public for carrying on substantially all of its business 
functions. However, for purposes of rescission under Sec. Sec. 1026.15 
and 1026.23, and for purposes of Sec. Sec. 1026.19(a)(1)(ii), 
1026.19(a)(2), 1026.31, and 1026.46(d)(4), the term means all calendar 
days except Sundays and the legal public holidays specified in 5 U.S.C. 
6103(a), such as New Year's Day,

[[Page 545]]

the Birthday of Martin Luther King, Jr., Washington's Birthday, Memorial 
Day, Independence Day, Labor Day, Columbus Day, Veterans Day, 
Thanksgiving Day, and Christmas Day.
    (7) Card issuer means a person that issues a credit card or that 
person's agent with respect to the card.
    (8) Cardholder means a natural person to whom a credit card is 
issued for consumer credit purposes, or a natural person who has agreed 
with the card issuer to pay consumer credit obligations arising from the 
issuance of a credit card to another natural person. For purposes of 
Sec. 1026.12(a) and (b), the term includes any person to whom a credit 
card is issued for any purpose, including business, commercial or 
agricultural use, or a person who has agreed with the card issuer to pay 
obligations arising from the issuance of such a credit card to another 
person.
    (9) Cash price means the price at which a creditor, in the ordinary 
course of business, offers to sell for cash property or service that is 
the subject of the transaction. At the creditor's option, the term may 
include the price of accessories, services related to the sale, service 
contracts and taxes and fees for license, title, and registration. The 
term does not include any finance charge.
    (10) Closed-end credit means consumer credit other than ``open-end 
credit'' as defined in this section.
    (11) Consumer means a cardholder or natural person to whom consumer 
credit is offered or extended. However, for purposes of rescission under 
Sec. Sec. 1026.15 and 1026.23, the term also includes a natural person 
in whose principal dwelling a security interest is or will be retained 
or acquired, if that person's ownership interest in the dwelling is or 
will be subject to the security interest.
    (12) Consumer credit means credit offered or extended to a consumer 
primarily for personal, family, or household purposes.
    (13) Consummation means the time that a consumer becomes 
contractually obligated on a credit transaction.
    (14) Credit means the right to defer payment of debt or to incur 
debt and defer its payment.
    (15)(i) Credit card means any card, plate, or other single credit 
device that may be used from time to time to obtain credit.
    (ii) Credit card account under an open-end (not home-secured) 
consumer credit plan means any open-end credit account that is accessed 
by a credit card, except:
    (A) A home-equity plan subject to the requirements of Sec. 1026.40 
that is accessed by a credit card; or
    (B) An overdraft line of credit that is accessed by a debit card or 
an account number.
    (iii) Charge card means a credit card on an account for which no 
periodic rate is used to compute a finance charge.
    (16) Credit sale means a sale in which the seller is a creditor. The 
term includes a bailment or lease (unless terminable without penalty at 
any time by the consumer) under which the consumer:
    (i) Agrees to pay as compensation for use a sum substantially 
equivalent to, or in excess of, the total value of the property and 
service involved; and
    (ii) Will become (or has the option to become), for no additional 
consideration or for nominal consideration, the owner of the property 
upon compliance with the agreement.
    (17) Creditor means:
    (i) A person who regularly extends consumer credit that is subject 
to a finance charge or is payable by written agreement in more than four 
installments (not including a down payment), and to whom the obligation 
is initially payable, either on the face of the note or contract, or by 
agreement when there is no note or contract.
    (ii) For purposes of Sec. Sec. 1026.4(c)(8) (Discounts), 1026.9(d) 
(Finance charge imposed at time of transaction), and 1026.12(e) (Prompt 
notification of returns and crediting of refunds), a person that honors 
a credit card.
    (iii) For purposes of subpart B, any card issuer that extends either 
open-end credit or credit that is not subject to a finance charge and is 
not payable by written agreement in more than four installments.
    (iv) For purposes of subpart B (except for the credit and charge 
card disclosures contained in Sec. Sec. 1026.60 and

[[Page 546]]

1026.9(e) and (f), the finance charge disclosures contained in Sec. 
1026.6(a)(1) and (b)(3)(i) and Sec. 1026.7(a)(4) through (7) and (b)(4) 
through (6) and the right of rescission set forth in Sec. 1026.15) and 
subpart C, any card issuer that extends closed-end credit that is 
subject to a finance charge or is payable by written agreement in more 
than four installments.
    (v) A person regularly extends consumer credit only if it extended 
credit (other than credit subject to the requirements of Sec. 1026.32) 
more than 25 times (or more than 5 times for transactions secured by a 
dwelling) in the preceding calendar year. If a person did not meet these 
numerical standards in the preceding calendar year, the numerical 
standards shall be applied to the current calendar year. A person 
regularly extends consumer credit if, in any 12-month period, the person 
originates more than one credit extension that is subject to the 
requirements of Sec. 1026.32 or one or more such credit extensions 
through a mortgage broker.
    (18) Downpayment means an amount, including the value of property 
used as a trade-in, paid to a seller to reduce the cash price of goods 
or services purchased in a credit sale transaction. A deferred portion 
of a downpayment may be treated as part of the downpayment if it is 
payable not later than the due date of the second otherwise regularly 
scheduled payment and is not subject to a finance charge.
    (19) Dwelling means a residential structure that contains one to 
four units, whether or not that structure is attached to real property. 
The term includes an individual condominium unit, cooperative unit, 
mobile home, and trailer, if it is used as a residence.
    (20) Open-end credit means consumer credit extended by a creditor 
under a plan in which:
    (i) The creditor reasonably contemplates repeated transactions;
    (ii) The creditor may impose a finance charge from time to time on 
an outstanding unpaid balance; and
    (iii) The amount of credit that may be extended to the consumer 
during the term of the plan (up to any limit set by the creditor) is 
generally made available to the extent that any outstanding balance is 
repaid.
    (21) Periodic rate means a rate of finance charge that is or may be 
imposed by a creditor on a balance for a day, week, month, or other 
subdivision of a year.
    (22) Person means a natural person or an organization, including a 
corporation, partnership, proprietorship, association, cooperative, 
estate, trust, or government unit.
    (23) Prepaid finance charge means any finance charge paid separately 
in cash or by check before or at consummation of a transaction, or 
withheld from the proceeds of the credit at any time.
    (24) Residential mortgage transaction means a transaction in which a 
mortgage, deed of trust, purchase money security interest arising under 
an installment sales contract, or equivalent consensual security 
interest is created or retained in the consumer's principal dwelling to 
finance the acquisition or initial construction of that dwelling.
    (25) Security interest means an interest in property that secures 
performance of a consumer credit obligation and that is recognized by 
state or Federal law. It does not include incidental interests such as 
interests in proceeds, accessions, additions, fixtures, insurance 
proceeds (whether or not the creditor is a loss payee or beneficiary), 
premium rebates, or interests in after-acquired property. For purposes 
of disclosures under Sec. Sec. 1026.6 and 1026.18, the term does not 
include an interest that arises solely by operation of law. However, for 
purposes of the right of rescission under Sec. Sec. 1026.15 and 
1026.23, the term does include interests that arise solely by operation 
of law.
    (26) State means any state, the District of Columbia, the 
Commonwealth of Puerto Rico, and any territory or possession of the 
United States.
    (b) Rules of construction. For purposes of this part, the following 
rules of construction apply:
    (1) Where appropriate, the singular form of a word includes the 
plural form and plural includes singular.
    (2) Where the words obligation and transaction are used in the 
regulation, they refer to a consumer credit obligation or transaction, 
depending upon the context. Where the word credit is

[[Page 547]]

used in the regulation, it means consumer credit unless the context 
clearly indicates otherwise.
    (3) Unless defined in this part, the words used have the meanings 
given to them by state law or contract.
    (4) Where the word amount is used in this part to describe 
disclosure requirements, it refers to a numerical amount.



Sec. 1026.3  Exempt transactions.

    This part does not apply to the following:
    (a) Business, commercial, agricultural, or organizational credit. 
(1) An extension of credit primarily for a business, commercial or 
agricultural purpose.
    (2) An extension of credit to other than a natural person, including 
credit to government agencies or instrumentalities.
    (b) Credit over applicable threshold amount--(1) Exemption--(i) 
Requirements. An extension of credit in which the amount of credit 
extended exceeds the applicable threshold amount or in which there is an 
express written commitment to extend credit in excess of the applicable 
threshold amount, unless the extension of credit is:
    (A) Secured by any real property, or by personal property used or 
expected to be used as the principal dwelling of the consumer; or
    (B) A private education loan as defined in Sec. 1026.46(b)(5).
    (ii) Annual adjustments. The threshold amount in paragraph (b)(1)(i) 
of this section is adjusted annually to reflect increases in the 
Consumer Price Index for Urban Wage Earners and Clerical Workers, as 
applicable. See the official commentary to this paragraph (b) for the 
threshold amount applicable to a specific extension of credit or express 
written commitment to extend credit.
    (2) Transition rule for open-end accounts exempt prior to July 21, 
2011. An open-end account that is exempt on July 20, 2011 based on an 
express written commitment to extend credit in excess of $25,000 remains 
exempt until December 31, 2011 unless:
    (i) The creditor takes a security interest in any real property, or 
in personal property used or expected to be used as the principal 
dwelling of the consumer; or
    (ii) The creditor reduces the express written commitment to extend 
credit to $25,000 or less.
    (c) Public utility credit. An extension of credit that involves 
public utility services provided through pipe, wire, other connected 
facilities, or radio or similar transmission (including extensions of 
such facilities), if the charges for service, delayed payment, or any 
discounts for prompt payment are filed with or regulated by any 
government unit. The financing of durable goods or home improvements by 
a public utility is not exempt.
    (d) Securities or commodities accounts. Transactions in securities 
or commodities accounts in which credit is extended by a broker-dealer 
registered with the Securities and Exchange Commission or the Commodity 
Futures Trading Commission.
    (e) Home fuel budget plans. An installment agreement for the 
purchase of home fuels in which no finance charge is imposed.
    (f) Student loan programs. Loans made, insured, or guaranteed 
pursuant to a program authorized by Title IV of the Higher Education Act 
of 1965 (20 U.S.C. 1070 et seq.).
    (g) Employer-sponsored retirement plans. An extension of credit to a 
participant in an employer-sponsored retirement plan qualified under 
section 401(a) of the Internal Revenue Code, a tax-sheltered annuity 
under section 403(b) of the Internal Revenue Code, or an eligible 
governmental deferred compensation plan under section 457(b) of the 
Internal Revenue Code (26 U.S.C. 401(a); 26 U.S.C. 403(b); 26 U.S.C. 
457(b)), provided that the extension of credit is comprised of fully 
vested funds from such participant's account and is made in compliance 
with the Internal Revenue Code (26 U.S.C. 1 et seq.).



Sec. 1026.4  Finance charge.

    (a) Definition. The finance charge is the cost of consumer credit as 
a dollar amount. It includes any charge payable directly or indirectly 
by the consumer and imposed directly or indirectly by the creditor as an 
incident to or a condition of the extension of credit. It does not 
include any charge of a type payable in a comparable cash transaction.

[[Page 548]]

    (1) Charges by third parties. The finance charge includes fees and 
amounts charged by someone other than the creditor, unless otherwise 
excluded under this section, if the creditor:
    (i) Requires the use of a third party as a condition of or an 
incident to the extension of credit, even if the consumer can choose the 
third party; or
    (ii) Retains a portion of the third-party charge, to the extent of 
the portion retained.
    (2) Special rule; closing agent charges. Fees charged by a third 
party that conducts the loan closing (such as a settlement agent, 
attorney, or escrow or title company) are finance charges only if the 
creditor:
    (i) Requires the particular services for which the consumer is 
charged;
    (ii) Requires the imposition of the charge; or
    (iii) Retains a portion of the third-party charge, to the extent of 
the portion retained.
    (3) Special rule; mortgage broker fees. Fees charged by a mortgage 
broker (including fees paid by the consumer directly to the broker or to 
the creditor for delivery to the broker) are finance charges even if the 
creditor does not require the consumer to use a mortgage broker and even 
if the creditor does not retain any portion of the charge.
    (b) Examples of finance charges. The finance charge includes the 
following types of charges, except for charges specifically excluded by 
paragraphs (c) through (e) of this section:
    (1) Interest, time price differential, and any amount payable under 
an add-on or discount system of additional charges.
    (2) Service, transaction, activity, and carrying charges, including 
any charge imposed on a checking or other transaction account to the 
extent that the charge exceeds the charge for a similar account without 
a credit feature.
    (3) Points, loan fees, assumption fees, finder's fees, and similar 
charges.
    (4) Appraisal, investigation, and credit report fees.
    (5) Premiums or other charges for any guarantee or insurance 
protecting the creditor against the consumer's default or other credit 
loss.
    (6) Charges imposed on a creditor by another person for purchasing 
or accepting a consumer's obligation, if the consumer is required to pay 
the charges in cash, as an addition to the obligation, or as a deduction 
from the proceeds of the obligation.
    (7) Premiums or other charges for credit life, accident, health, or 
loss-of-income insurance, written in connection with a credit 
transaction.
    (8) Premiums or other charges for insurance against loss of or 
damage to property, or against liability arising out of the ownership or 
use of property, written in connection with a credit transaction.
    (9) Discounts for the purpose of inducing payment by a means other 
than the use of credit.
    (10) Charges or premiums paid for debt cancellation or debt 
suspension coverage written in connection with a credit transaction, 
whether or not the coverage is insurance under applicable law.
    (c) Charges excluded from the finance charge. The following charges 
are not finance charges:
    (1) Application fees charged to all applicants for credit, whether 
or not credit is actually extended.
    (2) Charges for actual unanticipated late payment, for exceeding a 
credit limit, or for delinquency, default, or a similar occurrence.
    (3) Charges imposed by a financial institution for paying items that 
overdraw an account, unless the payment of such items and the imposition 
of the charge were previously agreed upon in writing.
    (4) Fees charged for participation in a credit plan, whether 
assessed on an annual or other periodic basis.
    (5) Seller's points.
    (6) Interest forfeited as a result of an interest reduction required 
by law on a time deposit used as security for an extension of credit.
    (7) Real-estate related fees. The following fees in a transaction 
secured by real property or in a residential mortgage transaction, if 
the fees are bona fide and reasonable in amount:
    (i) Fees for title examination, abstract of title, title insurance, 
property survey, and similar purposes.

[[Page 549]]

    (ii) Fees for preparing loan-related documents, such as deeds, 
mortgages, and reconveyance or settlement documents.
    (iii) Notary and credit-report fees.
    (iv) Property appraisal fees or fees for inspections to assess the 
value or condition of the property if the service is performed prior to 
closing, including fees related to pest-infestation or flood-hazard 
determinations.
    (v) Amounts required to be paid into escrow or trustee accounts if 
the amounts would not otherwise be included in the finance charge.
    (8) Discounts offered to induce payment for a purchase by cash, 
check, or other means, as provided in section 167(b) of the Act.
    (d) Insurance and debt cancellation and debt suspension coverage--
(1) Voluntary credit insurance premiums. Premiums for credit life, 
accident, health, or loss-of-income insurance may be excluded from the 
finance charge if the following conditions are met:
    (i) The insurance coverage is not required by the creditor, and this 
fact is disclosed in writing.
    (ii) The premium for the initial term of insurance coverage is 
disclosed in writing. If the term of insurance is less than the term of 
the transaction, the term of insurance also shall be disclosed. The 
premium may be disclosed on a unit-cost basis only in open-end credit 
transactions, closed-end credit transactions by mail or telephone under 
Sec. 1026.17(g), and certain closed-end credit transactions involving 
an insurance plan that limits the total amount of indebtedness subject 
to coverage.
    (iii) The consumer signs or initials an affirmative written request 
for the insurance after receiving the disclosures specified in this 
paragraph, except as provided in paragraph (d)(4) of this section. Any 
consumer in the transaction may sign or initial the request.
    (2) Property insurance premiums. Premiums for insurance against loss 
of or damage to property, or against liability arising out of the 
ownership or use of property, including single interest insurance if the 
insurer waives all right of subrogation against the consumer, may be 
excluded from the finance charge if the following conditions are met:
    (i) The insurance coverage may be obtained from a person of the 
consumer's choice, and this fact is disclosed. (A creditor may reserve 
the right to refuse to accept, for reasonable cause, an insurer offered 
by the consumer.)
    (ii) If the coverage is obtained from or through the creditor, the 
premium for the initial term of insurance coverage shall be disclosed. 
If the term of insurance is less than the term of the transaction, the 
term of insurance shall also be disclosed. The premium may be disclosed 
on a unit-cost basis only in open-end credit transactions, closed-end 
credit transactions by mail or telephone under Sec. 1026.17(g), and 
certain closed-end credit transactions involving an insurance plan that 
limits the total amount of indebtedness subject to coverage.
    (3) Voluntary debt cancellation or debt suspension fees. Charges or 
premiums paid for debt cancellation coverage for amounts exceeding the 
value of the collateral securing the obligation or for debt cancellation 
or debt suspension coverage in the event of the loss of life, health, or 
income or in case of accident may be excluded from the finance charge, 
whether or not the coverage is insurance, if the following conditions 
are met:
    (i) The debt cancellation or debt suspension agreement or coverage 
is not required by the creditor, and this fact is disclosed in writing;
    (ii) The fee or premium for the initial term of coverage is 
disclosed in writing. If the term of coverage is less than the term of 
the credit transaction, the term of coverage also shall be disclosed. 
The fee or premium may be disclosed on a unit-cost basis only in open-
end credit transactions, closed-end credit transactions by mail or 
telephone under Sec. 1026.17(g), and certain closed-end credit 
transactions involving a debt cancellation agreement that limits the 
total amount of indebtedness subject to coverage;
    (iii) The following are disclosed, as applicable, for debt 
suspension coverage: That the obligation to pay loan principal and 
interest is only suspended, and that interest will continue

[[Page 550]]

to accrue during the period of suspension.
    (iv) The consumer signs or initials an affirmative written request 
for coverage after receiving the disclosures specified in this 
paragraph, except as provided in paragraph (d)(4) of this section. Any 
consumer in the transaction may sign or initial the request.
    (4) Telephone purchases. If a consumer purchases credit insurance or 
debt cancellation or debt suspension coverage for an open-end (not home-
secured) plan by telephone, the creditor must make the disclosures under 
paragraphs (d)(1)(i) and (ii) or (d)(3)(i) through (iii) of this 
section, as applicable, orally. In such a case, the creditor shall:
    (i) Maintain evidence that the consumer, after being provided the 
disclosures orally, affirmatively elected to purchase the insurance or 
coverage; and
    (ii) Mail the disclosures under paragraphs (d)(1)(i) and (ii) or 
(d)(3)(i) through (iii) of this section, as applicable, within three 
business days after the telephone purchase.
    (e) Certain security interest charges. If itemized and disclosed, 
the following charges may be excluded from the finance charge:
    (1) Taxes and fees prescribed by law that actually are or will be 
paid to public officials for determining the existence of or for 
perfecting, releasing, or satisfying a security interest.
    (2) The premium for insurance in lieu of perfecting a security 
interest to the extent that the premium does not exceed the fees 
described in paragraph (e)(1) of this section that otherwise would be 
payable.
    (3) Taxes on security instruments. Any tax levied on security 
instruments or on documents evidencing indebtedness if the payment of 
such taxes is a requirement for recording the instrument securing the 
evidence of indebtedness.
    (f) Prohibited offsets. Interest, dividends, or other income 
received or to be received by the consumer on deposits or investments 
shall not be deducted in computing the finance charge.



                        Subpart B_Open-End Credit



Sec. 1026.5  General disclosure requirements.

    (a) Form of disclosures--(1) General. (i) The creditor shall make 
the disclosures required by this subpart clearly and conspicuously.
    (ii) The creditor shall make the disclosures required by this 
subpart in writing, in a form that the consumer may keep, except that:
    (A) The following disclosures need not be written: Disclosures under 
Sec. 1026.6(b)(3) of charges that are imposed as part of an open-end 
(not home-secured) plan that are not required to be disclosed under 
Sec. 1026.6(b)(2) and related disclosures of charges under Sec. 
1026.9(c)(2)(iii)(B); disclosures under Sec. 1026.9(c)(2)(vi); 
disclosures under Sec. 1026.9(d) when a finance charge is imposed at 
the time of the transaction; and disclosures under Sec. 
1026.56(b)(1)(i).
    (B) The following disclosures need not be in a retainable form: 
Disclosures that need not be written under paragraph (a)(1)(ii)(A) of 
this section; disclosures for credit and charge card applications and 
solicitations under Sec. 1026.60; home-equity disclosures under Sec. 
1026.40(d); the alternative summary billing-rights statement under Sec. 
1026.9(a)(2); the credit and charge card renewal disclosures required 
under Sec. 1026.9(e); and the payment requirements under Sec. 
1026.10(b), except as provided in Sec. 1026.7(b)(13).
    (iii) The disclosures required by this subpart may be provided to 
the consumer in electronic form, subject to compliance with the consumer 
consent and other applicable provisions of the Electronic Signatures in 
Global and National Commerce Act (E-Sign Act) (15 U.S.C. 7001 et seq.). 
The disclosures required by Sec. Sec. 1026.60, 1026.40, and 1026.16 may 
be provided to the consumer in electronic form without regard to the 
consumer consent or other provisions of the E-Sign Act in the 
circumstances set forth in those sections.
    (2) Terminology. (i) Terminology used in providing the disclosures 
required by this subpart shall be consistent.
    (ii) For home-equity plans subject to Sec. 1026.40, the terms 
finance charge and annual percentage rate, when required to be disclosed 
with a corresponding

[[Page 551]]

amount or percentage rate, shall be more conspicuous than any other 
required disclosure. The terms need not be more conspicuous when used 
for periodic statement disclosures under Sec. 1026.7(a)(4) and for 
advertisements under Sec. 1026.16.
    (iii) If disclosures are required to be presented in a tabular 
format pursuant to paragraph (a)(3) of this section, the term penalty 
APR shall be used, as applicable. The term penalty APR need not be used 
in reference to the annual percentage rate that applies with the loss of 
a promotional rate, assuming the annual percentage rate that applies is 
not greater than the annual percentage rate that would have applied at 
the end of the promotional period; or if the annual percentage rate that 
applies with the loss of a promotional rate is a variable rate, the 
annual percentage rate is calculated using the same index and margin as 
would have been used to calculate the annual percentage rate that would 
have applied at the end of the promotional period. If credit insurance 
or debt cancellation or debt suspension coverage is required as part of 
the plan, the term required shall be used and the program shall be 
identified by its name. If an annual percentage rate is required to be 
presented in a tabular format pursuant to paragraph (a)(3)(i) or 
(a)(3)(iii) of this section, the term fixed, or a similar term, may not 
be used to describe such rate unless the creditor also specifies a time 
period that the rate will be fixed and the rate will not increase during 
that period, or if no such time period is provided, the rate will not 
increase while the plan is open.
    (3) Specific formats. (i) Certain disclosures for credit and charge 
card applications and solicitations must be provided in a tabular format 
in accordance with the requirements of Sec. 1026.60(a)(2).
    (ii) Certain disclosures for home-equity plans must precede other 
disclosures and must be given in accordance with the requirements of 
Sec. 1026.40(a).
    (iii) Certain account-opening disclosures must be provided in a 
tabular format in accordance with the requirements of Sec. 
1026.6(b)(1).
    (iv) Certain disclosures provided on periodic statements must be 
grouped together in accordance with the requirements of Sec. 
1026.7(b)(6) and (b)(13).
    (v) Certain disclosures provided on periodic statements must be 
given in accordance with the requirements of Sec. 1026.7(b)(12).
    (vi) Certain disclosures accompanying checks that access a credit 
card account must be provided in a tabular format in accordance with the 
requirements of Sec. 1026.9(b)(3).
    (vii) Certain disclosures provided in a change-in-terms notice must 
be provided in a tabular format in accordance with the requirements of 
Sec. 1026.9(c)(2)(iv)(D).
    (viii) Certain disclosures provided when a rate is increased due to 
delinquency, default or as a penalty must be provided in a tabular 
format in accordance with the requirements of Sec. 1026.9(g)(3)(ii).
    (b) Time of disclosures--(1) Account-opening disclosures--(i) 
General rule. The creditor shall furnish account-opening disclosures 
required by Sec. 1026.6 before the first transaction is made under the 
plan.
    (ii) Charges imposed as part of an open-end (not home-secured) plan. 
Charges that are imposed as part of an open-end (not home-secured) plan 
and are not required to be disclosed under Sec. 1026.6(b)(2) may be 
disclosed after account opening but before the consumer agrees to pay or 
becomes obligated to pay for the charge, provided they are disclosed at 
a time and in a manner that a consumer would be likely to notice them. 
This provision does not apply to charges imposed as part of a home-
equity plan subject to the requirements of Sec. 1026.40.
    (iii) Telephone purchases. Disclosures required by Sec. 1026.6 may 
be provided as soon as reasonably practicable after the first 
transaction if:
    (A) The first transaction occurs when a consumer contacts a merchant 
by telephone to purchase goods and at the same time the consumer accepts 
an offer to finance the purchase by establishing an open-end plan with 
the merchant or third-party creditor;
    (B) The merchant or third-party creditor permits consumers to return 
any goods financed under the plan and provides consumers with a 
sufficient time to reject the plan and return the

[[Page 552]]

goods free of cost after the merchant or third-party creditor has 
provided the written disclosures required by Sec. 1026.6; and
    (C) The consumer's right to reject the plan and return the goods is 
disclosed to the consumer as a part of the offer to finance the 
purchase.
    (iv) Membership fees--(A) General. In general, a creditor may not 
collect any fee before account-opening disclosures are provided. A 
creditor may collect, or obtain the consumer's agreement to pay, 
membership fees, including application fees excludable from the finance 
charge under Sec. 1026.4(c)(1), before providing account-opening 
disclosures if, after receiving the disclosures, the consumer may reject 
the plan and have no obligation to pay these fees (including application 
fees) or any other fee or charge. A membership fee for purposes of this 
paragraph has the same meaning as a fee for the issuance or availability 
of credit described in Sec. 1026.60(b)(2). If the consumer rejects the 
plan, the creditor must promptly refund the membership fee if it has 
been paid, or take other action necessary to ensure the consumer is not 
obligated to pay that fee or any other fee or charge.
    (B) Home-equity plans. Creditors offering home-equity plans subject 
to the requirements of Sec. 1026.40 are not subject to the requirements 
of paragraph (b)(1)(iv)(A) of this section.
    (v) Application fees. A creditor may collect an application fee 
excludable from the finance charge under Sec. 1026.4(c)(1) before 
providing account-opening disclosures. However, if a consumer rejects 
the plan after receiving account-opening disclosures, the consumer must 
have no obligation to pay such an application fee, or if the fee was 
paid, it must be refunded. See Sec. 1026.5(b)(1)(iv)(A).
    (2) Periodic statements--(i) Statement required. The creditor shall 
mail or deliver a periodic statement as required by Sec. 1026.7 for 
each billing cycle at the end of which an account has a debit or credit 
balance of more than $1 or on which a finance charge has been imposed. A 
periodic statement need not be sent for an account if the creditor deems 
it uncollectible, if delinquency collection proceedings have been 
instituted, if the creditor has charged off the account in accordance 
with loan-loss provisions and will not charge any additional fees or 
interest on the account, or if furnishing the statement would violate 
Federal law.
    (ii) Timing requirements--(A) Credit card accounts under an open-end 
(not home-secured) consumer credit plan. For credit card accounts under 
an open-end (not home-secured) consumer credit plan, a card issuer must 
adopt reasonable procedures designed to ensure that:
    (1) Periodic statements are mailed or delivered at least 21 days 
prior to the payment due date disclosed on the statement pursuant to 
Sec. 1026.7(b)(11)(i)(A); and
    (2) The card issuer does not treat as late for any purpose 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.
    (B) Open-end consumer credit plans. For accounts under an open-end 
consumer credit plan, a creditor must adopt reasonable procedures 
designed to ensure that:
    (1) If a grace period applies to the account:
    (i) Periodic statements are mailed or delivered at least 21 days 
prior to the date on which the grace period expires; and
    (ii) The creditor does not impose finance charges as a result of the 
loss of the 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.
    (2) Regardless of whether a grace period applies to the account:
    (i) Periodic statements are mailed or delivered at least 14 days 
prior to the date on which the required minimum periodic payment must be 
received in order to avoid being treated as late for any purpose; and
    (ii) The creditor does not treat as late for any purpose a required 
minimum periodic payment received by the creditor within 14 days after 
mailing or delivery of the periodic statement.

[[Page 553]]

    (3) For purposes of paragraph (b)(2)(ii)(B) of this section, ``grace 
period'' means a period within which any credit extended may be repaid 
without incurring a finance charge due to a periodic interest rate.
    (3) Credit and charge card application and solicitation disclosures. 
The card issuer shall furnish the disclosures for credit and charge card 
applications and solicitations in accordance with the timing 
requirements of Sec. 1026.60.
    (4) Home-equity plans. Disclosures for home-equity plans shall be 
made in accordance with the timing requirements of Sec. 1026.40(b).
    (c) Basis of disclosures and use of estimates. Disclosures shall 
reflect the terms of the legal obligation between the parties. If any 
information necessary for accurate disclosure is unknown to the 
creditor, it shall make the disclosure based on the best information 
reasonably available and shall state clearly that the disclosure is an 
estimate.
    (d) Multiple creditors; multiple consumers. If the credit plan 
involves more than one creditor, only one set of disclosures shall be 
given, and the creditors shall agree among themselves which creditor 
must comply with the requirements that this part imposes on any or all 
of them. If there is more than one consumer, the disclosures may be made 
to any consumer who is primarily liable on the account. If the right of 
rescission under Sec. 1026.15 is applicable, however, the disclosures 
required by Sec. Sec. 1026.6 and 1026.15(b) shall be made to each 
consumer having the right to rescind.
    (e) Effect of subsequent events. If a disclosure becomes inaccurate 
because of an event that occurs after the creditor mails or delivers the 
disclosures, the resulting inaccuracy is not a violation of this part, 
although new disclosures may be required under Sec. 1026.9(c).



Sec. 1026.6  Account-opening disclosures.

    (a) Rules affecting home-equity plans. The requirements of this 
paragraph (a) apply only to home-equity plans subject to the 
requirements of Sec. 1026.40. A creditor shall disclose the items in 
this section, to the extent applicable:
    (1) Finance charge. The circumstances under which a finance charge 
will be imposed and an explanation of how it will be determined, as 
follows:
    (i) A statement of when finance charges begin to accrue, including 
an explanation of whether or not any time period exists within which any 
credit extended may be repaid without incurring a finance charge. If 
such a time period is provided, a creditor may, at its option and 
without disclosure, impose no finance charge when payment is received 
after the time period's expiration.
    (ii) A disclosure of each periodic rate that may be used to compute 
the finance charge, the range of balances to which it is applicable, and 
the corresponding annual percentage rate. If a creditor offers a 
variable-rate plan, the creditor shall also disclose: The circumstances 
under which the rate(s) may increase; any limitations on the increase; 
and the effect(s) of an increase. When different periodic rates apply to 
different types of transactions, the types of transactions to which the 
periodic rates shall apply shall also be disclosed. A creditor is not 
required to adjust the range of balances disclosure to reflect the 
balance below which only a minimum charge applies.
    (iii) An explanation of the method used to determine the balance on 
which the finance charge may be computed.
    (iv) An explanation of how the amount of any finance charge will be 
determined, including a description of how any finance charge other than 
the periodic rate will be determined.
    (2) Other charges. The amount of any charge other than a finance 
charge that may be imposed as part of the plan, or an explanation of how 
the charge will be determined.
    (3) Home-equity plan information. The following disclosures 
described in Sec. 1026.40(d), as applicable:
    (i) A statement of the conditions under which the creditor may take 
certain action, as described in Sec. 1026.40(d)(4)(i), such as 
terminating the plan or changing the terms.
    (ii) The payment information described in Sec. 1026.40(d)(5)(i) and 
(ii) for both the draw period and any repayment period.

[[Page 554]]

    (iii) A statement that negative amortization may occur as described 
in Sec. 1026.40(d)(9).
    (iv) A statement of any transaction requirements as described in 
Sec. 1026.40(d)(10).
    (v) A statement regarding the tax implications as described in Sec. 
1026.40(d)(11).
    (vi) A statement that the annual percentage rate imposed under the 
plan does not include costs other than interest as described in Sec. 
1026.40(d)(6) and (d)(12)(ii).
    (vii) The variable-rate disclosures described in Sec. 
1026.40(d)(12)(viii), (d)(12)(x), (d)(12)(xi), and (d)(12)(xii), as well 
as the disclosure described in Sec. 1026.40(d)(5)(iii), unless the 
disclosures provided with the application were in a form the consumer 
could keep and included a representative payment example for the 
category of payment option chosen by the consumer.
    (4) Security interests. The fact that the creditor has or will 
acquire a security interest in the property purchased under the plan, or 
in other property identified by item or type.
    (5) Statement of billing rights. A statement that outlines the 
consumer's rights and the creditor's responsibilities under Sec. Sec. 
1026.12(c) and 1026.13 and that is substantially similar to the 
statement found in Model Form G-3 or, at the creditor's option, G-3(A), 
in appendix G to this part.
    (b) Rules affecting open-end (not home-secured) plans. The 
requirements of paragraph (b) of this section apply to plans other than 
home-equity plans subject to the requirements of Sec. 1026.40.
    (1) Form of disclosures; tabular format for open-end (not home-
secured) plans. Creditors must provide the account-opening disclosures 
specified in paragraph (b)(2)(i) through (b)(2)(v) (except for 
(b)(2)(i)(D)(2)) and (b)(2)(vii) through (b)(2)(xiv) of this section in 
the form of a table with the headings, content, and format substantially 
similar to any of the applicable tables in G-17 in appendix G.
    (i) Highlighting. In the table, any annual percentage rate required 
to be disclosed pursuant to paragraph (b)(2)(i) of this section; any 
introductory rate permitted to be disclosed pursuant to paragraph 
(b)(2)(i)(B) or required to be disclosed under paragraph (b)(2)(i)(F) of 
this section, any rate that will apply after a premium initial rate 
expires permitted to be disclosed pursuant to paragraph (b)(2)(i)(C) or 
required to be disclosed pursuant to paragraph (b)(2)(i)(F), and any fee 
or percentage amounts or maximum limits on fee amounts disclosed 
pursuant to paragraphs (b)(2)(ii), (b)(2)(iv), (b)(2)(vii) through 
(b)(2)(xii) of this section must be disclosed in bold text. However, 
bold text shall not be used for: The amount of any periodic fee 
disclosed pursuant to paragraph (b)(2) of this section that is not an 
annualized amount; and other annual percentage rates or fee amounts 
disclosed in the table.
    (ii) Location. Only the information required or permitted by 
paragraphs (b)(2)(i) through (v) (except for (b)(2)(i)(D)(2)) and 
(b)(2)(vii) through (xiv) of this section shall be in the table. 
Disclosures required by paragraphs (b)(2)(i)(D)(2), (b)(2)(i)(D)(3), 
(b)(2)(vi), and (b)(2)(xv) of this section shall be placed directly 
below the table. Disclosures required by paragraphs (b)(3) through (5) 
of this section that are not otherwise required to be in the table and 
other information may be presented with the account agreement or 
account-opening disclosure statement, provided such information appears 
outside the required table.
    (iii) Fees that vary by state. Creditors that impose fees referred 
to in paragraphs (b)(2)(vii) through (b)(2)(xi) of this section that 
vary by state and that provide the disclosures required by paragraph (b) 
of this section in person at the time the open-end (not home-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 the specific fee applicable to the consumer's account, or 
the range of the fees, if the disclosure includes a statement that the 
amount of the fee varies by state and refers the consumer to the account 
agreement or other disclosure provided with the account-opening table 
where the amount of the fee applicable to the consumer's account is 
disclosed. A creditor may not list fees for multiple states in the 
account-opening summary table.

[[Page 555]]

    (iv) Fees based on a percentage. If the amount of any fee required 
to be disclosed under this section is determined on the basis of a 
percentage of another amount, the percentage used and the identification 
of the amount against which the percentage is applied may be disclosed 
instead of the amount of the fee.
    (2) Required disclosures for account-opening table for open-end (not 
home-secured) plans. A creditor shall disclose the items in this 
section, to the extent applicable:
    (i) Annual percentage rate. Each periodic rate that may be used to 
compute the finance charge on an outstanding balance for purchases, a 
cash advance, or a balance transfer, expressed as an annual percentage 
rate (as determined by Sec. 1026.14(b)). When more than one rate 
applies for a category of transactions, the range of balances to which 
each rate is applicable shall also be disclosed. The annual percentage 
rate for purchases disclosed pursuant to this paragraph shall be in at 
least 16-point type, except for the following: A penalty rate that may 
apply upon the occurrence of one or more specific events.
    (A) Variable-rate information. If a rate disclosed under paragraph 
(b)(2)(i) of this section is a variable rate, the creditor shall also 
disclose the fact that the rate may vary and how the rate is determined. 
In describing how the applicable rate will be determined, the creditor 
must identify the type of index or formula that is used in setting the 
rate. The value of the index and the amount of the margin that are used 
to calculate the variable rate shall not be disclosed in the table. A 
disclosure of any applicable limitations on rate increases or decreases 
shall not be included in the table.
    (B) Discounted initial rates. If the initial rate is an introductory 
rate, as that term is defined in Sec. 1026.16(g)(2)(ii), the creditor 
must disclose the rate that would otherwise apply to the account 
pursuant to paragraph (b)(2)(i) of this section. Where the rate is not 
tied to an index or formula, the creditor must disclose the rate that 
will apply after the introductory rate expires. In a variable-rate 
account, the creditor must disclose a rate based on the applicable index 
or formula in accordance with the accuracy requirements of paragraph 
(b)(4)(ii)(G) of this section. Except as provided in paragraph 
(b)(2)(i)(F) of this section, the creditor is not required to, but may 
disclose in the table the introductory rate along with the rate that 
would otherwise apply to the account if the creditor also discloses the 
time period during which the introductory rate will remain in effect, 
and uses the term ``introductory'' or ``intro'' in immediate proximity 
to the introductory rate.
    (C) Premium initial rate. If the initial rate is temporary and is 
higher than the rate that will apply after the temporary rate expires, 
the creditor must disclose the premium initial rate pursuant to 
paragraph (b)(2)(i) of this section. Consistent with paragraph (b)(2)(i) 
of this section, the premium initial rate for purchases must be in at 
least 16-point type. Except as provided in paragraph (b)(2)(i)(F) of 
this section, the creditor is not required to, but may disclose in the 
table the rate that will apply after the premium initial rate expires if 
the creditor also discloses the time period during which the premium 
initial rate will remain in effect. If the creditor also discloses in 
the table the rate that will apply after the premium initial rate for 
purchases expires, that rate also must be in at least 16-point type.
    (D) Penalty rates--(1) In general. Except as provided in paragraph 
(b)(2)(i)(D)(2) and (b)(2)(i)(D)(3) of this section, if a rate may 
increase as a penalty for one or more events specified in the account 
agreement, such as a late payment or an extension of credit that exceeds 
the credit limit, the creditor must disclose pursuant to paragraph 
(b)(2)(i) of this section the increased rate that may apply, a brief 
description of the event or events that may result in the increased 
rate, and a brief description of how long the increased rate will remain 
in effect. If more than one penalty rate may apply, the creditor at its 
option may disclose the highest rate that could apply, instead of 
disclosing the specific rates or the range of rates that could apply.
    (2) Introductory rates. If the creditor discloses in the table an 
introductory rate, as that term is defined in Sec. 1026.16(g)(2)(ii), 
creditors must briefly

[[Page 556]]

disclose directly beneath the table the circumstances under which the 
introductory rate may be revoked, and the rate that will apply after the 
introductory rate is revoked.
    (3) Employee preferential rates. If a creditor discloses in the 
table a preferential annual percentage rate for which only employees of 
the creditor, employees of a third party, or other individuals with 
similar affiliations with the creditor or third party, such as executive 
officers, directors, or principal shareholders are eligible, the 
creditor must briefly disclose directly beneath the table the 
circumstances under which such preferential rate may be revoked, and the 
rate that will apply after such preferential rate is revoked.
    (E) Point of sale where APRs vary by state or based on 
creditworthiness. Creditors imposing annual percentage rates that vary 
by state or based on the consumer's creditworthiness and providing the 
disclosures required by paragraph (b) of this section in person at the 
time the open-end (not home-secured) plan is established in connection 
with financing the purchase of goods or services may, at the creditor's 
option, disclose pursuant to paragraph (b)(2)(i) of this section in the 
account-opening table:
    (1) The specific annual percentage rate applicable to the consumer's 
account; or
    (2) The range of the annual percentage rates, if the disclosure 
includes a statement that the annual percentage rate varies by state or 
will be determined based on the consumer's creditworthiness and refers 
the consumer to the account agreement or other disclosure provided with 
the account-opening table where the annual percentage rate applicable to 
the consumer's account is disclosed. A creditor may not list annual 
percentage rates for multiple states in the account-opening table.
    (F) Credit card accounts under an open-end (not home-secured) 
consumer credit plan. Notwithstanding paragraphs (b)(2)(i)(B) and 
(b)(2)(i)(C) of this section, for credit card accounts under an open-end 
(not home-secured) plan, issuers must disclose in the table:
    (1) Any introductory rate as that term is defined in Sec. 
1026.16(g)(2)(ii) that would apply to the account, consistent with the 
requirements of paragraph (b)(2)(i)(B) of this section, and
    (2) Any rate that would apply upon the expiration of a premium 
initial rate, consistent with the requirements of paragraph (b)(2)(i)(C) 
of this section.
    (ii) Fees for issuance or availability. (A) Any annual or other 
periodic fee that may be imposed for the issuance or availability of an 
open-end plan, including any fee based on account activity or 
inactivity; how frequently it will be imposed; and the annualized amount 
of the fee.
    (B) Any non-periodic fee that relates to opening the plan. A 
creditor must disclose that the fee is a one-time fee.
    (iii) Fixed finance charge; minimum interest charge. Any fixed 
finance charge and a brief description of the charge. Any minimum 
interest charge if it exceeds $1.00 that could be imposed during a 
billing cycle, and a brief description of the charge. The $1.00 
threshold amount shall be adjusted periodically by the Bureau to reflect 
changes in the Consumer Price Index. The Bureau shall calculate each 
year a price level adjusted minimum interest charge using the Consumer 
Price Index in effect on the June 1 of that year. When the cumulative 
change in the adjusted minimum value derived from applying the annual 
Consumer Price level to the current minimum interest charge threshold 
has risen by a whole dollar, the minimum interest charge will be 
increased by $1.00. The creditor may, at its option, disclose in the 
table minimum interest charges below this threshold.
    (iv) Transaction charges. Any transaction charge imposed by the 
creditor for use of the open-end plan for purchases.
    (v) Grace period. The date by which or the period within which any 
credit extended may be repaid without incurring a finance charge due to 
a periodic interest rate and any conditions on the availability of the 
grace period. If no grace period is provided, that fact must be 
disclosed. If the length of the grace period varies, the creditor may 
disclose the range of days, the minimum number of days, or the average 
number of the days in the grace period, if the disclosure is identified 
as a range, minimum, or average. In disclosing in the

[[Page 557]]

tabular format a grace period that applies to all features on the 
account, the phrase ``How to Avoid Paying Interest'' shall be used as 
the heading for the row describing the grace period. If a grace period 
is not offered on all features of the account, in disclosing this fact 
in the tabular format, the phrase ``Paying Interest'' shall be used as 
the heading for the row describing this fact.
    (vi) Balance computation method. The name of the balance computation 
method listed in Sec. 1026.60(g) that is used to determine the balance 
on which the finance charge is computed for each feature, or an 
explanation of the method used if it is not listed, along with a 
statement that an explanation of the method(s) required by paragraph 
(b)(4)(i)(D) of this section is provided with the account-opening 
disclosures. In determining which balance computation method to 
disclose, the creditor shall assume that credit extended will not be 
repaid within any grace period, if any.
    (vii) Cash advance fee. Any fee imposed for an extension of credit 
in the form of cash or its equivalent.
    (viii) Late payment fee. Any fee imposed for a late payment.
    (ix) Over-the-limit fee. Any fee imposed for exceeding a credit 
limit.
    (x) Balance transfer fee. Any fee imposed to transfer an outstanding 
balance.
    (xi) Returned-payment fee. Any fee imposed by the creditor for a 
returned payment.
    (xii) Required insurance, debt cancellation or debt suspension 
coverage. (A) A fee for insurance described in Sec. 1026.4(b)(7) or 
debt cancellation or suspension coverage described in Sec. 
1026.4(b)(10), if the insurance, or debt cancellation or suspension 
coverage is required as part of the plan; and
    (B) A cross reference to any additional information provided about 
the insurance or coverage, as applicable.
    (xiii) Available credit. If a creditor requires fees for the 
issuance or availability of credit described in paragraph (b)(2)(ii) of 
this section, or requires a security deposit for such credit, and the 
total amount of those required fees and/or security deposit that will be 
imposed and charged to the account when the account is opened is 15 
percent or more of the minimum credit limit for the plan, a creditor 
must disclose the available credit remaining after these fees or 
security deposit are debited to the account. The determination whether 
the 15 percent threshold is met must be based on the minimum credit 
limit for the plan. However, the disclosure provided under this 
paragraph must be based on the actual initial credit limit provided on 
the account. In determining whether the 15 percent threshold test is 
met, the creditor must only consider fees for issuance or availability 
of credit, or a security deposit, that are required. If fees for 
issuance or availability are optional, these fees should not be 
considered in determining whether the disclosure must be given. 
Nonetheless, if the 15 percent threshold test is met, the creditor in 
providing the disclosure must disclose the amount of available credit 
calculated by excluding those optional fees, and the available credit 
including those optional fees. The creditor shall also disclose that the 
consumer has the right to reject the plan and not be obligated to pay 
those fees or any other fee or charges until the consumer has used the 
account or made a payment on the account after receiving a periodic 
statement. This paragraph does not apply with respect to fees or 
security deposits that are not debited to the account.
    (xiv) Web site reference. For issuers of credit cards that are not 
charge cards, a reference to the Web site established by the Bureau and 
a statement that consumers may obtain on the Web site information about 
shopping for and using credit cards. Until January 1, 2013, issuers may 
substitute for this reference a reference to the Web site established by 
the Board of Governors of the Federal Reserve System.
    (xv) Billing error rights reference. A statement that information 
about consumers' right to dispute transactions is included in the 
account-opening disclosures.
    (3) Disclosure of charges imposed as part of open-end (not home-
secured) plans. A creditor shall disclose, to the extent applicable:
    (i) For charges imposed as part of an open-end (not home-secured) 
plan, the circumstances under which the charge

[[Page 558]]

may be imposed, including the amount of the charge or an explanation of 
how the charge is determined. For finance charges, a statement of when 
the charge begins to accrue and an explanation of whether or not any 
time period exists within which any credit that has been extended may be 
repaid without incurring the charge. If such a time period is provided, 
a creditor may, at its option and without disclosure, elect not to 
impose a finance charge when payment is received after the time period 
expires.
    (ii) Charges imposed as part of the plan are:
    (A) Finance charges identified under Sec. 1026.4(a) and Sec. 
1026.4(b).
    (B) Charges resulting from the consumer's failure to use the plan as 
agreed, except amounts payable for collection activity after default, 
attorney's fees whether or not automatically imposed, and post-judgment 
interest rates permitted by law.
    (C) Taxes imposed on the credit transaction by a state or other 
governmental body, such as documentary stamp taxes on cash advances.
    (D) Charges for which the payment, or nonpayment, affect the 
consumer's access to the plan, the duration of the plan, the amount of 
credit extended, the period for which credit is extended, or the timing 
or method of billing or payment.
    (E) Charges imposed for terminating a plan.
    (F) Charges for voluntary credit insurance, debt cancellation or 
debt suspension.
    (iii) Charges that are not imposed as part of the plan include:
    (A) Charges imposed on a cardholder by an institution other than the 
card issuer for the use of the other institution's ATM in a shared or 
interchange system.
    (B) A charge for a package of services that includes an open-end 
credit feature, if the fee is required whether or not the open-end 
credit feature is included and the non-credit services are not merely 
incidental to the credit feature.
    (C) Charges under Sec. 1026.4(e) disclosed as specified.
    (4) Disclosure of rates for open-end (not home-secured) plans. A 
creditor shall disclose, to the extent applicable:
    (i) For each periodic rate that may be used to calculate interest:
    (A) Rates. The rate, expressed as a periodic rate and a 
corresponding annual percentage rate.
    (B) Range of balances. The range of balances to which the rate is 
applicable; however, a creditor is not required to adjust the range of 
balances disclosure to reflect the balance below which only a minimum 
charge applies.
    (C) Type of transaction. The type of transaction to which the rate 
applies, if different rates apply to different types of transactions.
    (D) Balance computation method. An explanation of the method used to 
determine the balance to which the rate is applied.
    (ii) Variable-rate accounts. For interest rate changes that are tied 
to increases in an index or formula (variable-rate accounts) 
specifically set forth in the account agreement:
    (A) The fact that the annual percentage rate may increase.
    (B) How the rate is determined, including the margin.
    (C) The circumstances under which the rate may increase.
    (D) The frequency with which the rate may increase.
    (E) Any limitation on the amount the rate may change.
    (F) The effect(s) of an increase.
    (G) Except as specified in paragraph (b)(4)(ii)(H) of this section, 
a rate is accurate if it is a rate as of a specified date and this rate 
was in effect within the last 30 days before the disclosures are 
provided.
    (H) 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 paragraph (b) of this section in person at the 
time the open-end (not home-secured) plan is established in connection 
with financing the purchase of goods or services may disclose in the 
table a rate, or range of rates to the extent permitted by Sec. 
1026.6(b)(2)(i)(E), that was in effect within the last 90 days before 
the disclosures are provided, along with a reference directing

[[Page 559]]

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.
    (iii) Rate changes not due to index or formula. For interest rate 
changes that are specifically set forth in the account agreement and not 
tied to increases in an index or formula:
    (A) The initial rate (expressed as a periodic rate and a 
corresponding annual percentage rate) required under paragraph 
(b)(4)(i)(A) of this section.
    (B) How long the initial rate will remain in effect and the specific 
events that cause the initial rate to change.
    (C) The rate (expressed as a periodic rate and a corresponding 
annual percentage rate) that will apply when the initial rate is no 
longer in effect and any limitation on the time period the new rate will 
remain in effect.
    (D) The balances to which the new rate will apply.
    (E) The balances to which the current rate at the time of the change 
will apply.
    (5) Additional disclosures for open-end (not home-secured) plans. A 
creditor shall disclose, to the extent applicable:
    (i) Voluntary credit insurance, debt cancellation or debt 
suspension. The disclosures in Sec. Sec. 1026.4(d)(1)(i) and (d)(1)(ii) 
and (d)(3)(i) through (d)(3)(iii) if the creditor offers optional credit 
insurance or debt cancellation or debt suspension coverage that is 
identified in Sec. 1026.4(b)(7) or (b)(10).
    (ii) Security interests. The fact that the creditor has or will 
acquire a security interest in the property purchased under the plan, or 
in other property identified by item or type.
    (iii) Statement of billing rights. A statement that outlines the 
consumer's rights and the creditor's responsibilities under Sec. Sec. 
1026.12(c) and 1026.13 and that is substantially similar to the 
statement found in Model Form G-3(A) in appendix G to this part.



Sec. 1026.7  Periodic statement.

    The creditor shall furnish the consumer with a periodic statement 
that discloses the following items, to the extent applicable:
    (a) Rules affecting home-equity plans. The requirements of paragraph 
(a) of this section apply only to home-equity plans subject to the 
requirements of Sec. 1026.40. Alternatively, a creditor subject to this 
paragraph may, at its option, comply with any of the requirements of 
paragraph (b) of this section; however, any creditor that chooses not to 
provide a disclosure under paragraph (a)(7) of this section must comply 
with paragraph (b)(6) of this section.
    (1) Previous balance. The account balance outstanding at the 
beginning of the billing cycle.
    (2) Identification of transactions. An identification of each credit 
transaction in accordance with Sec. 1026.8.
    (3) Credits. Any credit to the account during the billing cycle, 
including the amount and the date of crediting. The date need not be 
provided if a delay in accounting does not result in any finance or 
other charge.
    (4) Periodic rates. (i) Except as provided in paragraph (a)(4)(ii) 
of this section, each periodic rate that may be used to compute the 
finance charge, the range of balances to which it is applicable, and the 
corresponding annual percentage rate. If no finance charge is imposed 
when the outstanding balance is less than a certain amount, the creditor 
is not required to disclose that fact, or the balance below which no 
finance charge will be imposed. If different periodic rates apply to 
different types of transactions, the types of transactions to which the 
periodic rates apply shall also be disclosed. For variable-rate plans, 
the fact that the periodic rate(s) may vary.
    (ii) Exception. An annual percentage rate that differs from the rate 
that would otherwise apply and is offered only for a promotional period 
need not be disclosed except in periods in which the offered rate is 
actually applied.
    (5) Balance on which finance charge computed. The amount of the 
balance to which a periodic rate was applied and an explanation of how 
that balance was determined. When a balance is determined without first 
deducting all credits and payments made during the billing cycle, the 
fact and the amount of the credits and payments shall be disclosed.

[[Page 560]]

    (6) Amount of finance charge and other charges. Creditors may comply 
with paragraphs (a)(6) of this section, or with paragraph (b)(6) of this 
section, at their option.
    (i) Finance charges. The amount of any finance charge debited or 
added to the account during the billing cycle, using the term finance 
charge. The components of the finance charge shall be individually 
itemized and identified to show the amount(s) due to the application of 
any periodic rates and the amounts(s) of any other type of finance 
charge. If there is more than one periodic rate, the amount of the 
finance charge attributable to each rate need not be separately itemized 
and identified.
    (ii) Other charges. The amounts, itemized and identified by type, of 
any charges other than finance charges debited to the account during the 
billing cycle.
    (7) Annual percentage rate. At a creditor's option, when a finance 
charge is imposed during the billing cycle, the annual percentage 
rate(s) determined under Sec. 1026.14(c) using the term annual 
percentage rate.
    (8) Grace period. The date by which or the time period within which 
the new balance or any portion of the new balance must be paid to avoid 
additional finance charges. If such a time period is provided, a 
creditor may, at its option and without disclosure, impose no finance 
charge if payment is received after the time period's expiration.
    (9) Address for notice of billing errors. The address to be used for 
notice of billing errors. Alternatively, the address may be provided on 
the billing rights statement permitted by Sec. 1026.9(a)(2).
    (10) Closing date of billing cycle; new balance. The closing date of 
the billing cycle and the account balance outstanding on that date.
    (b) Rules affecting open-end (not home-secured) plans. The 
requirements of paragraph (b) of this section apply only to plans other 
than home-equity plans subject to the requirements of Sec. 1026.40.
    (1) Previous balance. The account balance outstanding at the 
beginning of the billing cycle.
    (2) Identification of transactions. An identification of each credit 
transaction in accordance with Sec. 1026.8.
    (3) Credits. Any credit to the account during the billing cycle, 
including the amount and the date of crediting. The date need not be 
provided if a delay in crediting does not result in any finance or other 
charge.
    (4) Periodic rates. (i) Except as provided in paragraph (b)(4)(ii) 
of this section, each periodic rate that may be used to compute the 
interest charge expressed as an annual percentage rate and using the 
term Annual Percentage Rate, along with the range of balances to which 
it is applicable. If no interest charge is imposed when the outstanding 
balance is less than a certain amount, the creditor is not required to 
disclose that fact, or the balance below which no interest charge will 
be imposed. The types of transactions to which the periodic rates apply 
shall also be disclosed. For variable-rate plans, the fact that the 
annual percentage rate may vary.
    (ii) Exception. A promotional rate, as that term is defined in Sec. 
1026.16(g)(2)(i), is required to be disclosed only in periods in which 
the offered rate is actually applied.
    (5) Balance on which finance charge computed. The amount of the 
balance to which a periodic rate was applied and an explanation of how 
that balance was determined, using the term Balance Subject to Interest 
Rate. When a balance is determined without first deducting all credits 
and payments made during the billing cycle, the fact and the amount of 
the credits and payments shall be disclosed. As an alternative to 
providing an explanation of how the balance was determined, a creditor 
that uses a balance computation method identified in Sec. 1026.60(g) 
may, at the creditor's option, identify the name of the balance 
computation method and provide a toll-free telephone number where 
consumers may obtain from the creditor more information about the 
balance computation method and how resulting interest charges were 
determined. If the method used is not identified in Sec. 1026.60(g), 
the creditor shall provide a brief explanation of the method used.

[[Page 561]]

    (6) Charges imposed. (i) The amounts of any charges imposed as part 
of a plan as stated in Sec. 1026.6(b)(3), grouped together, in 
proximity to transactions identified under paragraph (b)(2) of this 
section, substantially similar to Sample G-18(A) in appendix G to this 
part.
    (ii) Interest. Finance charges attributable to periodic interest 
rates, using the term Interest Charge, must be grouped together under 
the heading Interest Charged, itemized and totaled by type of 
transaction, and a total of finance charges attributable to periodic 
interest rates, using the term Total Interest, must be disclosed for the 
statement period and calendar year to date, using a format substantially 
similar to Sample G-18(A) in appendix G to this part.
    (iii) Fees. Charges imposed as part of the plan other than charges 
attributable to periodic interest rates must be grouped together under 
the heading Fees, identified consistent with the feature or type, and 
itemized, and a total of charges, using the term Fees, must be disclosed 
for the statement period and calendar year to date, using a format 
substantially similar to Sample G-18(A) in appendix G to this part.
    (7) Change-in-terms and increased penalty rate summary for open-end 
(not home-secured) plans. Creditors that provide a change-in-terms 
notice required by Sec. 1026.9(c), or a rate increase notice required 
by Sec. 1026.9(g), on or with the periodic statement, must disclose the 
information in Sec. 1026.9(c)(2)(iv)(A) and (c)(2)(iv)(B) (if 
applicable) or Sec. 1026.9(g)(3)(i) on the periodic statement in 
accordance with the format requirements in Sec. 1026.9(c)(2)(iv)(D), 
and Sec. 1026.9(g)(3)(ii). See Forms G-18(F) and G-18(G) in appendix G 
to this part.
    (8) Grace period. The date by which or the time period within which 
the new balance or any portion of the new balance must be paid to avoid 
additional finance charges. If such a time period is provided, a 
creditor may, at its option and without disclosure, impose no finance 
charge if payment is received after the time period's expiration.
    (9) Address for notice of billing errors. The address to be used for 
notice of billing errors. Alternatively, the address may be provided on 
the billing rights statement permitted by Sec. 1026.9(a)(2).
    (10) Closing date of billing cycle; new balance. The closing date of 
the billing cycle and the account balance outstanding on that date. The 
new balance must be disclosed in accordance with the format requirements 
of paragraph (b)(13) of this section.
    (11) Due date; late payment costs. (i) Except as provided in 
paragraph (b)(11)(ii) of this section and in accordance with the format 
requirements in paragraph (b)(13) of this section, for a credit card 
account under an open-end (not home-secured) consumer credit plan, a 
card issuer must provide on each periodic statement:
    (A) The due date for a payment. The due date disclosed pursuant to 
this paragraph shall be the same day of the month for each billing 
cycle.
    (B) The amount of any late payment fee and any increased periodic 
rate(s) (expressed as an annual percentage rate(s)) that may be imposed 
on the account as a result of a late payment. If a range of late payment 
fees may be assessed, the card issuer may state the range of fees, or 
the highest fee and an indication that the fee imposed could be lower. 
If the rate may be increased for more than one feature or balance, the 
card issuer may state the range of rates or the highest rate that could 
apply and at the issuer's option an indication that the rate imposed 
could be lower.
    (ii) Exception. The requirements of paragraph (b)(11)(i) of this 
section do not apply to the following:
    (A) Periodic statements provided solely for charge card accounts; 
and
    (B) Periodic statements provided for a charged-off account where 
payment of the entire account balance is due immediately.
    (12) Repayment disclosures--(i) In general. Except as provided in 
paragraphs (b)(12)(ii) and (b)(12)(v) of this section, for a credit card 
account under an open-end (not home-secured) consumer credit plan, a 
card issuer must provide the following disclosures on each periodic 
statement:
    (A) The following statement with a bold heading: ``Minimum Payment 
Warning: If you make only the minimum payment each period, you will

[[Page 562]]

pay more in interest and it will take you longer to pay off your 
balance;''
    (B) The minimum payment repayment estimate, as described in appendix 
M1 to this part. If the minimum payment repayment estimate is less than 
2 years, the card issuer must disclose the estimate in months. 
Otherwise, the estimate must be disclosed in years and rounded to the 
nearest whole year;
    (C) The minimum payment total cost estimate, as described in 
appendix M1 to this part. The minimum payment total cost estimate must 
be rounded either to the nearest whole dollar or to the nearest cent, at 
the card issuer's option;
    (D) A statement that the minimum payment repayment estimate and the 
minimum payment total cost estimate are based on the current outstanding 
balance shown on the periodic statement. A statement that the minimum 
payment repayment estimate and the minimum payment total cost estimate 
are based on the assumption that only minimum payments are made and no 
other amounts are added to the balance;
    (E) A toll-free telephone number where the consumer may obtain from 
the card issuer information about credit counseling services consistent 
with paragraph (b)(12)(iv) of this section; and
    (F)(1) Except as provided in paragraph (b)(12)(i)(F)(2) of this 
section, the following disclosures:
    (i) The estimated monthly payment for repayment in 36 months, as 
described in appendix M1 to this part. The estimated monthly payment for 
repayment in 36 months must be rounded either to the nearest whole 
dollar or to the nearest cent, at the card issuer's option;
    (ii) 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;
    (iii) The total cost estimate for repayment in 36 months, as 
described in appendix M1 to this part. The total cost estimate for 
repayment in 36 months must be rounded either to the nearest whole 
dollar or to the nearest cent, at the card issuer's option; and
    (iv) The savings estimate for repayment in 36 months, as described 
in appendix M1 to this part. The savings estimate for repayment in 36 
months must be rounded either to the nearest whole dollar or to the 
nearest cent, at the card issuer's option.
    (2) The requirements of paragraph (b)(12)(i)(F)(1) of this section 
do not apply to a periodic statement in any of the following 
circumstances:
    (i) The minimum payment repayment estimate that is disclosed on the 
periodic statement pursuant to paragraph (b)(12)(i)(B) of this section 
after rounding is three years or less;
    (ii) The estimated monthly payment for repayment in 36 months, as 
described in appendix M1 to this part, after rounding as set forth in 
paragraph (b)(12)(i)(F)(1)(i) of this section that is calculated for a 
particular billing cycle is less than the minimum payment required for 
the plan for that billing cycle; and
    (iii) 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.
    (ii) Negative or no amortization. If negative or no amortization 
occurs when calculating the minimum payment repayment estimate as 
described in appendix M1 of this part, a card issuer must provide the 
following disclosures on the periodic statement instead of the 
disclosures set forth in paragraph (b)(12)(i) of this section:
    (A) The following statement: ``Minimum Payment Warning: Even if you 
make no more charges using this card, if you make only the minimum 
payment each month we estimate you will never pay off the balance shown 
on this statement because your payment will be less than the interest 
charged each month'';

[[Page 563]]

    (B) The following statement: ``If you make more than the minimum 
payment each period, you will pay less in interest and pay off your 
balance sooner'';
    (C) The estimated monthly payment for repayment in 36 months, as 
described in appendix M1 to this part. The estimated monthly payment for 
repayment in 36 months must be rounded either to the nearest whole 
dollar or to the nearest cent, at the issuer's option;
    (D) A statement that the card issuer estimates that the consumer 
will repay the outstanding balance shown on the periodic statement in 3 
years if the consumer pays the estimated monthly payment each month for 
3 years; and
    (E) A toll-free telephone number where the consumer may obtain from 
the card issuer information about credit counseling services consistent 
with paragraph (b)(12)(iv) of this section.
    (iii) Format requirements. A card issuer must provide the 
disclosures required by paragraph (b)(12)(i) or (b)(12)(ii) of this 
section in accordance with the format requirements of paragraph (b)(13) 
of this section, and in a format substantially similar to Samples G-
18(C)(1), G-18(C)(2) and G-18(C)(3) in Appendix G to this part, as 
applicable.
    (iv) Provision of information about credit counseling services--(A) 
Required information. To the extent available from the United States 
Trustee or a bankruptcy administrator, a card issuer must provide 
through the toll-free telephone number disclosed pursuant to paragraphs 
(b)(12)(i) or (b)(12)(ii) of this section 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, at the card issuer's option, either the state in 
which the billing address for the account is located or the state 
specified by the consumer.
    (B) Updating required information. At least annually, a card issuer 
must update the information provided pursuant to paragraph 
(b)(12)(iv)(A) of this section for consistency with the information 
available from the United States Trustee or a bankruptcy administrator.
    (v) Exemptions. Paragraph (b)(12) of this section does not apply to:
    (A) Charge card accounts that require payment of outstanding 
balances in full at the end of each billing cycle;
    (B) A billing cycle immediately following two consecutive billing 
cycles in which the consumer paid the entire balance in full, had a zero 
outstanding balance or had a credit balance; and
    (C) A billing cycle where paying the minimum payment due for that 
billing cycle will pay the entire outstanding balance on the account for 
that billing cycle.
    (13) Format requirements. The due date required by paragraph (b)(11) 
of this section shall be disclosed on the front of the first page of the 
periodic statement. The amount of the late payment fee and the annual 
percentage rate(s) required by paragraph (b)(11) of this section shall 
be stated in close proximity to the due date. The ending balance 
required by paragraph (b)(10) of this section and the disclosures 
required by paragraph (b)(12) of this section shall be disclosed closely 
proximate to the minimum payment due. The due date, late payment fee and 
annual percentage rate, ending balance, minimum payment due, and 
disclosures required by paragraph (b)(12) of this section shall be 
grouped together. Sample G-18(D) in appendix G to this part sets forth 
an example of how these terms may be grouped.
    (14) Deferred interest or similar transactions. For accounts with an 
outstanding balance subject to a deferred interest or similar program, 
the date by which that outstanding balance must be paid in full in order 
to avoid the obligation to pay finance charges on such balance must be 
disclosed on the front of any page of each periodic statement issued 
during the deferred interest period beginning with the first periodic 
statement issued during the deferred interest period that reflects the 
deferred interest or similar transaction. The disclosure provided 
pursuant to this paragraph must be substantially similar to Sample G-
18(H) in appendix G to this part.

[[Page 564]]



Sec. 1026.8  Identifying transactions on periodic statements.

    The creditor shall identify credit transactions on or with the first 
periodic statement that reflects the transaction by furnishing the 
following information, as applicable:
    (a) Sale credit. (1) Except as provided in paragraph (a)(2) of this 
section, for each credit transaction involving the sale of property or 
services, the creditor must disclose the amount and date of the 
transaction, and either:
    (i) A brief identification of the property or services purchased, 
for creditors and sellers that are the same or related; or
    (ii) The seller's name; and the city and state or foreign country 
where the transaction took place. The creditor may omit the address or 
provide any suitable designation that helps the consumer to identify the 
transaction when the transaction took place at a location that is not 
fixed; took place in the consumer's home; or was a mail, Internet, or 
telephone order.
    (2) Creditors need not comply with paragraph (a)(1) of this section 
if an actual copy of the receipt or other credit document is provided 
with the first periodic statement reflecting the transaction, and the 
amount of the transaction and either the date of the transaction to the 
consumer's account or the date of debiting the transaction are disclosed 
on the copy or on the periodic statement.
    (b) Nonsale credit. For each credit transaction not involving the 
sale of property or services, the creditor must disclose a brief 
identification of the transaction; the amount of the transaction; and at 
least one of the following dates: The date of the transaction, the date 
the transaction was debited to the consumer's account, or, if the 
consumer signed the credit document, the date appearing on the document. 
If an actual copy of the receipt or other credit document is provided 
and that copy shows the amount and at least one of the specified dates, 
the brief identification may be omitted.
    (c) Alternative creditor procedures; consumer inquiries for 
clarification or documentation. The following procedures apply to 
creditors that treat an inquiry for clarification or documentation as a 
notice of a billing error, including correcting the account in 
accordance with Sec. 1026.13(e):
    (1) Failure to disclose the information required by paragraphs (a) 
and (b) of this section is not a failure to comply with the regulation, 
provided that the creditor also maintains procedures reasonably designed 
to obtain and provide the information. This applies to transactions that 
take place outside a state, as defined in Sec. 1026.2(a)(26), whether 
or not the creditor maintains procedures reasonably adapted to obtain 
the required information.
    (2) As an alternative to the brief identification for sale or 
nonsale credit, the creditor may disclose a number or symbol that also 
appears on the receipt or other credit document given to the consumer, 
if the number or symbol reasonably identifies that transaction with that 
creditor.



Sec. 1026.9  Subsequent disclosure requirements.

    (a) Furnishing statement of billing rights--(1) Annual statement. 
The creditor shall mail or deliver the billing rights statement required 
by Sec. 1026.6(a)(5) and (b)(5)(iii) at least once per calendar year, 
at intervals of not less than 6 months nor more than 18 months, either 
to all consumers or to each consumer entitled to receive a periodic 
statement under Sec. 1026.5(b)(2) for any one billing cycle.
    (2) Alternative summary statement. As an alternative to paragraph 
(a)(1) of this section, the creditor may mail or deliver, on or with 
each periodic statement, a statement substantially similar to Model Form 
G-4 or Model Form G-4(A) in appendix G to this part, as applicable. 
Creditors offering home-equity plans subject to the requirements of 
Sec. 1026.40 may use either Model Form, at their option.
    (b) Disclosures for supplemental credit access devices and 
additional features. (1) If a creditor, within 30 days after mailing or 
delivering the account-opening disclosures under Sec. 1026.6(a)(1) or 
(b)(3)(ii)(A), as applicable, adds a credit feature to the consumer's 
account or mails or delivers to the consumer a credit access device, 
including but not limited to checks that access a credit card account, 
for which the finance

[[Page 565]]

charge terms are the same as those previously disclosed, no additional 
disclosures are necessary. Except as provided in paragraph (b)(3) of 
this section, after 30 days, if the creditor adds a credit feature or 
furnishes a credit access device (other than as a renewal, resupply, or 
the original issuance of a credit card) on the same finance charge 
terms, the creditor shall disclose, before the consumer uses the feature 
or device for the first time, that it is for use in obtaining credit 
under the terms previously disclosed.
    (2) Except as provided in paragraph (b)(3) of this section, whenever 
a credit feature is added or a credit access device is mailed or 
delivered to the consumer, and the finance charge terms for the feature 
or device differ from disclosures previously given, the disclosures 
required by Sec. 1026.6(a)(1) or (b)(3)(ii)(A), as applicable, that are 
applicable to the added feature or device shall be given before the 
consumer uses the feature or device for the first time.
    (3) Checks that access a credit card account--(i) Disclosures. For 
open-end plans not subject to the requirements of Sec. 1026.40, if 
checks that can be used to access a credit card account are provided 
more than 30 days after account-opening disclosures under Sec. 
1026.6(b) are mailed or delivered, or are provided within 30 days of the 
account-opening disclosures and the finance charge terms for the checks 
differ from the finance charge terms previously disclosed, the creditor 
shall disclose on the front of the page containing the checks the 
following terms in the form of a table with the headings, content, and 
form substantially similar to Sample G-19 in appendix G to this part:
    (A) If a promotional rate, as that term is defined in Sec. 
1026.16(g)(2)(i) applies to the checks:
    (1) The promotional rate and the time period during which the 
promotional rate will remain in effect;
    (2) The type of rate that will apply (such as whether the purchase 
or cash advance rate applies) after the promotional rate expires, and 
the annual percentage rate that will apply after the promotional rate 
expires. For a variable-rate account, a creditor must disclose an annual 
percentage rate based on the applicable index or formula in accordance 
with the accuracy requirements set forth in paragraph (b)(3)(ii) of this 
section; and
    (3) The date, if any, by which the consumer must use the checks in 
order to qualify for the promotional rate. If the creditor will honor 
checks used after such date but will apply an annual percentage rate 
other than the promotional rate, the creditor must disclose this fact 
and the type of annual percentage rate that will apply if the consumer 
uses the checks after such date.
    (B) If no promotional rate applies to the checks:
    (1) The type of rate that will apply to the checks and the 
applicable annual percentage rate. For a variable-rate account, a 
creditor must disclose an annual percentage rate based on the applicable 
index or formula in accordance with the accuracy requirements set forth 
in paragraph (b)(3)(ii) of this section.
    (2) [Reserved]
    (C) Any transaction fees applicable to the checks disclosed under 
Sec. 1026.6(b)(2)(iv); and
    (D) Whether or not a grace period is given within which any credit 
extended by use of the checks may be repaid without incurring a finance 
charge due to a periodic interest rate. When disclosing whether there is 
a grace period, the phrase ``How to Avoid Paying Interest on Check 
Transactions'' shall be used as the row heading when a grace period 
applies to credit extended by the use of the checks. When disclosing the 
fact that no grace period exists for credit extended by use of the 
checks, the phrase ``Paying Interest'' shall be used as the row heading.
    (ii) Accuracy. The disclosures in paragraph (b)(3)(i) of this 
section must be accurate as of the time the disclosures are mailed or 
delivered. A variable annual percentage rate is accurate if it was in 
effect within 60 days of when the disclosures are mailed or delivered.
    (iii) Variable rates. If any annual percentage rate required to be 
disclosed pursuant to paragraph (b)(3)(i) of this section is a variable 
rate, the card issuer shall also disclose the fact that the rate may 
vary and how the rate is determined. In describing how the applicable 
rate will be determined, the

[[Page 566]]

card issuer must identify the type of index or formula that is used in 
setting the rate. The value of the index and the amount of the margin 
that are used to calculate the variable rate shall not be disclosed in 
the table. A disclosure of any applicable limitations on rate increases 
shall not be included in the table.
    (c) Change in terms--(1) Rules affecting home-equity plans--(i) 
Written notice required. For home-equity plans subject to the 
requirements of Sec. 1026.40, whenever any term required to be 
disclosed under Sec. 1026.6(a) is changed or the required minimum 
periodic payment is increased, the creditor shall mail or deliver 
written notice of the change to each consumer who may be affected. The 
notice shall be mailed or delivered at least 15 days prior to the 
effective date of the change. The 15-day timing requirement does not 
apply if the change has been agreed to by the consumer; the notice shall 
be given, however, before the effective date of the change.
    (ii) Notice not required. For home-equity plans subject to the 
requirements of Sec. 1026.40, a creditor is not required to provide 
notice under this section when the change involves a reduction of any 
component of a finance or other charge or when the change results from 
an agreement involving a court proceeding.
    (iii) Notice to restrict credit. For home-equity plans subject to 
the requirements of Sec. 1026.40, if the creditor prohibits additional 
extensions of credit or reduces the credit limit pursuant to Sec. 
1026.40(f)(3)(i) or (f)(3)(vi), the creditor shall mail or deliver 
written notice of the action to each consumer who will be affected. The 
notice must be provided not later than three business days after the 
action is taken and shall contain specific reasons for the action. If 
the creditor requires the consumer to request reinstatement of credit 
privileges, the notice also shall state that fact.
    (2) Rules affecting open-end (not home-secured) plans--(i) Changes 
where written advance notice is required--(A) General. For plans other 
than home-equity plans subject to the requirements of Sec. 1026.40, 
except as provided in paragraphs (c)(2)(i)(B), (c)(2)(iii) and (c)(2)(v) 
of this section, when a significant change in account terms as described 
in paragraph (c)(2)(ii) of this section is made, a creditor must provide 
a written notice of the change at least 45 days prior to the effective 
date of the change to each consumer who may be affected. The 45-day 
timing requirement does not apply if the consumer has agreed to a 
particular change as described in paragraph (c)(2)(i)(B) of this 
section; for such changes, notice must be given in accordance with the 
timing requirements of paragraph (c)(2)(i)(B) of this section. Increases 
in the rate applicable to a consumer's account due to delinquency, 
default or as a penalty described in paragraph (g) of this section that 
are not due to a change in the contractual terms of the consumer's 
account must be disclosed pursuant to paragraph (g) of this section 
instead of paragraph (c)(2) of this section.
    (B) Changes agreed to by the consumer. A notice of change in terms 
is required, but it may be mailed or delivered as late as the effective 
date of the change if the consumer agrees to the particular change. This 
paragraph (c)(2)(i)(B) applies only when a consumer substitutes 
collateral or when the creditor can advance additional credit only if a 
change relatively unique to that consumer is made, such as the 
consumer's providing additional security or paying an increased minimum 
payment amount. The following are not considered agreements between the 
consumer and the creditor for purposes of this paragraph (c)(2)(i)(B): 
The consumer's general acceptance of the creditor's contract reservation 
of the right to change terms; the consumer's use of the account (which 
might imply acceptance of its terms under state law); the consumer's 
acceptance of a unilateral term change that is not particular to that 
consumer, but rather is of general applicability to consumers with that 
type of account; and the 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.
    (ii) Significant changes in account terms. For purposes of this 
section, a ``significant change in account terms''

[[Page 567]]

means a change to a term required to be disclosed under Sec. 
1026.6(b)(1) and (b)(2), an increase in the required minimum periodic 
payment, a change to a term required to be disclosed under Sec. 
1026.6(b)(4), or the acquisition of a security interest.
    (iii) Charges not covered by Sec. 1026.6(b)(1) and (b)(2). Except 
as provided in paragraph (c)(2)(vi) of this section, if a creditor 
increases any component of a charge, or introduces a new charge, 
required to be disclosed under Sec. 1026.6(b)(3) that is not a 
significant change in account terms as described in paragraph (c)(2)(ii) 
of this section, a creditor must either, at its option:
    (A) Comply with the requirements of paragraph (c)(2)(i) of this 
section; or
    (B) Provide notice of the amount of the charge before the consumer 
agrees to or becomes obligated to pay the charge, at a time and in a 
manner that a consumer would be likely to notice the disclosure of the 
charge. The notice may be provided orally or in writing.
    (iv) Disclosure requirements--(A) Significant changes in account 
terms. If a creditor makes a significant change in account terms as 
described in paragraph (c)(2)(ii) of this section, the notice provided 
pursuant to paragraph (c)(2)(i) of this section must provide the 
following information:
    (1) A summary of the changes made to terms required by Sec. 
1026.6(b)(1) and (b)(2) or Sec. 1026.6(b)(4), a description of any 
increase in the required minimum periodic payment, and a description of 
any security interest being acquired by the creditor;
    (2) A statement that changes are being made to the account;
    (3) For accounts other than credit card accounts under an open-end 
(not home-secured) consumer credit plan subject to Sec. 
1026.9(c)(2)(iv)(B), a statement indicating the consumer has the right 
to opt out of these changes, if applicable, and a reference to 
additional information describing the opt-out right provided in the 
notice, if applicable;
    (4) The date the changes will become effective;
    (5) If applicable, a statement that the consumer may find additional 
information about the summarized changes, and other changes to the 
account, in the notice;
    (6) If the creditor is changing a rate on the account, other than a 
penalty rate, a statement that if a penalty rate currently applies to 
the consumer's account, the new rate described in the notice will not 
apply to the consumer's account until the consumer's account balances 
are no longer subject to the penalty rate;
    (7) If the change in terms being disclosed is an increase in an 
annual percentage rate, the balances to which the increased rate will be 
applied. If applicable, a statement identifying the balances to which 
the current rate will continue to apply as of the effective date of the 
change in terms; and
    (8) If the change in terms being disclosed is an increase in an 
annual percentage rate for a credit card account under an open-end (not 
home-secured) consumer credit plan, a statement of no more than four 
principal reasons for the rate increase, listed in their order of 
importance.
    (B) Right to reject for credit card accounts under an open-end (not 
home-secured) consumer credit plan. In addition to the disclosures in 
paragraph (c)(2)(iv)(A) of this section, if a card issuer makes a 
significant change in account terms on a credit card account under an 
open-end (not home-secured) consumer credit plan, the creditor must 
generally provide the following information on the notice provided 
pursuant to paragraph (c)(2)(i) of this section. This information is not 
required to be provided in the case of an increase in the required 
minimum periodic payment, an increase in a fee as a result of a 
reevaluation of a determination made under Sec. 1026.52(b)(1)(i) or an 
adjustment to the safe harbors in Sec. 1026.52(b)(1)(ii) to reflect 
changes in the Consumer Price Index, a change in an annual percentage 
rate applicable to a consumer's account, an increase in a fee previously 
reduced consistent with 50 U.S.C. app. 527 or a similar Federal or state 
statute or regulation if the amount of the increased fee does not exceed 
the amount of that fee prior to the reduction, or when the change 
results from the creditor not receiving the consumer's required minimum

[[Page 568]]

periodic payment within 60 days after the due date for that payment:
    (1) A statement that the consumer has the right to reject the change 
or changes prior to the effective date of the changes, unless the 
consumer fails to make a required minimum periodic payment within 60 
days after the due date for that payment;
    (2) Instructions for rejecting the change or changes, and a toll-
free telephone number that the consumer may use to notify the creditor 
of the rejection; and
    (3) If applicable, a statement that if the consumer rejects the 
change or changes, the consumer's ability to use the account for further 
advances will be terminated or suspended.
    (C) Changes resulting from failure to make minimum periodic payment 
within 60 days from due date for credit card accounts under an open-end 
(not home-secured) consumer credit plan. For a credit card account under 
an open-end (not home-secured) consumer credit plan:
    (1) If the significant change required to be disclosed pursuant to 
paragraph (c)(2)(i) of this section is an increase in an annual 
percentage rate or a fee or charge required to be disclosed under Sec. 
1026.6(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, the notice provided pursuant to paragraph 
(c)(2)(i) of this section must state that the increase will cease to 
apply 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.
    (2) If the significant change required to be disclosed pursuant to 
paragraph (c)(2)(i) of this section is an increase in a fee or charge 
required to be disclosed under Sec. 1026.6(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, the notice 
provided pursuant to paragraph (c)(2)(i) of this section must also state 
the reason for the increase.
    (D) Format requirements--(1) Tabular format. The summary of changes 
described in paragraph (c)(2)(iv)(A)(1) of this section must be in a 
tabular format (except for a summary of any increase in the required 
minimum periodic payment, a summary of a term required to be disclosed 
under Sec. 1026.6(b)(4) that is not required to be disclosed under 
Sec. 1026.6(b)(1) and (b)(2), or a description of any security interest 
being acquired by the creditor), with headings and format substantially 
similar to any of the account-opening tables found in G-17 in appendix G 
to this part. The table must disclose the changed term and information 
relevant to the change, if that relevant information is required by 
Sec. 1026.6(b)(1) and (b)(2). The new terms shall be described in the 
same level of detail as required when disclosing the terms under Sec. 
1026.6(b)(2).
    (2) Notice included with periodic statement. If a notice required by 
paragraph (c)(2)(i) of this section is included on or with a periodic 
statement, the information described in paragraph (c)(2)(iv)(A)(1) of 
this section must be disclosed on the front of any page of the 
statement. The summary of changes described in paragraph 
(c)(2)(iv)(A)(1) of this section must immediately follow the information 
described in paragraph (c)(2)(iv)(A)(2) through (c)(2)(iv)(A)(7) and, if 
applicable, paragraphs (c)(2)(iv)(A)(8), (c)(2)(iv)(B), and 
(c)(2)(iv)(C) of this section, and be substantially similar to the 
format shown in Sample G-20 or G-21 in appendix G to this part.
    (3) Notice provided separately from periodic statement. If a notice 
required by paragraph (c)(2)(i) of this section is not included on or 
with a periodic statement, the information described in paragraph 
(c)(2)(iv)(A)(1) of this section must, at the creditor's option, be 
disclosed on the front of the first page of the notice or segregated on 
a separate page from other information given with the notice. The 
summary of changes required to be in a table pursuant to paragraph 
(c)(2)(iv)(A)(1) of this section may be on more than one page, and may 
use both the front and reverse sides, so long as the table begins on the 
front of the first page of the notice and

[[Page 569]]

there is a reference on the first page indicating that the table 
continues on the following page. The summary of changes described in 
paragraph (c)(2)(iv)(A)(1) of this section must immediately follow the 
information described in paragraph (c)(2)(iv)(A)(2) through 
(c)(2)(iv)(A)(7) and, if applicable, paragraphs (c)(2)(iv)(A)(8), 
(c)(2)(iv)(B), and (c)(2)(iv)(C), of this section, substantially similar 
to the format shown in Sample G-20 or G-21 in appendix G to this part.
    (v) Notice not required. For open-end plans (other than home equity 
plans subject to the requirements of Sec. 1026.40) a creditor is not 
required to provide notice under this section:
    (A) When the change involves charges for documentary evidence; a 
reduction of any component of a finance or other charge; suspension of 
future credit privileges (except as provided in paragraph (c)(2)(vi) of 
this section) or termination of an account or plan; when the change 
results from an agreement involving a court proceeding; when the change 
is an extension of the grace period; or if the change is applicable only 
to checks that access a credit card account and the changed terms are 
disclosed on or with the checks in accordance with paragraph (b)(3) of 
this section;
    (B) When the change is an increase in an annual percentage rate or 
fee upon the expiration of a specified period of time, provided that:
    (1) Prior to commencement of that period, the creditor disclosed in 
writing to the consumer, in a clear and conspicuous manner, the length 
of the period and the annual percentage rate or fee that would apply 
after expiration of the period;
    (2) The disclosure of the length of the period and the annual 
percentage rate or fee that would apply after expiration of the period 
are set forth in close proximity and in equal prominence to the first 
listing of the disclosure of the rate or fee that applies during the 
specified period of time; and
    (3) The annual percentage rate or fee that applies after that period 
does not exceed the rate or fee disclosed pursuant to paragraph 
(c)(2)(v)(B)(1) of this paragraph or, if the rate disclosed pursuant to 
paragraph (c)(2)(v)(B)(1) of this section was a variable rate, the rate 
following any such increase is a variable rate determined by the same 
formula (index and margin) that was used to calculate the variable rate 
disclosed pursuant to paragraph (c)(2)(v)(B)(1);
    (C) When the change is an increase in a variable annual percentage 
rate in accordance with a credit card or other account agreement that 
provides for changes in the rate according to operation of an index that 
is not under the control of the creditor and is available to the general 
public; or
    (D) When the change is an increase in an annual percentage rate, a 
fee or charge required to be disclosed under Sec. 1026.6(b)(2)(ii), 
(b)(2)(iii), (b)(2)(viii), (b)(2)(ix), (b)(2)(ix) or (b)(2)(xii), or the 
required minimum periodic payment due to the completion of a workout or 
temporary hardship arrangement by the consumer or the consumer's failure 
to comply with the terms of such an arrangement, provided that:
    (1) The annual percentage rate or fee or charge applicable to a 
category of transactions or the required minimum periodic payment 
following any such increase does not exceed the rate or fee or charge or 
required minimum periodic payment that applied to that category of 
transactions prior to commencement of the arrangement or, if the rate 
that applied to a category of transactions prior to the commencement of 
the workout or temporary hardship arrangement was a variable rate, the 
rate following any such increase is a variable rate determined by the 
same formula (index and margin) that applied to the category of 
transactions prior to commencement of the workout or temporary hardship 
arrangement; and
    (2) The creditor has provided the consumer, prior to the 
commencement of such arrangement, with a clear and conspicuous 
disclosure of the terms of the arrangement (including any increases due 
to such completion or failure). This disclosure must generally be 
provided in writing. However, a creditor may provide the disclosure of 
the terms of the arrangement orally by telephone, provided that the 
creditor mails or delivers a written disclosure of the terms of the 
arrangement to the

[[Page 570]]

consumer as soon as reasonably practicable after the oral disclosure is 
provided.
    (vi) Reduction of the credit limit. For open-end plans that are not 
subject to the requirements of Sec. 1026.40, if a creditor decreases 
the credit limit on an account, advance notice of the decrease must be 
provided before an over-the-limit fee or a penalty rate can be imposed 
solely as a result of the consumer exceeding the newly decreased credit 
limit. Notice shall be provided in writing or orally at least 45 days 
prior to imposing the over-the-limit fee or penalty rate and shall state 
that the credit limit on the account has been or will be decreased.
    (d) Finance charge imposed at time of transaction. (1) Any person, 
other than the card issuer, who imposes a finance charge at the time of 
honoring a consumer's credit card, shall disclose the amount of that 
finance charge prior to its imposition.
    (2) The card issuer, other than the person honoring the consumer's 
credit card, shall have no responsibility for the disclosure required by 
paragraph (d)(1) of this section, and shall not consider any such charge 
for the purposes of Sec. Sec. 1026.60, 1026.6 and 1026.7.
    (e) Disclosures upon renewal of credit or charge card--(1) Notice 
prior to renewal. A card issuer that imposes any annual or other 
periodic fee to renew a credit or charge card account of the type 
subject to Sec. 1026.60, including any fee based on account activity or 
inactivity or any card issuer that has changed or amended any term of a 
cardholder's account required to be disclosed under Sec. 1026.6(b)(1) 
and (b)(2) that has not previously been disclosed to the consumer, shall 
mail or deliver written notice of the renewal to the cardholder. If the 
card issuer imposes any annual or other periodic fee for renewal, the 
notice shall be provided at least 30 days or one billing cycle, 
whichever is less, before the mailing or the delivery of the periodic 
statement on which any renewal fee is initially charged to the account. 
If the card issuer has changed or amended any term required to be 
disclosed under Sec. 1026.6(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. The notice shall contain 
the following information:
    (i) The disclosures contained in Sec. 1026.60(b)(1) through (b)(7) 
that would apply if the account were renewed; and
    (ii) How and when the cardholder may terminate credit availability 
under the account to avoid paying the renewal fee, if applicable.
    (2) Notification on periodic statements. The disclosures required by 
this paragraph may be made on or with a periodic statement. If any of 
the disclosures are provided on the back of a periodic statement, the 
card issuer shall include a reference to those disclosures on the front 
of the statement.
    (f) Change in credit card account insurance provider--(1) Notice 
prior to change. If a credit card issuer plans to change the provider of 
insurance for repayment of all or part of the outstanding balance of an 
open-end credit card account of the type subject to Sec. 1026.60, the 
card issuer shall mail or deliver to the cardholder written notice of 
the change not less than 30 days before the change in provider occurs. 
The notice shall also include the following items, to the extent 
applicable:
    (i) Any increase in the rate that will result from the change;
    (ii) Any substantial decrease in coverage that will result from the 
change; and
    (iii) A statement that the cardholder may discontinue the insurance.
    (2) Notice when change in provider occurs. If a change described in 
paragraph (f)(1) of this section occurs, the card issuer shall provide 
the cardholder with a written notice no later than 30 days after the 
change, including the following items, to the extent applicable:
    (i) The name and address of the new insurance provider;
    (ii) A copy of the new policy or group certificate containing the 
basic terms of the insurance, including the rate to be charged; and
    (iii) A statement that the cardholder may discontinue the insurance.

[[Page 571]]

    (3) Substantial decrease in coverage. For purposes of this 
paragraph, a substantial decrease in coverage is a decrease in a 
significant term of coverage that might reasonably be expected to affect 
the cardholder's decision to continue the insurance. Significant terms 
of coverage include, for example, the following:
    (i) Type of coverage provided;
    (ii) Age at which coverage terminates or becomes more restrictive;
    (iii) Maximum insurable loan balance, maximum periodic benefit 
payment, maximum number of payments, or other term affecting the dollar 
amount of coverage or benefits provided;
    (iv) Eligibility requirements and number and identity of persons 
covered;
    (v) Definition of a key term of coverage such as disability;
    (vi) Exclusions from or limitations on coverage; and
    (vii) Waiting periods and whether coverage is retroactive.
    (4) Combined notification. The notices required by paragraph (f)(1) 
and (2) of this section may be combined provided the timing requirement 
of paragraph (f)(1) of this section is met. The notices may be provided 
on or with a periodic statement.
    (g) Increase in rates due to delinquency or default or as a 
penalty--(1) Increases subject to this section. For plans other than 
home-equity plans subject to the requirements of Sec. 1026.40, except 
as provided in paragraph (g)(4) of this section, a creditor must provide 
a written notice to each consumer who may be affected when:
    (i) A rate is increased due to the consumer's delinquency or 
default; or
    (ii) A rate is increased as a penalty for one or more events 
specified in the account agreement, such as making a late payment or 
obtaining an extension of credit that exceeds the credit limit.
    (2) Timing of written notice. Whenever any notice is required to be 
given pursuant to paragraph (g)(1) of this section, the creditor shall 
provide written notice of the increase in rates at least 45 days prior 
to the effective date of the increase. The notice must be provided after 
the occurrence of the events described in paragraphs (g)(1)(i) and 
(g)(1)(ii) of this section that trigger the imposition of the rate 
increase.
    (3)(i) Disclosure requirements for rate increases--(A) General. If a 
creditor is increasing the rate due to delinquency or default or as a 
penalty, the creditor must provide the following information on the 
notice sent pursuant to paragraph (g)(1) of this section:
    (1) A statement that the delinquency or default rate or penalty 
rate, as applicable, has been triggered;
    (2) The date on which the delinquency or default rate or penalty 
rate will apply;
    (3) The circumstances under which the delinquency or default rate or 
penalty rate, as applicable, will cease to apply to the consumer's 
account, or that the delinquency or default rate or penalty rate will 
remain in effect for a potentially indefinite time period;
    (4) A statement indicating to which balances the delinquency or 
default rate or penalty rate will be applied;
    (5) If applicable, a description of any balances to which the 
current rate will continue to apply as of the effective date of the rate 
increase, unless a consumer fails to make a minimum periodic payment 
within 60 days from the due date for that payment; and
    (6) For a credit card account under an open-end (not home-secured) 
consumer credit plan, a statement of no more than four principal reasons 
for the rate increase, listed in their order of importance.
    (B) Rate increases resulting from failure to make minimum periodic 
payment within 60 days from due date. For a credit card account under an 
open-end (not home-secured) consumer credit plan, if the rate increase 
required to be disclosed pursuant to paragraph (g)(1) of this section is 
an increase pursuant to Sec. 1026.55(b)(4) based on the consumer's 
failure to make a minimum periodic payment within 60 days from the due 
date for that payment, the notice provided pursuant to paragraph (g)(1) 
of this section must also state that the increase will cease to apply 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

[[Page 572]]

on or before the payment due date, beginning with the first payment due 
following the effective date of the increase.
    (ii) Format requirements. (A) If a notice required by paragraph 
(g)(1) of this section is included on or with a periodic statement, the 
information described in paragraph (g)(3)(i) of this section must be in 
the form of a table and provided on the front of any page of the 
periodic statement, above the notice described in paragraph (c)(2)(iv) 
of this section if that notice is provided on the same statement.
    (B) If a notice required by paragraph (g)(1) of this section is not 
included on or with a periodic statement, the information described in 
paragraph (g)(3)(i) of this section must be disclosed on the front of 
the first page of the notice. Only information related to the increase 
in the rate to a penalty rate may be included with the notice, except 
that this notice may be combined with a notice described in paragraph 
(c)(2)(iv) or (g)(4) of this section.
    (4) Exception for decrease in credit limit. A creditor is not 
required to provide a notice pursuant to paragraph (g)(1) of this 
section prior to increasing the rate for obtaining an extension of 
credit that exceeds the credit limit, provided that:
    (i) The creditor provides at least 45 days in advance of imposing 
the penalty rate a notice, in writing, that includes:
    (A) A statement that the credit limit on the account has been or 
will be decreased.
    (B) A statement indicating the date on which the penalty rate will 
apply, if the outstanding balance exceeds the credit limit as of that 
date;
    (C) A statement that the penalty rate will not be imposed on the 
date specified in paragraph (g)(4)(i)(B) of this section, if the 
outstanding balance does not exceed the credit limit as of that date;
    (D) The circumstances under which the penalty rate, if applied, will 
cease to apply to the account, or that the penalty rate, if applied, 
will remain in effect for a potentially indefinite time period;
    (E) A statement indicating to which balances the penalty rate may be 
applied; and
    (F) If applicable, a description of any balances to which the 
current rate will continue to apply as of the effective date of the rate 
increase, unless the consumer fails to make a minimum periodic payment 
within 60 days from the due date for that payment; and
    (ii) The creditor does not increase the rate applicable to the 
consumer's account to the penalty rate if the outstanding balance does 
not exceed the credit limit on the date set forth in the notice and 
described in paragraph (g)(4)(i)(B) of this section.
    (iii)(A) If a notice provided pursuant to paragraph (g)(4)(i) of 
this section is included on or with a periodic statement, the 
information described in paragraph (g)(4)(i) of this section must be in 
the form of a table and provided on the front of any page of the 
periodic statement; or
    (B) If a notice required by paragraph (g)(4)(i) of this section is 
not included on or with a periodic statement, the information described 
in paragraph (g)(4)(i) of this section must be disclosed on the front of 
the first page of the notice. Only information related to the reduction 
in credit limit may be included with the notice, except that this notice 
may be combined with a notice described in paragraph (c)(2)(iv) or 
(g)(1) of this section.
    (h) Consumer rejection of certain significant changes in terms--(1) 
Right to reject. If paragraph (c)(2)(iv)(B) of this section requires 
disclosure of the consumer's right to reject a significant change to an 
account term, the consumer may reject that change by notifying the 
creditor of the rejection before the effective date of the change.
    (2) Effect of rejection. If a creditor is notified of a rejection of 
a significant change to an account term as provided in paragraph (h)(1) 
of this section, the creditor must not:
    (i) Apply the change to the account;
    (ii) Impose a fee or charge or treat the account as in default 
solely as a result of the rejection; or
    (iii) Require repayment of the balance on the account using a method 
that is less beneficial to the consumer

[[Page 573]]

than one of the methods listed in Sec. 1026.55(c)(2).
    (3) Exception. Section 1026.9(h) does not apply when the creditor 
has not received the consumer's required minimum periodic payment within 
60 days after the due date for that payment.



Sec. 1026.10  Payments.

    (a) General rule. A creditor shall credit a payment to the 
consumer's account as of the date of receipt, except when a delay in 
crediting does not result in a finance or other charge or except as 
provided in paragraph (b) of this section.
    (b) Specific requirements for payments--(1) General rule. A creditor 
may specify reasonable requirements for payments that enable most 
consumers to make conforming payments.
    (2) Examples of reasonable requirements for payments. Reasonable 
requirements for making payment may include:
    (i) Requiring that payments be accompanied by the account number or 
payment stub;
    (ii) Setting reasonable cut-off times for payments to be received by 
mail, by electronic means, by telephone, and in person (except as 
provided in paragraph (b)(3) of this section), provided that such cut-
off times shall be no earlier than 5 p.m. on the payment due date at the 
location specified by the creditor for the receipt of such payments;
    (iii) Specifying that only checks or money orders should be sent by 
mail;
    (iv) Specifying that payment is to be made in U.S. dollars; or
    (v) Specifying one particular address for receiving payments, such 
as a post office box.
    (3) In-person payments on credit card accounts--(i) General. 
Notwithstanding Sec. 1026.10(b), 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 
prior to the close of business of that branch or office shall be 
considered received on the date on which the consumer makes the payment. 
A card issuer that is a financial institution shall not impose a cut-off 
time earlier than the close of business for any such payments made in 
person at any branch or office of the card issuer at which such payments 
are accepted. Notwithstanding Sec. 1026.10(b)(2)(ii), a card issuer may 
impose a cut-off time earlier than 5 p.m. for such payments, if the 
close of business of the branch or office is earlier than 5 p.m.
    (ii) Financial institution. For purposes of paragraph (b)(3) of this 
section, ``financial institution'' shall mean a bank, savings 
association, or credit union.
    (4) Nonconforming payments--(i) In general. Except as provided in 
paragraph (b)(4)(ii) of this section, if a creditor specifies, on or 
with the periodic statement, requirements for the consumer to follow in 
making payments as permitted under this Sec. 1026.10, but accepts a 
payment that does not conform to the requirements, the creditor shall 
credit the payment within five days of receipt.
    (ii) Payment methods promoted by creditor. If a creditor promotes a 
method for making payments, such payments shall be considered conforming 
payments in accordance with this paragraph (b) and shall be credited to 
the consumer's account as of the date of receipt, except when a delay in 
crediting does not result in a finance or other charge.
    (c) Adjustment of account. If a creditor fails to credit a payment, 
as required by paragraphs (a) or (b) of this section, in time to avoid 
the imposition of finance or other charges, the creditor shall adjust 
the consumer's account so that the charges imposed are credited to the 
consumer's account during the next billing cycle.
    (d) Crediting of payments when creditor does not receive or accept 
payments on due date--(1) General. Except as provided in paragraph 
(d)(2) of this section, if a creditor does not receive or accept 
payments by mail on the due date for payments, the creditor may 
generally not treat a payment received the next business day as late for 
any purpose. For purposes of this paragraph (d), the ``next business 
day'' means the next day on which the creditor accepts or receives 
payments by mail.
    (2) Payments accepted or received other than by mail. If a creditor 
accepts or receives payments made on the due date by a method other than 
mail, such as electronic or telephone payments, the

[[Page 574]]

creditor is not required to treat a payment made by that method on the 
next business day as timely, even if it does not accept mailed payments 
on the due date.
    (e) Limitations on fees related to method of payment. For credit 
card accounts under an open-end (not home-secured) consumer credit plan, 
a creditor may not impose a separate fee to allow consumers to make a 
payment by any method, such as mail, electronic, or telephone payments, 
unless such payment method involves an expedited service by a customer 
service representative of the creditor. For purposes of paragraph (e) of 
this section, the term ``creditor'' includes a third party that 
collects, receives, or processes payments on behalf of a creditor.
    (f) Changes by card issuer. If a card issuer makes a material change 
in the address for receiving payments or procedures for handling 
payments, and such change causes a material delay in the crediting of a 
payment to the consumer's account during the 60-day period following the 
date on which such change took effect, the card issuer may not impose 
any late fee or finance charge for a late payment on the credit card 
account during the 60-day period following the date on which the change 
took effect.



Sec. 1026.11  Treatment of credit balances; account termination.

    (a) Credit balances. When a credit balance in excess of $1 is 
created on a credit account (through transmittal of funds to a creditor 
in excess of the total balance due on an account, through rebates of 
unearned finance charges or insurance premiums, or through amounts 
otherwise owed to or held for the benefit of the consumer), the creditor 
shall:
    (1) Credit the amount of the credit balance to the consumer's 
account;
    (2) Refund any part of the remaining credit balance within seven 
business days from receipt of a written request from the consumer;
    (3) Make a good faith effort to refund to the consumer by cash, 
check, or money order, or credit to a deposit account of the consumer, 
any part of the credit balance remaining in the account for more than 
six months. No further action is required if the consumer's current 
location is not known to the creditor and cannot be traced through the 
consumer's last known address or telephone number.
    (b) Account termination. (1) A creditor shall not terminate an 
account prior to its expiration date solely because the consumer does 
not incur a finance charge.
    (2) Nothing in paragraph (b)(1) of this section prohibits a creditor 
from terminating an account that is inactive for three or more 
consecutive months. An account is inactive for purposes of this 
paragraph if no credit has been extended (such as by purchase, cash 
advance or balance transfer) and if the account has no outstanding 
balance.
    (c) Timely settlement of estate debts--(1) General rule--(i) 
Reasonable policies and procedures required. For credit card accounts 
under an open-end (not home-secured) consumer credit plan, card issuers 
must adopt reasonable written policies and 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.
    (ii) Application to joint accounts. Paragraph (c) of this section 
does not apply to the account of a deceased consumer if a joint 
accountholder remains on the account.
    (2) Timely statement of balance--(i) Requirement. Upon request by 
the administrator of an estate, a card issuer must provide the 
administrator with the amount of the balance on a deceased consumer's 
account in a timely manner.
    (ii) Safe harbor. For purposes of paragraph (c)(2)(i) of this 
section, providing the amount of the balance on the account within 30 
days of receiving the request is deemed to be timely.
    (3) Limitations after receipt of request from administrator--(i) 
Limitation on fees and increases in annual percentage rates. After 
receiving a request from the administrator of an estate for the amount 
of the balance on a deceased consumer's account, a card issuer must not 
impose any fees on the account (such as a late fee, annual fee, or over-
the-limit fee) or increase any annual

[[Page 575]]

percentage rate, except as provided by Sec. 1026.55(b)(2).
    (ii) Limitation on trailing or residual interest. A card issuer must 
waive or rebate any additional finance charge due to a periodic interest 
rate if payment in full of the balance disclosed pursuant to paragraph 
(c)(2) of this section is received within 30 days after disclosure.



Sec. 1026.12  Special credit card provisions.

    (a) Issuance of credit cards. Regardless of the purpose for which a 
credit card is to be used, including business, commercial, or 
agricultural use, no credit card shall be issued to any person except:
    (1) In response to an oral or written request or application for the 
card; or
    (2) As a renewal of, or substitute for, an accepted credit card.
    (b) Liability of cardholder for unauthorized use--(1)(i) Definition 
of unauthorized use. For purposes of this section, the term 
``unauthorized use'' means the use of a credit card by a person, other 
than the cardholder, who does not have actual, implied, or apparent 
authority for such use, and from which the cardholder receives no 
benefit.
    (ii) Limitation on amount. The liability of a cardholder for 
unauthorized use of a credit card shall not exceed the lesser of $50 or 
the amount of money, property, labor, or services obtained by the 
unauthorized use before notification to the card issuer under paragraph 
(b)(3) of this section.
    (2) Conditions of liability. A cardholder shall be liable for 
unauthorized use of a credit card only if:
    (i) The credit card is an accepted credit card;
    (ii) The card issuer has provided adequate notice of the 
cardholder's maximum potential liability and of means by which the card 
issuer may be notified of loss or theft of the card. The notice shall 
state that the cardholder's liability shall not exceed $50 (or any 
lesser amount) and that the cardholder may give oral or written 
notification, and shall describe a means of notification (for example, a 
telephone number, an address, or both); and
    (iii) The card issuer has provided a means to identify the 
cardholder on the account or the authorized user of the card.
    (3) Notification to card issuer. Notification to a card issuer is 
given when steps have been taken as may be reasonably required in the 
ordinary course of business to provide the card issuer with the 
pertinent information about the loss, theft, or possible unauthorized 
use of a credit card, regardless of whether any particular officer, 
employee, or agent of the card issuer does, in fact, receive the 
information. Notification may be given, at the option of the person 
giving it, in person, by telephone, or in writing. Notification in 
writing is considered given at the time of receipt or, whether or not 
received, at the expiration of the time ordinarily required for 
transmission, whichever is earlier.
    (4) Effect of other applicable law or agreement. If state law or an 
agreement between a cardholder and the card issuer imposes lesser 
liability than that provided in this paragraph, the lesser liability 
shall govern.
    (5) Business use of credit cards. If 10 or more credit cards are 
issued by one card issuer for use by the employees of an organization, 
this section does not prohibit the card issuer and the organization from 
agreeing to liability for unauthorized use without regard to this 
section. However, liability for unauthorized use may be imposed on an 
employee of the organization, by either the card issuer or the 
organization, only in accordance with this section.
    (c) Right of cardholder to assert claims or defenses against card 
issuer--(1) General rule. When a person who honors a credit card fails 
to resolve satisfactorily a dispute as to property or services purchased 
with the credit card in a consumer credit transaction, the cardholder 
may assert against the card issuer all claims (other than tort claims) 
and defenses arising out of the transaction and relating to the failure 
to resolve the dispute. The cardholder may withhold payment up to the 
amount of credit outstanding for the property or services that gave rise 
to the dispute and any finance or other charges imposed on that amount.

[[Page 576]]

    (2) Adverse credit reports prohibited. If, in accordance with 
paragraph (c)(1) of this section, the cardholder withholds payment of 
the amount of credit outstanding for the disputed transaction, the card 
issuer shall not report that amount as delinquent until the dispute is 
settled or judgment is rendered.
    (3) Limitations--(i) General. The rights stated in paragraphs (c)(1) 
and (c)(2) of this section apply only if:
    (A) The cardholder has made a good faith attempt to resolve the 
dispute with the person honoring the credit card; and
    (B) The amount of credit extended to obtain the property or services 
that result in the assertion of the claim or defense by the cardholder 
exceeds $50, and the disputed transaction occurred in the same state as 
the cardholder's current designated address or, if not within the same 
state, within 100 miles from that address.
    (ii) Exclusion. The limitations stated in paragraph (c)(3)(i)(B) of 
this section shall not apply when the person honoring the credit card:
    (A) Is the same person as the card issuer;
    (B) Is controlled by the card issuer directly or indirectly;
    (C) Is under the direct or indirect control of a third person that 
also directly or indirectly controls the card issuer;
    (D) Controls the card issuer directly or indirectly;
    (E) Is a franchised dealer in the card issuer's products or 
services; or
    (F) Has obtained the order for the disputed transaction through a 
mail solicitation made or participated in by the card issuer.
    (d) Offsets by card issuer prohibited. (1) A card issuer may not 
take any action, either before or after termination of credit card 
privileges, to offset a cardholder's indebtedness arising from a 
consumer credit transaction under the relevant credit card plan against 
funds of the cardholder held on deposit with the card issuer.
    (2) This paragraph does not alter or affect the right of a card 
issuer acting under state or Federal law to do any of the following with 
regard to funds of a cardholder held on deposit with the card issuer if 
the same procedure is constitutionally available to creditors generally: 
Obtain or enforce a consensual security interest in the funds; attach or 
otherwise levy upon the funds; or obtain or enforce a court order 
relating to the funds.
    (3) This paragraph does not prohibit a plan, if authorized in 
writing by the cardholder, under which the card issuer may periodically 
deduct all or part of the cardholder's credit card debt from a deposit 
account held with the card issuer (subject to the limitations in Sec. 
1026.13(d)(1)).
    (e) Prompt notification of returns and crediting of refunds. (1) 
When a creditor other than the card issuer accepts the return of 
property or forgives a debt for services that is to be reflected as a 
credit to the consumer's credit card account, that creditor shall, 
within 7 business days from accepting the return or forgiving the debt, 
transmit a credit statement to the card issuer through the card issuer's 
normal channels for credit statements.
    (2) The card issuer shall, within 3 business days from receipt of a 
credit statement, credit the consumer's account with the amount of the 
refund.
    (3) If a creditor other than a card issuer routinely gives cash 
refunds to consumers paying in cash, the creditor shall also give credit 
or cash refunds to consumers using credit cards, unless it discloses at 
the time the transaction is consummated that credit or cash refunds for 
returns are not given. This section does not require refunds for returns 
nor does it prohibit refunds in kind.
    (f) Discounts; tie-in arrangements. No card issuer may, by contract 
or otherwise:
    (1) Prohibit any person who honors a credit card from offering a 
discount to a consumer to induce the consumer to pay by cash, check, or 
similar means rather than by use of a credit card or its underlying 
account for the purchase of property or services; or
    (2) Require any person who honors the card issuer's credit card to 
open or maintain any account or obtain any other service not essential 
to the operation of the credit card plan from the card issuer or any 
other person, as a condition of participation in a credit

[[Page 577]]

card plan. If maintenance of an account for clearing purposes is 
determined to be essential to the operation of the credit card plan, it 
may be required only if no service charges or minimum balance 
requirements are imposed.
    (g) Relation to Electronic Fund Transfer Act and Regulation E. For 
guidance on whether Regulation Z (12 CFR part 1026) or Regulation E (12 
CFR part 1005) applies in instances involving both credit and electronic 
fund transfer aspects, refer to Regulation E, 12 CFR 1005.12(a) 
regarding issuance and liability for unauthorized use. On matters other 
than issuance and liability, this section applies to the credit aspects 
of combined credit/electronic fund transfer transactions, as applicable.



Sec. 1026.13  Billing error resolution.

    (a) Definition of billing error. For purposes of this section, the 
term billing error means:
    (1) A reflection on or with a periodic statement of an extension of 
credit that is not made to the consumer or to a person who has actual, 
implied, or apparent authority to use the consumer's credit card or 
open-end credit plan.
    (2) A reflection on or with a periodic statement of an extension of 
credit that is not identified in accordance with the requirements of 
Sec. Sec. 1026.7(a)(2) or (b)(2), as applicable, and 1026.8.
    (3) A reflection on or with a periodic statement of an extension of 
credit for property or services not accepted by the consumer or the 
consumer's designee, or not delivered to the consumer or the consumer's 
designee as agreed.
    (4) A reflection on a periodic statement of the creditor's failure 
to credit properly a payment or other credit issued to the consumer's 
account.
    (5) A reflection on a periodic statement of a computational or 
similar error of an accounting nature that is made by the creditor.
    (6) A reflection on a periodic statement of an extension of credit 
for which the consumer requests additional clarification, including 
documentary evidence.
    (7) The creditor's failure to mail or deliver a periodic statement 
to the consumer's last known address if that address was received by the 
creditor, in writing, at least 20 days before the end of the billing 
cycle for which the statement was required.
    (b) Billing error notice. A billing error notice is a written notice 
from a consumer that:
    (1) Is received by a creditor at the address disclosed under Sec. 
1026.7(a)(9) or (b)(9), as applicable, no later than 60 days after the 
creditor transmitted the first periodic statement that reflects the 
alleged billing error;
    (2) Enables the creditor to identify the consumer's name and account 
number; and
    (3) To the extent possible, indicates the consumer's belief and the 
reasons for the belief that a billing error exists, and the type, date, 
and amount of the error.
    (c) Time for resolution; general procedures. (1) The creditor shall 
mail or deliver written acknowledgment to the consumer within 30 days of 
receiving a billing error notice, unless the creditor has complied with 
the appropriate resolution procedures of paragraphs (e) and (f) of this 
section, as applicable, within the 30-day period; and
    (2) The creditor shall comply with the appropriate resolution 
procedures of paragraphs (e) and (f) of this section, as applicable, 
within 2 complete billing cycles (but in no event later than 90 days) 
after receiving a billing error notice.
    (d) Rules pending resolution. Until a billing error is resolved 
under paragraph (e) or (f) of this section, the following rules apply:
    (1) Consumer's right to withhold disputed amount; collection action 
prohibited. The consumer need not pay (and the creditor may not try to 
collect) any portion of any required payment that the consumer believes 
is related to the disputed amount (including related finance or other 
charges). If the cardholder has enrolled in an automatic payment plan 
offered by the card issuer and has agreed to pay the credit card 
indebtedness by periodic deductions from the cardholder's deposit 
account, the card issuer shall not deduct any part of the disputed 
amount or related finance or other charges if a billing error notice is 
received any time up

[[Page 578]]

to 3 business days before the scheduled payment date.
    (2) Adverse credit reports prohibited. The creditor or its agent 
shall not (directly or indirectly) make or threaten to make an adverse 
report to any person about the consumer's credit standing, or report 
that an amount or account is delinquent, because the consumer failed to 
pay the disputed amount or related finance or other charges.
    (3) Acceleration of debt and restriction of account prohibited. A 
creditor shall not accelerate any part of the consumer's indebtedness or 
restrict or close a consumer's account solely because the consumer has 
exercised in good faith rights provided by this section. A creditor may 
be subject to the forfeiture penalty under 15 U.S.C. 1666(e) for failure 
to comply with any of the requirements of this section.
    (4) Permitted creditor actions. A creditor is not prohibited from 
taking action to collect any undisputed portion of the item or bill; 
from deducting any disputed amount and related finance or other charges 
from the consumer's credit limit on the account; or from reflecting a 
disputed amount and related finance or other charges on a periodic 
statement, provided that the creditor indicates on or with the periodic 
statement that payment of any disputed amount and related finance or 
other charges is not required pending the creditor's compliance with 
this section.
    (e) Procedures if billing error occurred as asserted. If a creditor 
determines that a billing error occurred as asserted, it shall within 
the time limits in paragraph (c)(2) of this section:
    (1) Correct the billing error and credit the consumer's account with 
any disputed amount and related finance or other charges, as applicable; 
and
    (2) Mail or deliver a correction notice to the consumer.
    (f) Procedures if different billing error or no billing error 
occurred. If, after conducting a reasonable investigation, a creditor 
determines that no billing error occurred or that a different billing 
error occurred from that asserted, the creditor shall within the time 
limits in paragraph (c)(2) of this section:
    (1) Mail or deliver to the consumer an explanation that sets forth 
the reasons for the creditor's belief that the billing error alleged by 
the consumer is incorrect in whole or in part;
    (2) Furnish copies of documentary evidence of the consumer's 
indebtedness, if the consumer so requests; and
    (3) If a different billing error occurred, correct the billing error 
and credit the consumer's account with any disputed amount and related 
finance or other charges, as applicable.
    (g) Creditor's rights and duties after resolution. If a creditor, 
after complying with all of the requirements of this section, determines 
that a consumer owes all or part of the disputed amount and related 
finance or other charges, the creditor:
    (1) Shall promptly notify the consumer in writing of the time when 
payment is due and the portion of the disputed amount and related 
finance or other charges that the consumer still owes;
    (2) Shall allow any time period disclosed under Sec. 1026.6(a)(1) 
or (b)(2)(v), as applicable, and Sec. 1026.7(a)(8) or (b)(8), as 
applicable, during which the consumer can pay the amount due under 
paragraph (g)(1) of this section without incurring additional finance or 
other charges;
    (3) May report an account or amount as delinquent because the amount 
due under paragraph (g)(1) of this section remains unpaid after the 
creditor has allowed any time period disclosed under Sec. 1026.6(a)(1) 
or (b)(2)(v), as applicable, and Sec. 1026.7(a)(8) or (b)(8), as 
applicable or 10 days (whichever is longer) during which the consumer 
can pay the amount; but
    (4) May not report that an amount or account is delinquent because 
the amount due under paragraph (g)(1) of the section remains unpaid, if 
the creditor receives (within the time allowed for payment in paragraph 
(g)(3) of this section) further written notice from the consumer that 
any portion of the billing error is still in dispute, unless the 
creditor also:
    (i) Promptly reports that the amount or account is in dispute;
    (ii) Mails or delivers to the consumer (at the same time the report 
is made) a written notice of the name and address of each person to whom 
the creditor makes a report; and

[[Page 579]]

    (iii) Promptly reports any subsequent resolution of the reported 
delinquency to all persons to whom the creditor has made a report.
    (h) Reassertion of billing error. A creditor that has fully complied 
with the requirements of this section has no further responsibilities 
under this section (other than as provided in paragraph (g)(4) of this 
section) if a consumer reasserts substantially the same billing error.
    (i) Relation to Electronic Fund Transfer Act and Regulation E. If an 
extension of credit is incident to an electronic fund transfer, under an 
agreement between a consumer and a financial institution to extend 
credit when the consumer's account is overdrawn or to maintain a 
specified minimum balance in the consumer's account, the creditor shall 
comply with the requirements of Regulation E, 12 CFR 1005.11 governing 
error resolution rather than those of paragraphs (a), (b), (c), (e), 
(f), and (h) of this section.



Sec. 1026.14  Determination of annual percentage rate.

    (a) General rule. The annual percentage rate is a measure of the 
cost of credit, expressed as a yearly rate. An annual percentage rate 
shall be considered accurate if it is not more than \1/8\th of 1 
percentage point above or below the annual percentage rate determined in 
accordance with this section. An error in disclosure of the annual 
percentage rate or finance charge shall not, in itself, be considered a 
violation of this part if:
    (1) The error resulted from a corresponding error in a calculation 
tool used in good faith by the creditor; and
    (2) Upon discovery of the error, the creditor promptly discontinues 
use of that calculation tool for disclosure purposes, and notifies the 
Bureau in writing of the error in the calculation tool.
    (b) Annual percentage rate--in general. Where one or more periodic 
rates may be used to compute the finance charge, the annual percentage 
rate(s) to be disclosed for purposes of Sec. Sec. 1026.60, 1026.40, 
1026.6, 1026.7(a)(4) or (b)(4), 1026.9, 1026.15, 1026.16, 1026.26, 
1026.55, and 1026.56 shall be computed by multiplying each periodic rate 
by the number of periods in a year.
    (c) Optional effective annual percentage rate for periodic 
statements for creditors offering open-end credit plans secured by a 
consumer's dwelling. A creditor offering an open-end plan subject to the 
requirements of Sec. 1026.40 need not disclose an effective annual 
percentage rate. Such a creditor may, at its option, disclose an 
effective annual percentage rate(s) pursuant to Sec. 1026.7(a)(7) and 
compute the effective annual percentage rate as follows:
    (1) Solely periodic rates imposed. If the finance charge is 
determined solely by applying one or more periodic rates, at the 
creditor's option, either:
    (i) By multiplying each periodic rate by the number of periods in a 
year; or
    (ii) By dividing the total finance charge for the billing cycle by 
the sum of the balances to which the periodic rates were applied and 
multiplying the quotient (expressed as a percentage) by the number of 
billing cycles in a year.
    (2) Minimum or fixed charge, but not transaction charge, imposed. If 
the finance charge imposed during the billing cycle is or includes a 
minimum, fixed, or other charge not due to the application of a periodic 
rate, other than a charge with respect to any specific transaction 
during the billing cycle, by dividing the total finance charge for the 
billing cycle by the amount of the balance(s) to which it is applicable 
and multiplying the quotient (expressed as a percentage) by the number 
of billing cycles in a year. If there is no balance to which the finance 
charge is applicable, an annual percentage rate cannot be determined 
under this section. Where the finance charge imposed during the billing 
cycle is or includes a loan fee, points, or similar charge that relates 
to opening, renewing, or continuing an account, the amount of such 
charge shall not be included in the calculation of the annual percentage 
rate.
    (3) Transaction charge imposed. If the finance charge imposed during 
the billing cycle is or includes a charge relating to a specific 
transaction during the billing cycle (even if the total finance charge 
also includes any other minimum, fixed, or other charge not due to the 
application of a periodic rate), by

[[Page 580]]

dividing the total finance charge imposed during the billing cycle by 
the total of all balances and other amounts on which a finance charge 
was imposed during the billing cycle without duplication, and 
multiplying the quotient (expressed as a percentage) by the number of 
billing cycles in a year, except that the annual percentage rate shall 
not be less than the largest rate determined by multiplying each 
periodic rate imposed during the billing cycle by the number of periods 
in a year. Where the finance charge imposed during the billing cycle is 
or includes a loan fee, points, or similar charge that relates to the 
opening, renewing, or continuing an account, the amount of such charge 
shall not be included in the calculation of the annual percentage rate. 
See appendix F to this part regarding determination of the denominator 
of the fraction under this paragraph.
    (4) If the finance charge imposed during the billing cycle is or 
includes a minimum, fixed, or other charge not due to the application of 
a periodic rate and the total finance charge imposed during the billing 
cycle does not exceed 50 cents for a monthly or longer billing cycle, or 
the pro rata part of 50 cents for a billing cycle shorter than monthly, 
at the creditor's option, by multiplying each applicable periodic rate 
by the number of periods in a year, notwithstanding the provisions of 
paragraphs (c)(2) and (c)(3) of this section.
    (d) Calculations where daily periodic rate applied. If the 
provisions of paragraph (c)(1)(ii) or (c)(2) of this section apply and 
all or a portion of the finance charge is determined by the application 
of one or more daily periodic rates, the annual percentage rate may be 
determined either:
    (1) By dividing the total finance charge by the average of the daily 
balances and multiplying the quotient by the number of billing cycles in 
a year; or
    (2) By dividing the total finance charge by the sum of the daily 
balances and multiplying the quotient by 365.



Sec. 1026.15  Right of rescission.

    (a) Consumer's right to rescind. (1)(i) Except as provided in 
paragraph (a)(1)(ii) of this section, in a credit plan in which a 
security interest is or will be retained or acquired in a consumer's 
principal dwelling, each consumer whose ownership interest is or will be 
subject to the security interest shall have the right to rescind: each 
credit extension made under the plan; the plan when the plan is opened; 
a security interest when added or increased to secure an existing plan; 
and the increase when a credit limit on the plan is increased.
    (ii) As provided in section 125(e) of the Act, the consumer does not 
have the right to rescind each credit extension made under the plan if 
such extension is made in accordance with a previously established 
credit limit for the plan.
    (2) To exercise the right to rescind, the consumer shall notify the 
creditor of the rescission by mail, telegram, or other means of written 
communication. Notice is considered given when mailed, or when filed for 
telegraphic transmission, or, if sent by other means, when delivered to 
the creditor's designated place of business.
    (3) The consumer may exercise the right to rescind until midnight of 
the third business day following the occurrence described in paragraph 
(a)(1) of this section that gave rise to the right of rescission, 
delivery of the notice required by paragraph (b) of this section, or 
delivery of all material disclosures, whichever occurs last. If the 
required notice and material disclosures are not delivered, the right to 
rescind shall expire 3 years after the occurrence giving rise to the 
right of rescission, or upon transfer of all of the consumer's interest 
in the property, or upon sale of the property, whichever occurs first. 
In the case of certain administrative proceedings, the rescission period 
shall be extended in accordance with section 125(f) of the Act. The term 
material disclosures means the information that must be provided to 
satisfy the requirements in Sec. 1026.6 with regard to the method of 
determining the finance charge and the balance upon which a finance 
charge will be imposed, the annual percentage rate, the amount or method 
of determining the amount of any membership or participation fee that 
may be imposed as part of the

[[Page 581]]

plan, and the payment information described in Sec. 1026.40(d)(5)(i) 
and (ii) that is required under Sec. 1026.6(e)(2).
    (4) When more than one consumer has the right to rescind, the 
exercise of the right by one consumer shall be effective as to all 
consumers.
    (b) Notice of right to rescind. In any transaction or occurrence 
subject to rescission, a creditor shall deliver two copies of the notice 
of the right to rescind to each consumer entitled to rescind (one copy 
to each if the notice is delivered in electronic form in accordance with 
the consumer consent and other applicable provisions of the E-Sign Act). 
The notice shall identify the transaction or occurrence and clearly and 
conspicuously disclose the following:
    (1) The retention or acquisition of a security interest in the 
consumer's principal dwelling.
    (2) The consumer's right to rescind, as described in paragraph 
(a)(1) of this section.
    (3) How to exercise the right to rescind, with a form for that 
purpose, designating the address of the creditor's place of business.
    (4) The effects of rescission, as described in paragraph (d) of this 
section.
    (5) The date the rescission period expires.
    (c) Delay of creditor's performance. Unless a consumer waives the 
right to rescind under paragraph (e) of this section, no money shall be 
disbursed other than in escrow, no services shall be performed, and no 
materials delivered until after the rescission period has expired and 
the creditor is reasonably satisfied that the consumer has not 
rescinded. A creditor does not violate this section if a third party 
with no knowledge of the event activating the rescission right does not 
delay in providing materials or services, as long as the debt incurred 
for those materials or services is not secured by the property subject 
to rescission.
    (d) Effects of rescission. (1) When a consumer rescinds a 
transaction, the security interest giving rise to the right of 
rescission becomes void, and the consumer shall not be liable for any 
amount, including any finance charge.
    (2) Within 20 calendar days after receipt of a notice of rescission, 
the creditor shall return any money or property that has been given to 
anyone in connection with the transaction and shall take any action 
necessary to reflect the termination of the security interest.
    (3) If the creditor has delivered any money or property, the 
consumer may retain possession until the creditor has met its obligation 
under paragraph (d)(2) of this section. When the creditor has complied 
with that paragraph, the consumer shall tender the money or property to 
the creditor or, where the latter would be impracticable or inequitable, 
tender its reasonable value. At the consumer's option, tender of 
property may be made at the location of the property or at the 
consumer's residence. Tender of money must be made at the creditor's 
designated place of business. If the creditor does not take possession 
of the money or property within 20 calendar days after the consumer's 
tender, the consumer may keep it without further obligation.
    (4) The procedures outlined in paragraphs (d)(2) and (3) of this 
section may be modified by court order.
    (e) Consumer's waiver of right to rescind. The consumer may modify 
or waive the right to rescind if the consumer determines that the 
extension of credit is needed to meet a bona fide personal financial 
emergency. To modify or waive the right, the consumer shall give the 
creditor a dated written statement that describes the emergency, 
specifically modifies or waives the right to rescind, and bears the 
signature of all the consumers entitled to rescind. Printed forms for 
this purpose are prohibited.
    (f) Exempt transactions. The right to rescind does not apply to the 
following:
    (1) A residential mortgage transaction.
    (2) A credit plan in which a state agency is a creditor.



Sec. 1026.16  Advertising.

    (a) Actually available terms. If an advertisement for credit states 
specific credit terms, it shall state only those terms that actually are 
or will be arranged or offered by the creditor.

[[Page 582]]

    (b) Advertisement of terms that require additional disclosures. (1) 
Any term required to be disclosed under Sec. 1026.6(b)(3) set forth 
affirmatively or negatively in an advertisement for an open-end (not 
home-secured) credit plan triggers additional disclosures under this 
section. Any term required to be disclosed under Sec. 1026.6(a)(1) or 
(a)(2) set forth affirmatively or negatively in an advertisement for a 
home-equity plan subject to the requirements of Sec. 1026.40 triggers 
additional disclosures under this section. If any of the terms that 
trigger additional disclosures under this paragraph is set forth in an 
advertisement, the advertisement shall also clearly and conspicuously 
set forth the following:
    (i) Any minimum, fixed, transaction, activity or similar charge that 
is a finance charge under Sec. 1026.4 that could be imposed.
    (ii) Any periodic rate that may be applied expressed as an annual 
percentage rate as determined under Sec. 1026.14(b). If the plan 
provides for a variable periodic rate, that fact shall be disclosed.
    (iii) Any membership or participation fee that could be imposed.
    (2) If an advertisement for credit to finance the purchase of goods 
or services specified in the advertisement states a periodic payment 
amount, the advertisement shall also state the total of payments and the 
time period to repay the obligation, assuming that the consumer pays 
only the periodic payment amount advertised. The disclosure of the total 
of payments and the time period to repay the obligation must be equally 
prominent to the statement of the periodic payment amount.
    (c) Catalogs or other multiple-page advertisements; electronic 
advertisements. (1) If a catalog or other multiple-page advertisement, 
or an electronic advertisement (such as an advertisement appearing on an 
Internet Web site), gives information in a table or schedule in 
sufficient detail to permit determination of the disclosures required by 
paragraph (b) of this section, it shall be considered a single 
advertisement if:
    (i) The table or schedule is clearly and conspicuously set forth; 
and
    (ii) Any statement of terms set forth in Sec. 1026.6 appearing 
anywhere else in the catalog or advertisement clearly refers to the page 
or location where the table or schedule begins.
    (2) A catalog or other multiple-page advertisement or an electronic 
advertisement (such as an advertisement appearing on an Internet Web 
site) complies with this paragraph if the table or schedule of terms 
includes all appropriate disclosures for a representative scale of 
amounts up to the level of the more commonly sold higher-priced property 
or services offered.
    (d) Additional requirements for home-equity plans--(1) Advertisement 
of terms that require additional disclosures. If any of the terms 
required to be disclosed under Sec. 1026.6(a)(1) or (a)(2) or the 
payment terms of the plan are set forth, affirmatively or negatively, in 
an advertisement for a home-equity plan subject to the requirements of 
Sec. 1026.40, the advertisement also shall clearly and conspicuously 
set forth the following:
    (i) Any loan fee that is a percentage of the credit limit under the 
plan and an estimate of any other fees imposed for opening the plan, 
stated as a single dollar amount or a reasonable range.
    (ii) Any periodic rate used to compute the finance charge, expressed 
as an annual percentage rate as determined under Sec. 1026.14(b).
    (iii) The maximum annual percentage rate that may be imposed in a 
variable-rate plan.
    (2) Discounted and premium rates. If an advertisement states an 
initial annual percentage rate that is not based on the index and margin 
used to make later rate adjustments in a variable-rate plan, the 
advertisement also shall state with equal prominence and in close 
proximity to the initial rate:
    (i) The period of time such initial rate will be in effect; and
    (ii) A reasonably current annual percentage rate that would have 
been in effect using the index and margin.
    (3) Balloon payment. If an advertisement contains a statement of any 
minimum periodic payment and a balloon payment may result if only the 
minimum periodic payments are made, even if such a payment is uncertain 
or unlikely, the advertisement also shall

[[Page 583]]

state with equal prominence and in close proximity to the minimum 
periodic payment statement that a balloon payment may result, if 
applicable. A balloon payment results if paying the minimum periodic 
payments does not fully amortize the outstanding balance by a specified 
date or time, and the consumer is required to repay the entire 
outstanding balance at such time. If a balloon payment will occur when 
the consumer makes only the minimum payments required under the plan, an 
advertisement for such a program which contains any statement of any 
minimum periodic payment shall also state with equal prominence and in 
close proximity to the minimum periodic payment statement:
    (i) That a balloon payment will result; and
    (ii) The amount and timing of the balloon payment that will result 
if the consumer makes only the minimum payments for the maximum period 
of time that the consumer is permitted to make such payments.
    (4) Tax implications. An advertisement that states that any interest 
expense incurred under the home-equity plan is or may be tax deductible 
may not be misleading in this regard. If an advertisement distributed in 
paper form or through the Internet (rather than by radio or television) 
is for a home-equity plan secured by the consumer's principal dwelling, 
and the advertisement states that the advertised extension of credit may 
exceed the fair market value of the dwelling, the advertisement shall 
clearly and conspicuously state that:
    (i) The interest on the portion of the credit extension that is 
greater than the fair market value of the dwelling is not tax deductible 
for Federal income tax purposes; and
    (ii) The consumer should consult a tax adviser for further 
information regarding the deductibility of interest and charges.
    (5) Misleading terms. An advertisement may not refer to a home-
equity plan as ``free money'' or contain a similarly misleading term.
    (6) Promotional rates and payments--(i) Definitions. The following 
definitions apply for purposes of paragraph (d)(6) of this section:
    (A) Promotional rate. The term ``promotional rate'' means, in a 
variable-rate plan, any annual percentage rate that is not based on the 
index and margin that will be used to make rate adjustments under the 
plan, if that rate is less than a reasonably current annual percentage 
rate that would be in effect under the index and margin that will be 
used to make rate adjustments under the plan.
    (B) Promotional payment. The term ``promotional payment'' means:
    (1) For a variable-rate plan, any minimum payment applicable for a 
promotional period that:
    (i) Is not derived by applying the index and margin to the 
outstanding balance when such index and margin will be used to determine 
other minimum payments under the plan; and
    (ii) Is less than other minimum payments under the plan derived by 
applying a reasonably current index and margin that will be used to 
determine the amount of such payments, given an assumed balance.
    (2) For a plan other than a variable-rate plan, any minimum payment 
applicable for a promotional period if that payment is less than other 
payments required under the plan given an assumed balance.
    (C) Promotional period. A ``promotional period'' means a period of 
time, less than the full term of the loan, that the promotional rate or 
promotional payment may be applicable.
    (ii) Stating the promotional period and post-promotional rate or 
payments. If any annual percentage rate that may be applied to a plan is 
a promotional rate, or if any payment applicable to a plan is a 
promotional payment, the following must be disclosed in any 
advertisement, other than television or radio advertisements, in a clear 
and conspicuous manner with equal prominence and in close proximity to 
each listing of the promotional rate or payment:
    (A) The period of time during which the promotional rate or 
promotional payment will apply;
    (B) In the case of a promotional rate, any annual percentage rate 
that will apply under the plan. If such rate is variable, the annual 
percentage rate must be disclosed in accordance with

[[Page 584]]

the accuracy standards in Sec. Sec. 1026.40 or 1026.16(b)(1)(ii) as 
applicable; and
    (C) In the case of a promotional payment, the amounts and time 
periods of any payments that will apply under the plan. In variable-rate 
transactions, payments that will be determined based on application of 
an index and margin shall be disclosed based on a reasonably current 
index and margin.
    (iii) Envelope excluded. The requirements in paragraph (d)(6)(ii) of 
this section do not apply to an envelope in which an application or 
solicitation is mailed, or to a banner advertisement or pop-up 
advertisement linked to an application or solicitation provided 
electronically.
    (e) Alternative disclosures--television or radio advertisements. An 
advertisement made through television or radio stating any of the terms 
requiring additional disclosures under paragraphs (b)(1) or (d)(1) of 
this section may alternatively comply with paragraphs (b)(1) or (d)(1) 
of this section by stating the information required by paragraphs 
(b)(1)(ii) or (d)(1)(ii) of this section, as applicable, and listing a 
toll-free telephone number, or any telephone number that allows a 
consumer to reverse the phone charges when calling for information, 
along with a reference that such number may be used by consumers to 
obtain the additional cost information.
    (f) Misleading terms. An advertisement may not refer to an annual 
percentage rate as ``fixed,'' or use a similar term, unless the 
advertisement also specifies a time period that the rate will be fixed 
and the rate will not increase during that period, or if no such time 
period is provided, the rate will not increase while the plan is open.
    (g) Promotional rates and fees--(1) Scope. The requirements of this 
paragraph apply to any advertisement of an open-end (not home-secured) 
plan, including promotional materials accompanying applications or 
solicitations subject to Sec. 1026.60(c) or accompanying applications 
or solicitations subject to Sec. 1026.60(e).
    (2) Definitions. (i) Promotional rate means any annual percentage 
rate applicable to one or more balances or transactions on an open-end 
(not home-secured) plan for a specified period of time that is lower 
than the annual percentage rate that will be in effect at the end of 
that period on such balances or transactions.
    (ii) Introductory rate means a promotional rate offered in 
connection with the opening of an account.
    (iii) Promotional period means the maximum time period for which a 
promotional rate or promotional fee may be applicable.
    (iv) Promotional fee means a fee required to be disclosed under 
Sec. 1026.6(b)(1) and (2) applicable to an open-end (not home-secured) 
plan, or to one or more balances or transactions on an open-end (not 
home-secured) plan, for a specified period of time that is lower than 
the fee that will be in effect at the end of that period for such plan 
or types of balances or transactions.
    (v) Introductory fee means a promotional fee offered in connection 
with the opening of an account.
    (3) Stating the term ``introductory''. If any annual percentage rate 
or fee that may be applied to the account is an introductory rate or 
introductory fee, the term introductory or intro must be in immediate 
proximity to each listing of the introductory rate or introductory fee 
in a written or electronic advertisement.
    (4) Stating the promotional period and post-promotional rate or fee. 
If any annual percentage rate that may be applied to the account is a 
promotional rate under paragraph (g)(2)(i) of this section or any fee 
that may be applied to the account is a promotional fee under paragraph 
(g)(2)(iv) of this section, the information in paragraphs (g)(4)(i) and, 
as applicable, (g)(4)(ii) or (iii) of this section must be stated in a 
clear and conspicuous manner in the advertisement. If the rate or fee is 
stated in a written or electronic advertisement, the information in 
paragraphs (g)(4)(i) and, as applicable, (g)(4)(ii) or (iii) of this 
section must also be stated in a prominent location closely proximate to 
the first listing of the promotional rate or promotional fee.
    (i) When the promotional rate or promotional fee will end;

[[Page 585]]

    (ii) The annual percentage rate that will apply after the end of the 
promotional period. If such rate is variable, the annual percentage rate 
must comply with the accuracy standards in Sec. Sec. 1026.60(c)(2), 
1026.60(d)(3), 1026.60(e)(4), or 1026.16(b)(1)(ii), as applicable. If 
such rate cannot be determined at the time disclosures are given because 
the rate depends at least in part on a later determination of the 
consumer's creditworthiness, the advertisement must disclose the 
specific rates or the range of rates that might apply; and
    (iii) The fee that will apply after the end of the promotional 
period.
    (5) Envelope excluded. The requirements in paragraph (g)(4) of this 
section do not apply to an envelope or other enclosure in which an 
application or solicitation is mailed, or to a banner advertisement or 
pop-up advertisement, linked to an application or solicitation provided 
electronically.
    (h) Deferred interest or similar offers--(1) Scope. The requirements 
of this paragraph apply to any advertisement of an open-end credit plan 
not subject to Sec. 1026.40, including promotional materials 
accompanying applications or solicitations subject to Sec. 1026.60(c) 
or accompanying applications or solicitations subject to Sec. 
1026.60(e).
    (2) Definitions. ``Deferred interest'' means finance charges, 
accrued on balances or transactions, that a consumer is not obligated to 
pay or that will be waived or refunded to a consumer if those balances 
or transactions are paid in full by a specified date. The maximum period 
from the date the consumer becomes obligated for the balance or 
transaction until the specified date by which the consumer must pay the 
balance or transaction in full in order to avoid finance charges, or 
receive a waiver or refund of finance charges, is the ``deferred 
interest period.'' ``Deferred interest'' does not include any finance 
charges the consumer avoids paying in connection with any recurring 
grace period.
    (3) Stating the deferred interest period. If a deferred interest 
offer is advertised, the deferred interest period must be stated in a 
clear and conspicuous manner in the advertisement. If the phrase ``no 
interest'' or similar term regarding the possible avoidance of interest 
obligations under the deferred interest program is stated, the term ``if 
paid in full'' must also be stated in a clear and conspicuous manner 
preceding the disclosure of the deferred interest period in the 
advertisement. If the deferred interest offer is included in a written 
or electronic advertisement, the deferred interest period and, if 
applicable, the term ``if paid in full'' must also be stated in 
immediate proximity to each statement of ``no interest,'' ``no 
payments,'' ``deferred interest,'' ``same as cash,'' or similar term 
regarding interest or payments during the deferred interest period.
    (4) Stating the terms of the deferred interest or similar offer. If 
any deferred interest offer is advertised, the information in paragraphs 
(h)(4)(i) and (h)(4)(ii) of this section must be stated in the 
advertisement, in language similar to Sample G-24 in Appendix G to this 
part. If the deferred interest offer is included in a written or 
electronic advertisement, the information in paragraphs (h)(4)(i) and 
(h)(4)(ii) of this section must also be stated in a prominent location 
closely proximate to the first statement of ``no interest,'' ``no 
payments,'' ``deferred interest,'' ``same as cash,'' or similar term 
regarding interest or payments during the deferred interest period.
    (i) A statement that interest will be charged from the date the 
consumer becomes obligated for the balance or transaction subject to the 
deferred interest offer if the balance or transaction is not paid in 
full within the deferred interest period; and
    (ii) A statement, if applicable, that interest will be charged from 
the date the consumer incurs the balance or transaction subject to the 
deferred interest offer if the account is in default before the end of 
the deferred interest period.
    (5) Envelope excluded. The requirements in paragraph (h)(4) of this 
section do not apply to an envelope or other enclosure in which an 
application or solicitation is mailed, or to a banner advertisement or 
pop-up advertisement linked to an application or solicitation provided 
electronically.

[[Page 586]]



                       Subpart C_Closed-End Credit



Sec. 1026.17  General disclosure requirements.

    (a) Form of disclosures. (1) The creditor shall make the disclosures 
required by this subpart clearly and conspicuously in writing, in a form 
that the consumer may keep. The disclosures required by this subpart may 
be provided to the consumer in electronic form, subject to compliance 
with the consumer consent and other applicable provisions of the 
Electronic Signatures in Global and National Commerce Act (E-Sign Act) 
(15 U.S.C. 7001 et seq.). The disclosures required by Sec. Sec. 
1026.17(g), 1026.19(b), and 1026.24 may be provided to the consumer in 
electronic form without regard to the consumer consent or other 
provisions of the E-Sign Act in the circumstances set forth in those 
sections. The disclosures shall be grouped together, shall be segregated 
from everything else, and shall not contain any information not directly 
related to the disclosures required under Sec. 1026.18 or Sec. 
1026.47. The disclosures may include an acknowledgment of receipt, the 
date of the transaction, and the consumer's name, address, and account 
number. The following disclosures may be made together with or 
separately from other required disclosures: the creditor's identity 
under Sec. 1026.18(a), the variable rate example under Sec. 
1026.18(f)(1)(iv), insurance or debt cancellation under Sec. 
1026.18(n), and certain security interest charges under Sec. 
1026.18(o). The itemization of the amount financed under Sec. 
1026.18(c)(1) must be separate from the other disclosures under Sec. 
1026.18, except for private education loan disclosures made in 
compliance with Sec. 1026.47.
    (2) Except for private education loan disclosures made in compliance 
with Sec. 1026.47, the terms ``finance charge'' and ``annual percentage 
rate,'' when required to be disclosed under Sec. 1026.18(d) and (e) 
together with a corresponding amount or percentage rate, shall be more 
conspicuous than any other disclosure, except the creditor's identity 
under Sec. 1026.18(a). For private education loan disclosures made in 
compliance with Sec. 1026.47, the term ``annual percentage rate,'' and 
the corresponding percentage rate must be less conspicuous than the term 
``finance charge'' and corresponding amount under Sec. 1026.18(d), the 
interest rate under Sec. Sec. 1026.47(b)(1)(i) and (c)(1), and the 
notice of the right to cancel under Sec. 1026.47(c)(4).
    (b) Time of disclosures. The creditor shall make disclosures before 
consummation of the transaction. In certain residential mortgage 
transactions, special timing requirements are set forth in Sec. 
1026.19(a). In certain variable-rate transactions, special timing 
requirements for variable-rate disclosures are set forth in Sec. 
1026.19(b) and Sec. 1026.20(c). For private education loan disclosures 
made in compliance with Sec. 1026.47, special timing requirements are 
set forth in Sec. 1026.46(d). In certain transactions involving mail or 
telephone orders or a series of sales, the timing of disclosures may be 
delayed in accordance with paragraphs (g) and (h) of this section.
    (c) Basis of disclosures and use of estimates. (1) The disclosures 
shall reflect the terms of the legal obligation between the parties.
    (2)(i) If any information necessary for an accurate disclosure is 
unknown to the creditor, the creditor shall make the disclosure based on 
the best information reasonably available at the time the disclosure is 
provided to the consumer, and shall state clearly that the disclosure is 
an estimate.
    (ii) For a transaction in which a portion of the interest is 
determined on a per-diem basis and collected at consummation, any 
disclosure affected by the per-diem interest shall be considered 
accurate if the disclosure is based on the information known to the 
creditor at the time that the disclosure documents are prepared for 
consummation of the transaction.
    (3) The creditor may disregard the effects of the following in 
making calculations and disclosures.
    (i) That payments must be collected in whole cents.
    (ii) That dates of scheduled payments and advances may be changed 
because the scheduled date is not a business day.
    (iii) That months have different numbers of days.
    (iv) The occurrence of leap year.

[[Page 587]]

    (4) In making calculations and disclosures, the creditor may 
disregard any irregularity in the first period that falls within the 
limits described below and any payment schedule irregularity that 
results from the irregular first period:
    (i) For transactions in which the term is less than 1 year, a first 
period not more than 6 days shorter or 13 days longer than a regular 
period;
    (ii) For transactions in which the term is at least 1 year and less 
than 10 years, a first period not more than 11 days shorter or 21 days 
longer than a regular period; and
    (iii) For transactions in which the term is at least 10 years, a 
first period shorter than or not more than 32 days longer than a regular 
period.
    (5) If an obligation is payable on demand, the creditor shall make 
the disclosures based on an assumed maturity of 1 year. If an alternate 
maturity date is stated in the legal obligation between the parties, the 
disclosures shall be based on that date.
    (6)(i) A series of advances under an agreement to extend credit up 
to a certain amount may be considered as one transaction.
    (ii) When a multiple-advance loan to finance the construction of a 
dwelling may be permanently financed by the same creditor, the 
construction phase and the permanent phase may be treated as either one 
transaction or more than one transaction.
    (d) Multiple creditors; multiple consumers. If a transaction 
involves more than one creditor, only one set of disclosures shall be 
given and the creditors shall agree among themselves which creditor must 
comply with the requirements that this part imposes on any or all of 
them. If there is more than one consumer, the disclosures may be made to 
any consumer who is primarily liable on the obligation. If the 
transaction is rescindable under Sec. 1026.23, however, the disclosures 
shall be made to each consumer who has the right to rescind.
    (e) Effect of subsequent events. If a disclosure becomes inaccurate 
because of an event that occurs after the creditor delivers the required 
disclosures, the inaccuracy is not a violation of this part, although 
new disclosures may be required under paragraph (f) of this section, 
Sec. 1026.19, Sec. 1026.20, or Sec. 1026.48(c)(4).
    (f) Early disclosures. Except for private education loan disclosures 
made in compliance with Sec. 1026.47, if disclosures required by this 
subpart are given before the date of consummation of a transaction and a 
subsequent event makes them inaccurate, the creditor shall disclose 
before consummation (subject to the provisions of Sec. 1026.19(a)(2) 
and Sec. 1026.19(a)(5)(iii)):
    (1) Any changed term unless the term was based on an estimate in 
accordance with Sec. 1026.17(c)(2) and was labeled an estimate;
    (2) All changed terms, if the annual percentage rate at the time of 
consummation varies from the annual percentage rate disclosed earlier by 
more than \1/8\ of 1 percentage point in a regular transaction, or more 
than \1/4\ of 1 percentage point in an irregular transaction, as defined 
in Sec. 1026.22(a).
    (g) Mail or telephone orders--delay in disclosures. Except for 
private education loan disclosures made in compliance with Sec. 
1026.47, if a creditor receives a purchase order or a request for an 
extension of credit by mail, telephone, or facsimile machine without 
face-to-face or direct telephone solicitation, the creditor may delay 
the disclosures until the due date of the first payment, if the 
following information for representative amounts or ranges of credit is 
made available in written form or in electronic form to the consumer or 
to the public before the actual purchase order or request:
    (1) The cash price or the principal loan amount.
    (2) The total sale price.
    (3) The finance charge.
    (4) The annual percentage rate, and if the rate may increase after 
consummation, the following disclosures:
    (i) The circumstances under which the rate may increase.
    (ii) Any limitations on the increase.
    (iii) The effect of an increase.
    (5) The terms of repayment.
    (h) Series of sales--delay in disclosures. If a credit sale is one 
of a series made under an agreement providing that subsequent sales may 
be added to an outstanding balance, the creditor may delay the required 
disclosures until the

[[Page 588]]

due date of the first payment for the current sale, if the following two 
conditions are met:
    (1) The consumer has approved in writing the annual percentage rate 
or rates, the range of balances to which they apply, and the method of 
treating any unearned finance charge on an existing balance.
    (2) The creditor retains no security interest in any property after 
the creditor has received payments equal to the cash price and any 
finance charge attributable to the sale of that property. For purposes 
of this provision, in the case of items purchased on different dates, 
the first purchased is deemed the first item paid for; in the case of 
items purchased on the same date, the lowest priced is deemed the first 
item paid for.
    (i) Interim student credit extensions. For transactions involving an 
interim credit extension under a student credit program for which an 
application is received prior to the mandatory compliance date of 
Sec. Sec. 1026.46, 47, and 48, the creditor need not make the following 
disclosures: the finance charge under Sec. 1026.18(d), the payment 
schedule under Sec. 1026.18(g), the total of payments under Sec. 
1026.18(h), or the total sale price under Sec. 1026.18(j) at the time 
the credit is actually extended. The creditor must make complete 
disclosures at the time the creditor and consumer agree upon the 
repayment schedule for the total obligation. At that time, a new set of 
disclosures must be made of all applicable items under Sec. 1026.18.



Sec. 1026.18  Content of disclosures.

    For each transaction, the creditor shall disclose the following 
information as applicable:
    (a) Creditor. The identity of the creditor making the disclosures.
    (b) Amount financed. The amount financed, using that term, and a 
brief description such as the amount of credit provided to you or on 
your behalf. The amount financed is calculated by:
    (1) Determining the principal loan amount or the cash price 
(subtracting any downpayment);
    (2) Adding any other amounts that are financed by the creditor and 
are not part of the finance charge; and
    (3) Subtracting any prepaid finance charge.
    (c) Itemization of amount financed. (1) Except as provided in 
paragraphs (c)(2) and (c)(3) of this section, a separate written 
itemization of the amount financed, including:
    (i) The amount of any proceeds distributed directly to the consumer.
    (ii) The amount credited to the consumer's account with the 
creditor.
    (iii) Any amounts paid to other persons by the creditor on the 
consumer's behalf. The creditor shall identify those persons. The 
following payees may be described using generic or other general terms 
and need not be further identified: public officials or government 
agencies, credit reporting agencies, appraisers, and insurance 
companies.
    (iv) The prepaid finance charge.
    (2) The creditor need not comply with paragraph (c)(1) of this 
section if the creditor provides a statement that the consumer has the 
right to receive a written itemization of the amount financed, together 
with a space for the consumer to indicate whether it is desired, and the 
consumer does not request it.
    (3) Good faith estimates of settlement costs provided for 
transactions subject to the Real Estate Settlement Procedures Act (12 
U.S.C. 2601 et seq.) may be substituted for the disclosures required by 
paragraph (c)(1) of this section.
    (d) Finance charge. The finance charge, using that term, and a brief 
description such as ``the dollar amount the credit will cost you.''
    (1) Mortgage loans. In a transaction secured by real property or a 
dwelling, the disclosed finance charge and other disclosures affected by 
the disclosed finance charge (including the amount financed and the 
annual percentage rate) shall be treated as accurate if the amount 
disclosed as the finance charge:
    (i) Is understated by no more than $100; or
    (ii) Is greater than the amount required to be disclosed.
    (2) Other credit. In any other transaction, the amount disclosed as 
the finance charge shall be treated as accurate if, in a transaction 
involving an amount financed of $1,000 or less, it is not more than $5 
above or below the

[[Page 589]]

amount required to be disclosed; or, in a transaction involving an 
amount financed of more than $1,000, it is not more than $10 above or 
below the amount required to be disclosed.
    (e) Annual percentage rate. The annual percentage rate, using that 
term, and a brief description such as ``the cost of your credit as a 
yearly rate.'' For any transaction involving a finance charge of $5 or 
less on an amount financed of $75 or less, or a finance charge of $7.50 
or less on an amount financed of more than $75, the creditor need not 
disclose the annual percentage rate.
    (f) Variable rate. (1) Except as provided in paragraph (f)(3) of 
this section, if the annual percentage rate may increase after 
consummation in a transaction not secured by the consumer's principal 
dwelling or in a transaction secured by the consumer's principal 
dwelling with a term of one year or less, the following disclosures:
    (i) The circumstances under which the rate may increase.
    (ii) Any limitations on the increase.
    (iii) The effect of an increase.
    (iv) An example of the payment terms that would result from an 
increase.
    (2) If the annual percentage rate may increase after consummation in 
a transaction secured by the consumer's principal dwelling with a term 
greater than one year, the following disclosures:
    (i) The fact that the transaction contains a variable-rate feature.
    (ii) A statement that variable-rate disclosures have been provided 
earlier.
    (3) Information provided in accordance with Sec. Sec. 1026.18(f)(2) 
and 1026.19(b) may be substituted for the disclosures required by 
paragraph (f)(1) of this section.
    (g) Payment schedule. Other than for a transaction that is subject 
to paragraph (s) of this section, the number, amounts, and timing of 
payments scheduled to repay the obligation.
    (1) In a demand obligation with no alternate maturity date, the 
creditor may comply with this paragraph by disclosing the due dates or 
payment periods of any scheduled interest payments for the first year.
    (2) In a transaction in which a series of payments varies because a 
finance charge is applied to the unpaid principal balance, the creditor 
may comply with this paragraph by disclosing the following information:
    (i) The dollar amounts of the largest and smallest payments in the 
series.
    (ii) A reference to the variations in the other payments in the 
series.
    (h) Total of payments. The total of payments, using that term, and a 
descriptive explanation such as ``the amount you will have paid when you 
have made all scheduled payments.'' In any transaction involving a 
single payment, the creditor need not disclose the total of payments.
    (i) Demand feature. If the obligation has a demand feature, that 
fact shall be disclosed. When the disclosures are based on an assumed 
maturity of 1 year as provided in Sec. 1026.17(c)(5), that fact shall 
also be disclosed.
    (j) Total sale price. In a credit sale, the total sale price, using 
that term, and a descriptive explanation (including the amount of any 
downpayment) such as ``the total price of your purchase on credit, 
including your downpayment of $----.'' The total sale price is the sum 
of the cash price, the items described in paragraph (b)(2), and the 
finance charge disclosed under paragraph (d) of this section.
    (k) Prepayment. (1) When an obligation includes a finance charge 
computed from time to time by application of a rate to the unpaid 
principal balance, a statement indicating whether or not a penalty may 
be imposed if the obligation is prepaid in full.
    (2) When an obligation includes a finance charge other than the 
finance charge described in paragraph (k)(1) of this section, a 
statement indicating whether or not the consumer is entitled to a rebate 
of any finance charge if the obligation is prepaid in full.
    (l) Late payment. Any dollar or percentage charge that may be 
imposed before maturity due to a late payment, other than a deferral or 
extension charge.
    (m) Security interest. The fact that the creditor has or will 
acquire a security interest in the property purchased as part of the 
transaction, or in other property identified by item or type.
    (n) Insurance and debt cancellation. The items required by Sec. 
1026.4(d) in

[[Page 590]]

order to exclude certain insurance premiums and debt cancellation fees 
from the finance charge.
    (o) Certain security interest charges. The disclosures required by 
Sec. 1026.4(e) in order to exclude from the finance charge certain fees 
prescribed by law or certain premiums for insurance in lieu of 
perfecting a security interest.
    (p) Contract reference. A statement that the consumer should refer 
to the appropriate contract document for information about nonpayment, 
default, the right to accelerate the maturity of the obligation, and 
prepayment rebates and penalties. At the creditor's option, the 
statement may also include a reference to the contract for further 
information about security interests and, in a residential mortgage 
transaction, about the creditor's policy regarding assumption of the 
obligation.
    (q) Assumption policy. In a residential mortgage transaction, a 
statement whether or not a subsequent purchaser of the dwelling from the 
consumer may be permitted to assume the remaining obligation on its 
original terms.
    (r) Required deposit. If the creditor requires the consumer to 
maintain a deposit as a condition of the specific transaction, a 
statement that the annual percentage rate does not reflect the effect of 
the required deposit. A required deposit need not include, for example:
    (1) An escrow account for items such as taxes, insurance or repairs;
    (2) A deposit that earns not less than 5 percent per year; or
    (3) Payments under a Morris Plan.
    (s) Interest rate and payment summary for mortgage transactions. For 
a closed-end transaction secured by real property or a dwelling, other 
than a transaction secured by a consumer's interest in a timeshare plan 
described in 11 U.S.C. 101(53D), the creditor shall disclose the 
following information about the interest rate and payments:
    (1) Form of disclosures. The information in paragraphs (s)(2)-(4) of 
this section shall be in the form of a table, with no more than five 
columns, with headings and format substantially similar to Model Clause 
H-4(E), H-4(F), H-4(G), or H-4(H) in Appendix H to this part. The table 
shall contain only the information required in paragraphs (s)(2)-(4) of 
this section, shall be placed in a prominent location, and shall be in a 
minimum 10-point font.
    (2) Interest rates--(i) Amortizing loans. (A) For a fixed-rate 
mortgage, the interest rate at consummation.
    (B) For an adjustable-rate or step-rate mortgage:
    (1) The interest rate at consummation and the period of time until 
the first interest rate adjustment may occur, labeled as the 
``introductory rate and monthly payment'';
    (2) The maximum interest rate that may apply during the first five 
years after the date on which the first regular periodic payment will be 
due and the earliest date on which that rate may apply, labeled as 
``maximum during first five years''; and
    (3) The maximum interest rate that may apply during the life of the 
loan and the earliest date on which that rate may apply, labeled as 
``maximum ever.''
    (C) If the loan provides for payment increases as described in 
paragraph (s)(3)(i)(B) of this section, the interest rate in effect at 
the time the first such payment increase is scheduled to occur and the 
date on which the increase will occur, labeled as ``first adjustment'' 
if the loan is an adjustable-rate mortgage or, otherwise, labeled as 
``first increase.''
    (ii) Negative amortization loans. For a negative amortization loan:
    (A) The interest rate at consummation and, if it will adjust after 
consummation, the length of time until it will adjust, and the label 
``introductory'' or ``intro'';
    (B) The maximum interest rate that could apply when the consumer 
must begin making fully amortizing payments under the terms of the legal 
obligation;
    (C) If the minimum required payment will increase before the 
consumer must begin making fully amortizing payments, the maximum 
interest rate that could apply at the time of the first payment increase 
and the date the increase is scheduled to occur; and
    (D) If a second increase in the minimum required payment may occur 
before the consumer must begin making fully amortizing payments, the 
maximum interest rate that could apply at

[[Page 591]]

the time of the second payment increase and the date the increase is 
scheduled to occur.
    (iii) Introductory rate disclosure for amortizing adjustable-rate 
mortgages. For an amortizing adjustable-rate mortgage, if the interest 
rate at consummation is less than the fully-indexed rate, placed in a 
box directly beneath the table required by paragraph (s)(1) of this 
section, in a format substantially similar to Model Clause H-4(I) in 
appendix H to this part:
    (A) The interest rate that applies at consummation and the period of 
time for which it applies;
    (B) A statement that, even if market rates do not change, the 
interest rate will increase at the first adjustment and a designation of 
the place in sequence of the month or year, as applicable, of such rate 
adjustment; and
    (C) The fully-indexed rate.
    (3) Payments for amortizing loans--(i) Principal and interest 
payments. If all periodic payments will be applied to accrued interest 
and principal, for each interest rate disclosed under paragraph 
(s)(2)(i) of this section:
    (A) The corresponding periodic principal and interest payment, 
labeled as ``principal and interest;''
    (B) If the periodic payment may increase without regard to an 
interest rate adjustment, the payment that corresponds to the first such 
increase and the earliest date on which the increase could occur;
    (C) If an escrow account will be established, an estimate of the 
amount of taxes and insurance, including any mortgage insurance, payable 
with each periodic payment; and
    (D) The sum of the amounts disclosed under paragraphs (s)(3)(i)(A) 
and (C) of this section or (s)(3)(i)(B) and (C) of this section, as 
applicable, labeled as ``total estimated monthly payment.''
    (ii) Interest-only payments. If the loan is an interest-only loan, 
for each interest rate disclosed under paragraph (s)(2)(i) of this 
section, the corresponding periodic payment and:
    (A) If the payment will be applied to only accrued interest, the 
amount applied to interest, labeled as ``interest payment,'' and a 
statement that none of the payment is being applied to principal;
    (B) If the payment will be applied to accrued interest and 
principal, an itemization of the amount of the first such payment 
applied to accrued interest and to principal, labeled as ``interest 
payment'' and ``principal payment,'' respectively;
    (C) The escrow information described in paragraph (s)(3)(i)(C) of 
this section; and
    (D) The sum of all amounts required to be disclosed under paragraphs 
(s)(3)(ii)(A) and (C) of this section or (s)(3)(ii)(B) and (C) of this 
section, as applicable, labeled as ``total estimated monthly payment.''
    (4) Payments for negative amortization loans. For negative 
amortization loans:
    (i)(A) The minimum periodic payment required until the first payment 
increase or interest rate increase, corresponding to the interest rate 
disclosed under paragraph (s)(2)(ii)(A) of this section;
    (B) The minimum periodic payment that would be due at the first 
payment increase and the second, if any, corresponding to the interest 
rates described in paragraphs (s)(2)(ii)(C) and (D) of this section; and
    (C) A statement that the minimum payment pays only some interest, 
does not repay any principal, and will cause the loan amount to 
increase;
    (ii) The fully amortizing periodic payment amount at the earliest 
time when such a payment must be made, corresponding to the interest 
rate disclosed under paragraph (s)(2)(ii)(B) of this section; and
    (iii) If applicable, in addition to the payments in paragraphs 
(s)(4)(i) and (ii) of this section, for each interest rate disclosed 
under paragraph (s)(2)(ii) of this section, the amount of the fully 
amortizing periodic payment, labeled as the ``full payment option,'' and 
a statement that these payments pay all principal and all accrued 
interest.
    (5) Balloon payments. (i) Except as provided in paragraph (s)(5)(ii) 
of this section, if the transaction will require a balloon payment, 
defined as a payment that is more than two times a regular periodic 
payment, the balloon payment shall be disclosed separately from other 
periodic payments disclosed in the table under this paragraph (s),

[[Page 592]]

outside the table and in a manner substantially similar to Model Clause 
H-4(J) in appendix H to this part.
    (ii) If the balloon payment is scheduled to occur at the same time 
as another payment required to be disclosed in the table pursuant to 
paragraph (s)(3) or (s)(4) of this section, then the balloon payment 
must be disclosed in the table.
    (6) Special disclosures for loans with negative amortization. For a 
negative amortization loan, the following information, in close 
proximity to the table required in paragraph (s)(1) of this section, 
with headings, content, and format substantially similar to Model Clause 
H-4(G) in appendix H to this part:
    (i) The maximum interest rate, the shortest period of time in which 
such interest rate could be reached, the amount of estimated taxes and 
insurance included in each payment disclosed, and a statement that the 
loan offers payment options, two of which are shown.
    (ii) The dollar amount of the increase in the loan's principal 
balance if the consumer makes only the minimum required payments for the 
maximum possible time and the earliest date on which the consumer must 
begin making fully amortizing payments, assuming that the maximum 
interest rate is reached at the earliest possible time.
    (7) Definitions. For purposes of this Sec. 1026.18(s):
    (i) The term ``adjustable-rate mortgage'' means a transaction 
secured by real property or a dwelling for which the annual percentage 
rate may increase after consummation.
    (ii) The term ``step-rate mortgage'' means a transaction secured by 
real property or a dwelling for which the interest rate will change 
after consummation, and the rates that will apply and the periods for 
which they will apply are known at consummation.
    (iii) The term ``fixed-rate mortgage'' means a transaction secured 
by real property or a dwelling that is not an adjustable-rate mortgage 
or a step-rate mortgage.
    (iv) The term ``interest-only'' means that, under the terms of the 
legal obligation, one or more of the periodic payments may be applied 
solely to accrued interest and not to loan principal; an ``interest-only 
loan'' is a loan that permits interest-only payments.
    (v) The term ``amortizing loan'' means a loan in which payment of 
the periodic payments does not result in an increase in the principal 
balance under the terms of the legal obligation; the term ``negative 
amortization'' means payment of periodic payments that will result in an 
increase in the principal balance under the terms of the legal 
obligation; the term ``negative amortization loan'' means a loan, other 
than a reverse mortgage subject to Sec. 1026.33, that provides for a 
minimum periodic payment that covers only a portion of the accrued 
interest, resulting in negative amortization.
    (vi) The term ``fully-indexed rate'' means the interest rate 
calculated using the index value and margin at the time of consummation.
    (t) ``No-guarantee-to-refinance'' statement--(1) Disclosure. For a 
closed-end transaction secured by real property or a dwelling, other 
than a transaction secured by a consumer's interest in a timeshare plan 
described in 11 U.S.C. 101(53D), the creditor shall disclose a statement 
that there is no guarantee the consumer can refinance the transaction to 
lower the interest rate or periodic payments.
    (2) Format. The statement required by paragraph (t)(1) of this 
section must be in a form substantially similar to Model Clause H-4(K) 
in Appendix H to this part.



Sec. 1026.19  Certain mortgage and variable-rate transactions.

    (a) Mortgage transactions subject to RESPA--(1)(i) Time of 
disclosures. In a mortgage transaction subject to the Real Estate 
Settlement Procedures Act (12 U.S.C. 2601 et seq.) that is secured by 
the consumer's dwelling, other than a home equity line of credit subject 
to Sec. 1026.40 or mortgage transaction subject to paragraph (a)(5) of 
this section, the creditor shall make good faith estimates of the 
disclosures required by Sec. 1026.18 and shall deliver or place them in 
the mail not later than the third business day after the creditor 
receives the consumer's written application.

[[Page 593]]

    (ii) Imposition of fees. Except as provided in paragraph (a)(1)(iii) 
of this section, neither a creditor nor any other person may impose a 
fee on a consumer in connection with the consumer's application for a 
mortgage transaction subject to paragraph (a)(1)(i) of this section 
before the consumer has received the disclosures required by paragraph 
(a)(1)(i) of this section. If the disclosures are mailed to the 
consumer, the consumer is considered to have received them three 
business days after they are mailed.
    (iii) Exception to fee restriction. A creditor or other person may 
impose a fee for obtaining the consumer's credit history before the 
consumer has received the disclosures required by paragraph (a)(1)(i) of 
this section, provided the fee is bona fide and reasonable in amount.
    (2) Waiting periods for early disclosures and corrected disclosures. 
(i) The creditor shall deliver or place in the mail the good faith 
estimates required by paragraph (a)(1)(i) of this section not later than 
the seventh business day before consummation of the transaction.
    (ii) If the annual percentage rate disclosed under paragraph 
(a)(1)(i) of this section becomes inaccurate, as defined in Sec. 
1026.22, the creditor shall provide corrected disclosures with all 
changed terms. The consumer must receive the corrected disclosures no 
later than three business days before consummation. If the corrected 
disclosures are mailed to the consumer or delivered to the consumer by 
means other than delivery in person, the consumer is deemed to have 
received the corrected disclosures three business days after they are 
mailed or delivered.
    (3) Consumer's waiver of waiting period before consummation. If the 
consumer determines that the extension of credit is needed to meet a 
bona fide personal financial emergency, the consumer may modify or waive 
the seven-business-day waiting period or the three-business-day waiting 
period required by paragraph (a)(2) of this section, after receiving the 
disclosures required by Sec. 1026.18. To modify or waive a waiting 
period, the consumer shall give the creditor a dated written statement 
that describes the emergency, specifically modifies or waives the 
waiting period, and bears the signature of all the consumers who are 
primarily liable on the legal obligation. Printed forms for this purpose 
are prohibited.
    (4) Notice. Disclosures made pursuant to paragraph (a)(1) or 
paragraph (a)(2) of this section shall contain the following statement: 
``You are not required to complete this agreement merely because you 
have received these disclosures or signed a loan application.'' The 
disclosure required by this paragraph shall be grouped together with the 
disclosures required by paragraphs (a)(1) or (a)(2) of this section.
    (5) Timeshare plans. In a mortgage transaction subject to the Real 
Estate Settlement Procedures Act (12 U.S.C. 2601 et seq.) that is 
secured by a consumer's interest in a timeshare plan described in 11 
U.S.C. 101(53(D)):
    (i) The requirements of paragraphs (a)(1) through (a)(4) of this 
section do not apply;
    (ii) The creditor shall make good faith estimates of the disclosures 
required by Sec. 1026.18 before consummation, or shall deliver or place 
them in the mail not later than three business days after the creditor 
receives the consumer's written application, whichever is earlier; and
    (iii) If the annual percentage rate at the time of consummation 
varies from the annual percentage rate disclosed under paragraph 
(a)(5)(ii) of this section by more than \1/8\ of 1 percentage point in a 
regular transaction or more than \1/4\ of 1 percentage point in an 
irregular transaction, as defined in Sec. 1026.22, the creditor shall 
disclose all the changed terms no later than consummation or settlement.
    (b) Certain variable-rate transactions. Except as provided in 
paragraph (d) of this section, if the annual percentage rate may 
increase after consummation in a transaction secured by the consumer's 
principal dwelling with a term greater than one year, the following 
disclosures must be provided at the time an application form is provided 
or before the consumer pays a non-refundable fee, whichever is earlier 
(except that the disclosures may be delivered or placed in the mail not 
later than three business days following receipt of

[[Page 594]]

a consumer's application when the application reaches the creditor by 
telephone, or through an intermediary agent or broker):
    (1) The booklet titled Consumer Handbook on Adjustable Rate 
Mortgages, or a suitable substitute.
    (2) A loan program disclosure for each variable-rate program in 
which the consumer expresses an interest. The following disclosures, as 
applicable, shall be provided:
    (i) The fact that the interest rate, payment, or term of the loan 
can change.
    (ii) The index or formula used in making adjustments, and a source 
of information about the index or formula.
    (iii) An explanation of how the interest rate and payment will be 
determined, including an explanation of how the index is adjusted, such 
as by the addition of a margin.
    (iv) A statement that the consumer should ask about the current 
margin value and current interest rate.
    (v) The fact that the interest rate will be discounted, and a 
statement that the consumer should ask about the amount of the interest 
rate discount.
    (vi) The frequency of interest rate and payment changes.
    (vii) Any rules relating to changes in the index, interest rate, 
payment amount, and outstanding loan balance including, for example, an 
explanation of interest rate or payment limitations, negative 
amortization, and interest rate carryover.
    (viii) At the option of the creditor, either of the following:
    (A) A historical example, based on a $10,000 loan amount, 
illustrating how payments and the loan balance would have been affected 
by interest rate changes implemented according to the terms of the loan 
program disclosure. The example shall reflect the most recent 15 years 
of index values. The example shall reflect all significant loan program 
terms, such as negative amortization, interest rate carryover, interest 
rate discounts, and interest rate and payment limitations, that would 
have been affected by the index movement during the period.
    (B) The maximum interest rate and payment for a $10,000 loan 
originated at the initial interest rate (index value plus margin, 
adjusted by the amount of any discount or premium) in effect as of an 
identified month and year for the loan program disclosure assuming the 
maximum periodic increases in rates and payments under the program; and 
the initial interest rate and payment for that loan and a statement that 
the periodic payment may increase or decrease substantially depending on 
changes in the rate.
    (ix) An explanation of how the consumer may calculate the payments 
for the loan amount to be borrowed based on either:
    (A) The most recent payment shown in the historical example in 
paragraph (b)(2)(viii)(A) of this section; or
    (B) The initial interest rate used to calculate the maximum interest 
rate and payment in paragraph (b)(2)(viii)(B) of this section.
    (x) The fact that the loan program contains a demand feature.
    (xi) The type of information that will be provided in notices of 
adjustments and the timing of such notices.
    (xii) A statement that disclosure forms are available for the 
creditor's other variable-rate loan programs.
    (c) Electronic disclosures. For an application that is accessed by 
the consumer in electronic form, the disclosures required by paragraph 
(b) of this section may be provided to the consumer in electronic form 
on or with the application.
    (d) Information provided in accordance with variable-rate 
regulations of other Federal agencies may be substituted for the 
disclosures required by paragraph (b) of this section.



Sec. 1026.20  Subsequent disclosure requirements.

    (a) Refinancings. A refinancing occurs when an existing obligation 
that was subject to this subpart is satisfied and replaced by a new 
obligation undertaken by the same consumer. A refinancing is a new 
transaction requiring new disclosures to the consumer. The new finance 
charge shall include any unearned portion of the old finance

[[Page 595]]

charge that is not credited to the existing obligation. The following 
shall not be treated as a refinancing:
    (1) A renewal of a single payment obligation with no change in the 
original terms.
    (2) A reduction in the annual percentage rate with a corresponding 
change in the payment schedule.
    (3) An agreement involving a court proceeding.
    (4) A change in the payment schedule or a change in collateral 
requirements as a result of the consumer's default or delinquency, 
unless the rate is increased, or the new amount financed exceeds the 
unpaid balance plus earned finance charge and premiums for continuation 
of insurance of the types described in Sec. 1026.4(d).
    (5) The renewal of optional insurance purchased by the consumer and 
added to an existing transaction, if disclosures relating to the initial 
purchase were provided as required by this subpart.
    (b) Assumptions. An assumption occurs when a creditor expressly 
agrees in writing with a subsequent consumer to accept that consumer as 
a primary obligor on an existing residential mortgage transaction. 
Before the assumption occurs, the creditor shall make new disclosures to 
the subsequent consumer, based on the remaining obligation. If the 
finance charge originally imposed on the existing obligation was an add-
on or discount finance charge, the creditor need only disclose:
    (1) The unpaid balance of the obligation assumed.
    (2) The total charges imposed by the creditor in connection with the 
assumption.
    (3) The information required to be disclosed under Sec. 1026.18(k), 
(l), (m), and (n).
    (4) The annual percentage rate originally imposed on the obligation.
    (5) The payment schedule under Sec. 1026.18(g) and the total of 
payments under Sec. 1026.18(h) based on the remaining obligation.
    (c) Variable-rate adjustments. Except as provided in paragraph (d) 
of this section, an adjustment to the interest rate with or without a 
corresponding adjustment to the payment in a variable-rate transaction 
subject to Sec. 1026.19(b) is an event requiring new disclosures to the 
consumer. At least once each year during which an interest rate 
adjustment is implemented without an accompanying payment change, and at 
least 25, but no more than 120, calendar days before a payment at a new 
level is due, the following disclosures, as applicable, must be 
delivered or placed in the mail:
    (1) The current and prior interest rates.
    (2) The index values upon which the current and prior interest rates 
are based.
    (3) The extent to which the creditor has foregone any increase in 
the interest rate.
    (4) The contractual effects of the adjustment, including the payment 
due after the adjustment is made, and a statement of the loan balance.
    (5) The payment, if different from that referred to in paragraph 
(c)(4) of this section, that would be required to fully amortize the 
loan at the new interest rate over the remainder of the loan term.
    (d) Information provided in accordance with variable-rate subsequent 
disclosure regulations of other Federal agencies may be substituted for 
the disclosure required by paragraph (c) of this section.



Sec. 1026.21  Treatment of credit balances.

    When a credit balance in excess of $1 is created in connection with 
a transaction (through transmittal of funds to a creditor in excess of 
the total balance due on an account, through rebates of unearned finance 
charges or insurance premiums, or through amounts otherwise owed to or 
held for the benefit of a consumer), the creditor shall:
    (a) Credit the amount of the credit balance to the consumer's 
account;
    (b) Refund any part of the remaining credit balance, upon the 
written request of the consumer; and
    (c) Make a good faith effort to refund to the consumer by cash, 
check, or money order, or credit to a deposit account of the consumer, 
any part of the credit balance remaining in the account for more than 6 
months, except that no further action is required if the consumer's 
current location is not known to the creditor and cannot be

[[Page 596]]

traced through the consumer's last known address or telephone number.



Sec. 1026.22  Determination of annual percentage rate.

    (a) Accuracy of annual percentage rate. (1) The annual percentage 
rate is a measure of the cost of credit, expressed as a yearly rate, 
that relates the amount and timing of value received by the consumer to 
the amount and timing of payments made. The annual percentage rate shall 
be determined in accordance with either the actuarial method or the 
United States Rule method. Explanations, equations and instructions for 
determining the annual percentage rate in accordance with the actuarial 
method are set forth in appendix J to this part. An error in disclosure 
of the annual percentage rate or finance charge shall not, in itself, be 
considered a violation of this part if:
    (i) The error resulted from a corresponding error in a calculation 
tool used in good faith by the creditor; and
    (ii) Upon discovery of the error, the creditor promptly discontinues 
use of that calculation tool for disclosure purposes and notifies the 
Bureau in writing of the error in the calculation tool.
    (2) As a general rule, the annual percentage rate shall be 
considered accurate if it is not more than \1/8\ of 1 percentage point 
above or below the annual percentage rate determined in accordance with 
paragraph (a)(1) of this section.
    (3) In an irregular transaction, the annual percentage rate shall be 
considered accurate if it is not more than \1/4\ of 1 percentage point 
above or below the annual percentage rate determined in accordance with 
paragraph (a)(1) of this section. For purposes of this paragraph (a)(3), 
an irregular transaction is one that includes one or more of the 
following features: multiple advances, irregular payment periods, or 
irregular payment amounts (other than an irregular first period or an 
irregular first or final payment).
    (4) Mortgage loans. If the annual percentage rate disclosed in a 
transaction secured by real property or a dwelling varies from the 
actual rate determined in accordance with paragraph (a)(1) of this 
section, in addition to the tolerances applicable under paragraphs 
(a)(2) and (3) of this section, the disclosed annual percentage rate 
shall also be considered accurate if:
    (i) The rate results from the disclosed finance charge; and
    (ii)(A) The disclosed finance charge would be considered accurate 
under Sec. 1026.18(d)(1); or
    (B) For purposes of rescission, if the disclosed finance charge 
would be considered accurate under Sec. 1026.23(g) or (h), whichever 
applies.
    (5) Additional tolerance for mortgage loans. In a transaction 
secured by real property or a dwelling, in addition to the tolerances 
applicable under paragraphs (a)(2) and (3) of this section, if the 
disclosed finance charge is calculated incorrectly but is considered 
accurate under Sec. 1026.18(d)(1) or Sec. 1026.23(g) or (h), the 
disclosed annual percentage rate shall be considered accurate:
    (i) If the disclosed finance charge is understated, and the 
disclosed annual percentage rate is also understated but it is closer to 
the actual annual percentage rate than the rate that would be considered 
accurate under paragraph (a)(4) of this section;
    (ii) If the disclosed finance charge is overstated, and the 
disclosed annual percentage rate is also overstated but it is closer to 
the actual annual percentage rate than the rate that would be considered 
accurate under paragraph (a)(4) of this section.
    (b) Computation tools. (1) The Regulation Z Annual Percentage Rate 
Tables produced by the Bureau may be used to determine the annual 
percentage rate, and any rate determined from those tables in accordance 
with the accompanying instructions complies with the requirements of 
this section. Volume I of the tables applies to single advance 
transactions involving up to 480 monthly payments or 104 weekly 
payments. It may be used for regular transactions and for transactions 
with any of the following irregularities: an irregular first period, an 
irregular first payment, and an irregular final payment. Volume II of 
the tables applies to transactions involving multiple advances and any 
type of payment or period irregularity.

[[Page 597]]

    (2) Creditors may use any other computation tool in determining the 
annual percentage rate if the rate so determined equals the rate 
determined in accordance with appendix J to this part, within the degree 
of accuracy set forth in paragraph (a) of this section.
    (c) Single add-on rate transactions. If a single add-on rate is 
applied to all transactions with maturities up to 60 months and if all 
payments are equal in amount and period, a single annual percentage rate 
may be disclosed for all those transactions, so long as it is the 
highest annual percentage rate for any such transaction.
    (d) Certain transactions involving ranges of balances. For purposes 
of disclosing the annual percentage rate referred to in Sec. 
1026.17(g)(4) (Mail or telephone orders--delay in disclosures) and (h) 
(Series of sales--delay in disclosures), if the same finance charge is 
imposed on all balances within a specified range of balances, the annual 
percentage rate computed for the median balance may be disclosed for all 
the balances. However, if the annual percentage rate computed for the 
median balance understates the annual percentage rate computed for the 
lowest balance by more than 8 percent of the latter rate, the annual 
percentage rate shall be computed on whatever lower balance will produce 
an annual percentage rate that does not result in an understatement of 
more than 8 percent of the rate determined on the lowest balance.



Sec. 1026.23  Right of rescission.

    (a) Consumer's right to rescind. (1) In a credit transaction in 
which a security interest is or will be retained or acquired in a 
consumer's principal dwelling, each consumer whose ownership interest is 
or will be subject to the security interest shall have the right to 
rescind the transaction, except for transactions described in paragraph 
(f) of this section. For purposes of this section, the addition to an 
existing obligation of a security interest in a consumer's principal 
dwelling is a transaction. The right of rescission applies only to the 
addition of the security interest and not the existing obligation. The 
creditor shall deliver the notice required by paragraph (b) of this 
section but need not deliver new material disclosures. Delivery of the 
required notice shall begin the rescission period.
    (2) To exercise the right to rescind, the consumer shall notify the 
creditor of the rescission by mail, telegram or other means of written 
communication. Notice is considered given when mailed, when filed for 
telegraphic transmission or, if sent by other means, when delivered to 
the creditor's designated place of business.
    (3)(i) The consumer may exercise the right to rescind until midnight 
of the third business day following consummation, delivery of the notice 
required by paragraph (b) of this section, or delivery of all material 
disclosures, whichever occurs last. If the required notice or material 
disclosures are not delivered, the right to rescind shall expire 3 years 
after consummation, upon transfer of all of the consumer's interest in 
the property, or upon sale of the property, whichever occurs first. In 
the case of certain administrative proceedings, the rescission period 
shall be extended in accordance with section 125(f) of the Act.
    (ii) For purposes of this paragraph (a)(3), the term ``material 
disclosures'' means the required disclosures of the annual percentage 
rate, the finance charge, the amount financed, the total of payments, 
the payment schedule, and the disclosures and limitations referred to in 
Sec. Sec. 1026.32(c) and (d) and 1026.35(b)(2).
    (4) When more than one consumer in a transaction has the right to 
rescind, the exercise of the right by one consumer shall be effective as 
to all consumers.
    (b)(1) Notice of right to rescind. In a transaction subject to 
rescission, a creditor shall deliver two copies of the notice of the 
right to rescind to each consumer entitled to rescind (one copy to each 
if the notice is delivered in electronic form in accordance with the 
consumer consent and other applicable provisions of the E-Sign Act). The 
notice shall be on a separate document that identifies the transaction 
and shall clearly and conspicuously disclose the following:
    (i) The retention or acquisition of a security interest in the 
consumer's principal dwelling.

[[Page 598]]

    (ii) The consumer's right to rescind the transaction.
    (iii) How to exercise the right to rescind, with a form for that 
purpose, designating the address of the creditor's place of business.
    (iv) The effects of rescission, as described in paragraph (d) of 
this section.
    (v) The date the rescission period expires.
    (2) Proper form of notice. To satisfy the disclosure requirements of 
paragraph (b)(1) of this section, the creditor shall provide the 
appropriate model form in Appendix H of this part or a substantially 
similar notice.
    (c) Delay of creditor's performance. Unless a consumer waives the 
right of rescission under paragraph (e) of this section, no money shall 
be disbursed other than in escrow, no services shall be performed and no 
materials delivered until the rescission period has expired and the 
creditor is reasonably satisfied that the consumer has not rescinded.
    (d) Effects of rescission. (1) When a consumer rescinds a 
transaction, the security interest giving rise to the right of 
rescission becomes void and the consumer shall not be liable for any 
amount, including any finance charge.
    (2) Within 20 calendar days after receipt of a notice of rescission, 
the creditor shall return any money or property that has been given to 
anyone in connection with the transaction and shall take any action 
necessary to reflect the termination of the security interest.
    (3) If the creditor has delivered any money or property, the 
consumer may retain possession until the creditor has met its obligation 
under paragraph (d)(2) of this section. When the creditor has complied 
with that paragraph, the consumer shall tender the money or property to 
the creditor or, where the latter would be impracticable or inequitable, 
tender its reasonable value. At the consumer's option, tender of 
property may be made at the location of the property or at the 
consumer's residence. Tender of money must be made at the creditor's 
designated place of business. If the creditor does not take possession 
of the money or property within 20 calendar days after the consumer's 
tender, the consumer may keep it without further obligation.
    (4) The procedures outlined in paragraphs (d)(2) and (3) of this 
section may be modified by court order.
    (e) Consumer's waiver of right to rescind. The consumer may modify 
or waive the right to rescind if the consumer determines that the 
extension of credit is needed to meet a bona fide personal financial 
emergency. To modify or waive the right, the consumer shall give the 
creditor a dated written statement that describes the emergency, 
specifically modifies or waives the right to rescind, and bears the 
signature of all the consumers entitled to rescind. Printed forms for 
this purpose are prohibited.
    (f) Exempt transactions. The right to rescind does not apply to the 
following:
    (1) A residential mortgage transaction.
    (2) A refinancing or consolidation by the same creditor of an 
extension of credit already secured by the consumer's principal 
dwelling. The right of rescission shall apply, however, to the extent 
the new amount financed exceeds the unpaid principal balance, any earned 
unpaid finance charge on the existing debt, and amounts attributed 
solely to the costs of the refinancing or consolidation.
    (3) A transaction in which a state agency is a creditor.
    (4) An advance, other than an initial advance, in a series of 
advances or in a series of single-payment obligations that is treated as 
a single transaction under Sec. 1026.17(c)(6), if the notice required 
by paragraph (b) of this section and all material disclosures have been 
given to the consumer.
    (5) A renewal of optional insurance premiums that is not considered 
a refinancing under Sec. 1026.20(a)(5).
    (g) Tolerances for accuracy--(1) One-half of 1 percent tolerance. 
Except as provided in paragraphs (g)(2) and (h)(2) of this section, the 
finance charge and other disclosures affected by the finance charge 
(such as the amount financed and the annual percentage rate) shall be 
considered accurate for purposes of this section if the disclosed 
finance charge:

[[Page 599]]

    (i) Is understated by no more than \1/2\ of 1 percent of the face 
amount of the note or $100, whichever is greater; or
    (ii) Is greater than the amount required to be disclosed.
    (2) One percent tolerance. In a refinancing of a residential 
mortgage transaction with a new creditor (other than a transaction 
covered by Sec. 1026.32), if there is no new advance and no 
consolidation of existing loans, the finance charge and other 
disclosures affected by the finance charge (such as the amount financed 
and the annual percentage rate) shall be considered accurate for 
purposes of this section if the disclosed finance charge:
    (i) Is understated by no more than 1 percent of the face amount of 
the note or $100, whichever is greater; or
    (ii) Is greater than the amount required to be disclosed.
    (h) Special rules for foreclosures--(1) Right to rescind. After the 
initiation of foreclosure on the consumer's principal dwelling that 
secures the credit obligation, the consumer shall have the right to 
rescind the transaction if:
    (i) A mortgage broker fee that should have been included in the 
finance charge was not included; or
    (ii) The creditor did not provide the properly completed appropriate 
model form in appendix H of this part, or a substantially similar notice 
of rescission.
    (2) Tolerance for disclosures. After the initiation of foreclosure 
on the consumer's principal dwelling that secures the credit obligation, 
the finance charge and other disclosures affected by the finance charge 
(such as the amount financed and the annual percentage rate) shall be 
considered accurate for purposes of this section if the disclosed 
finance charge:
    (i) Is understated by no more than $35; or
    (ii) Is greater than the amount required to be disclosed.



Sec. 1026.24  Advertising.

    (a) Actually available terms. If an advertisement for credit states 
specific credit terms, it shall state only those terms that actually are 
or will be arranged or offered by the creditor.
    (b) Clear and conspicuous standard. Disclosures required by this 
section shall be made clearly and conspicuously.
    (c) Advertisement of rate of finance charge. If an advertisement 
states a rate of finance charge, it shall state the rate as an ``annual 
percentage rate,'' using that term. If the annual percentage rate may be 
increased after consummation, the advertisement shall state that fact. 
If an advertisement is for credit not secured by a dwelling, the 
advertisement shall not state any other rate, except that a simple 
annual rate or periodic rate that is applied to an unpaid balance may be 
stated in conjunction with, but not more conspicuously than, the annual 
percentage rate. If an advertisement is for credit secured by a 
dwelling, the advertisement shall not state any other rate, except that 
a simple annual rate that is applied to an unpaid balance may be stated 
in conjunction with, but not more conspicuously than, the annual 
percentage rate.
    (d) Advertisement of terms that require additional disclosures--(1) 
Triggering terms. If any of the following terms is set forth in an 
advertisement, the advertisement shall meet the requirements of 
paragraph (d)(2) of this section:
    (i) The amount or percentage of any downpayment.
    (ii) The number of payments or period of repayment.
    (iii) The amount of any payment.
    (iv) The amount of any finance charge.
    (2) Additional terms. An advertisement stating any of the terms in 
paragraph (d)(1) of this section shall state the following terms, as 
applicable (an example of one or more typical extensions of credit with 
a statement of all the terms applicable to each may be used):
    (i) The amount or percentage of the downpayment.
    (ii) The terms of repayment, which reflect the repayment obligations 
over the full term of the loan, including any balloon payment.
    (iii) The ``annual percentage rate,'' using that term, and, if the 
rate may be increased after consummation, that fact.
    (e) Catalogs or other multiple-page advertisements; electronic 
advertisements. (1)

[[Page 600]]

If a catalog or other multiple-page advertisement, or an electronic 
advertisement (such as an advertisement appearing on an Internet Web 
site), gives information in a table or schedule in sufficient detail to 
permit determination of the disclosures required by paragraph (d)(2) of 
this section, it shall be considered a single advertisement if:
    (i) The table or schedule is clearly and conspicuously set forth; 
and
    (ii) Any statement of the credit terms in paragraph (d)(1) of this 
section appearing anywhere else in the catalog or advertisement clearly 
refers to the page or location where the table or schedule begins.
    (2) A catalog or other multiple-page advertisement or an electronic 
advertisement (such as an advertisement appearing on an Internet Web 
site) complies with paragraph (d)(2) of this section if the table or 
schedule of terms includes all appropriate disclosures for a 
representative scale of amounts up to the level of the more commonly 
sold higher-priced property or services offered.
    (f) Disclosure of rates and payments in advertisements for credit 
secured by a dwelling--(1) Scope. The requirements of this paragraph 
apply to any advertisement for credit secured by a dwelling, other than 
television or radio advertisements, including promotional materials 
accompanying applications.
    (2) Disclosure of rates--(i) In general. If an advertisement for 
credit secured by a dwelling states a simple annual rate of interest and 
more than one simple annual rate of interest will apply over the term of 
the advertised loan, the advertisement shall disclose in a clear and 
conspicuous manner:
    (A) Each simple annual rate of interest that will apply. In 
variable-rate transactions, a rate determined by adding an index and 
margin shall be disclosed based on a reasonably current index and 
margin;
    (B) The period of time during which each simple annual rate of 
interest will apply; and
    (C) The annual percentage rate for the loan. If such rate is 
variable, the annual percentage rate shall comply with the accuracy 
standards in Sec. Sec. 1026.17(c) and 1026.22.
    (ii) Clear and conspicuous requirement. For purposes of paragraph 
(f)(2)(i) of this section, clearly and conspicuously disclosed means 
that the required information in paragraphs (f)(2)(i)(A) through (C) 
shall be disclosed with equal prominence and in close proximity to any 
advertised rate that triggered the required disclosures. The required 
information in paragraph (f)(2)(i)(C) may be disclosed with greater 
prominence than the other information.
    (3) Disclosure of payments--(i) In general. In addition to the 
requirements of paragraph (c) of this section, if an advertisement for 
credit secured by a dwelling states the amount of any payment, the 
advertisement shall disclose in a clear and conspicuous manner:
    (A) The amount of each payment that will apply over the term of the 
loan, including any balloon payment. In variable-rate transactions, 
payments that will be determined based on the application of the sum of 
an index and margin shall be disclosed based on a reasonably current 
index and margin;
    (B) The period of time during which each payment will apply; and
    (C) In an advertisement for credit secured by a first lien on a 
dwelling, the fact that the payments do not include amounts for taxes 
and insurance premiums, if applicable, and that the actual payment 
obligation will be greater.
    (ii) Clear and conspicuous requirement. For purposes of paragraph 
(f)(3)(i) of this section, a clear and conspicuous disclosure means that 
the required information in paragraphs (f)(3)(i)(A) and (B) shall be 
disclosed with equal prominence and in close proximity to any advertised 
payment that triggered the required disclosures, and that the required 
information in paragraph (f)(3)(i)(C) shall be disclosed with prominence 
and in close proximity to the advertised payments.
    (4) Envelope excluded. The requirements in paragraphs (f)(2) and 
(f)(3) of this section do not apply to an envelope in which an 
application or solicitation is mailed, or to a banner advertisement or 
pop-up advertisement linked to an application or solicitation provided 
electronically.

[[Page 601]]

    (g) Alternative disclosures--television or radio advertisements. An 
advertisement made through television or radio stating any of the terms 
requiring additional disclosures under paragraph (d)(2) of this section 
may comply with paragraph (d)(2) of this section either by:
    (1) Stating clearly and conspicuously each of the additional 
disclosures required under paragraph (d)(2) of this section; or
    (2) Stating clearly and conspicuously the information required by 
paragraph (d)(2)(iii) of this section and listing a toll-free telephone 
number, or any telephone number that allows a consumer to reverse the 
phone charges when calling for information, along with a reference that 
such number may be used by consumers to obtain additional cost 
information.
    (h) Tax implications. If an advertisement distributed in paper form 
or through the Internet (rather than by radio or television) is for a 
loan secured by the consumer's principal dwelling, and the advertisement 
states that the advertised extension of credit may exceed the fair 
market value of the dwelling, the advertisement shall clearly and 
conspicuously state that:
    (1) The interest on the portion of the credit extension that is 
greater than the fair market value of the dwelling is not tax deductible 
for Federal income tax purposes; and
    (2) The consumer should consult a tax adviser for further 
information regarding the deductibility of interest and charges.
    (i) Prohibited acts or practices in advertisements for credit 
secured by a dwelling. The following acts or practices are prohibited in 
advertisements for credit secured by a dwelling:
    (1) Misleading advertising of ``fixed'' rates and payments. Using 
the word ``fixed'' to refer to rates, payments, or the credit 
transaction in an advertisement for variable-rate transactions or other 
transactions where the payment will increase, unless:
    (i) In the case of an advertisement solely for one or more variable-
rate transactions,
    (A) The phrase ``Adjustable-Rate Mortgage,'' ``Variable-Rate 
Mortgage,'' or ``ARM'' appears in the advertisement before the first use 
of the word ``fixed'' and is at least as conspicuous as any use of the 
word ``fixed'' in the advertisement; and
    (B) Each use of the word ``fixed'' to refer to a rate or payment is 
accompanied by an equally prominent and closely proximate statement of 
the time period for which the rate or payment is fixed, and the fact 
that the rate may vary or the payment may increase after that period;
    (ii) In the case of an advertisement solely for non-variable-rate 
transactions where the payment will increase (e.g., a stepped-rate 
mortgage transaction with an initial lower payment), each use of the 
word ``fixed'' to refer to the payment is accompanied by an equally 
prominent and closely proximate statement of the time period for which 
the payment is fixed, and the fact that the payment will increase after 
that period; or
    (iii) In the case of an advertisement for both variable-rate 
transactions and non-variable-rate transactions,
    (A) The phrase ``Adjustable-Rate Mortgage,'' ``Variable-Rate 
Mortgage,'' or ``ARM'' appears in the advertisement with equal 
prominence as any use of the term ``fixed,'' ``Fixed-Rate Mortgage,'' or 
similar terms; and
    (B) Each use of the word ``fixed'' to refer to a rate, payment, or 
the credit transaction either refers solely to the transactions for 
which rates are fixed and complies with paragraph (i)(1)(ii) of this 
section, if applicable, or, if it refers to the variable-rate 
transactions, is accompanied by an equally prominent and closely 
proximate statement of the time period for which the rate or payment is 
fixed, and the fact that the rate may vary or the payment may increase 
after that period.
    (2) Misleading comparisons in advertisements. Making any comparison 
in an advertisement between actual or hypothetical credit payments or 
rates and any payment or simple annual rate that will be available under 
the advertised product for a period less than the full term of the loan, 
unless:
    (i) In general. The advertisement includes a clear and conspicuous 
comparison to the information required to be disclosed under Sec. 
1026.24(f)(2) and (3); and

[[Page 602]]

    (ii) Application to variable-rate transactions. If the advertisement 
is for a variable-rate transaction, and the advertised payment or simple 
annual rate is based on the index and margin that will be used to make 
subsequent rate or payment adjustments over the term of the loan, the 
advertisement includes an equally prominent statement in close proximity 
to the payment or rate that the payment or rate is subject to adjustment 
and the time period when the first adjustment will occur.
    (3) Misrepresentations about government endorsement. Making any 
statement in an advertisement that the product offered is a ``government 
loan program'', ``government-supported loan'', or is otherwise endorsed 
or sponsored by any Federal, state, or local government entity, unless 
the advertisement is for an FHA loan, VA loan, or similar loan program 
that is, in fact, endorsed or sponsored by a Federal, state, or local 
government entity.
    (4) Misleading use of the current lender's name. Using the name of 
the consumer's current lender in an advertisement that is not sent by or 
on behalf of the consumer's current lender, unless the advertisement:
    (i) Discloses with equal prominence the name of the person or 
creditor making the advertisement; and
    (ii) Includes a clear and conspicuous statement that the person 
making the advertisement is not associated with, or acting on behalf of, 
the consumer's current lender.
    (5) Misleading claims of debt elimination. Making any misleading 
claim in an advertisement that the mortgage product offered will 
eliminate debt or result in a waiver or forgiveness of a consumer's 
existing loan terms with, or obligations to, another creditor.
    (6) Misleading use of the term ``counselor''. Using the term 
``counselor'' in an advertisement to refer to a for-profit mortgage 
broker or mortgage creditor, its employees, or persons working for the 
broker or creditor that are involved in offering, originating or selling 
mortgages.
    (7) Misleading foreign-language advertisements. Providing 
information about some trigger terms or required disclosures, such as an 
initial rate or payment, only in a foreign language in an advertisement, 
but providing information about other trigger terms or required 
disclosures, such as information about the fully-indexed rate or fully 
amortizing payment, only in English in the same advertisement.



                         Subpart D_Miscellaneous



Sec. 1026.25  Record retention.

    (a) General rule. A creditor shall retain evidence of compliance 
with this part (other than advertising requirements under Sec. Sec. 
1026.16 and 1026.24) for 2 years after the date disclosures are required 
to be made or action is required to be taken. The administrative 
agencies responsible for enforcing the regulation may require creditors 
under their jurisdictions to retain records for a longer period if 
necessary to carry out their enforcement responsibilities under section 
108 of the Act.
    (b) Inspection of records. A creditor shall permit the agency 
responsible for enforcing this part with respect to that creditor to 
inspect its relevant records for compliance.



Sec. 1026.26  Use of annual percentage rate in oral disclosures.

    (a) Open-end credit. In an oral response to a consumer's inquiry 
about the cost of open-end credit, only the annual percentage rate or 
rates shall be stated, except that the periodic rate or rates also may 
be stated. If the annual percentage rate cannot be determined in advance 
because there are finance charges other than a periodic rate, the 
corresponding annual percentage rate shall be stated, and other cost 
information may be given.
    (b) Closed-end credit. In an oral response to a consumer's inquiry 
about the cost of closed-end credit, only the annual percentage rate 
shall be stated, except that a simple annual rate or periodic rate also 
may be stated if it is applied to an unpaid balance. If the annual 
percentage rate cannot be determined in advance, the annual percentage 
rate for a sample transaction shall be stated, and other cost 
information for the consumer's specific transaction may be given.

[[Page 603]]



Sec. 1026.27  Language of disclosures.

    Disclosures required by this part may be made in a language other 
than English, provided that the disclosures are made available in 
English upon the consumer's request. This requirement for providing 
English disclosures on request does not apply to advertisements subject 
to Sec. Sec. 1026.16 and 1026.24.



Sec. 1026.28  Effect on state laws.

    (a) Inconsistent disclosure requirements. (1) Except as provided in 
paragraph (d) of this section, state law requirements that are 
inconsistent with the requirements contained in chapter 1 (General 
Provisions), chapter 2 (Credit Transactions), or chapter 3 (Credit 
Advertising) of the Act and the implementing provisions of this part are 
preempted to the extent of the inconsistency. A state law is 
inconsistent if it requires a creditor to make disclosures or take 
actions that contradict the requirements of the Federal law. A state law 
is contradictory if it requires the use of the same term to represent a 
different amount or a different meaning than the Federal law, or if it 
requires the use of a term different from that required in the Federal 
law to describe the same item. A creditor, state, or other interested 
party may request the Bureau to determine whether a state law 
requirement is inconsistent. After the Bureau determines that a state 
law is inconsistent, a creditor may not make disclosures using the 
inconsistent term or form.
    (2)(i) State law requirements are inconsistent with the requirements 
contained in sections 161 (Correction of billing errors) or 162 
(Regulation of credit reports) of the Act and the implementing 
provisions of this part and are preempted if they provide rights, 
responsibilities, or procedures for consumers or creditors that are 
different from those required by the Federal law. However, a state law 
that allows a consumer to inquire about an open-end credit account and 
imposes on the creditor an obligation to respond to such inquiry after 
the time allowed in the Federal law for the consumer to submit written 
notice of a billing error shall not be preempted in any situation where 
the time period for making written notice under this part has expired. 
If a creditor gives written notice of a consumer's rights under such 
state law, the notice shall state that reliance on the longer time 
period available under state law may result in the loss of important 
rights that could be preserved by acting more promptly under Federal 
law; it shall also explain that the state law provisions apply only 
after expiration of the time period for submitting a proper written 
notice of a billing error under the Federal law. If the state 
disclosures are made on the same side of a page as the required Federal 
disclosures, the state disclosures shall appear under a demarcation line 
below the Federal disclosures, and the Federal disclosures shall be 
identified by a heading indicating that they are made in compliance with 
Federal law.
    (ii) State law requirements are inconsistent with the requirements 
contained in chapter 4 (Credit billing) of the Act (other than section 
161 or 162) and the implementing provisions of this part and are 
preempted if the creditor cannot comply with state law without violating 
Federal law.
    (iii) A state may request the Bureau to determine whether its law is 
inconsistent with chapter 4 of the Act and its implementing provisions.
    (b) Equivalent disclosure requirements. If the Bureau determines 
that a disclosure required by state law (other than a requirement 
relating to the finance charge, annual percentage rate, or the 
disclosures required under Sec. 1026.32) is substantially the same in 
meaning as a disclosure required under the Act or this part, creditors 
in that state may make the state disclosure in lieu of the Federal 
disclosure. A creditor, state, or other interested party may request the 
Bureau to determine whether a state disclosure is substantially the same 
in meaning as a Federal disclosure.
    (c) Request for determination. The procedures under which a request 
for a determination may be made under this section are set forth in 
Appendix A.
    (d) Special rule for credit and charge cards. State law requirements 
relating to the disclosure of credit information in any credit or charge 
card application or solicitation that is subject to the requirements of 
section 127(c) of

[[Page 604]]

chapter 2 of the Act (Sec. 1026.60 of the regulation) or in any renewal 
notice for a credit or charge card that is subject to the requirements 
of section 127(d) of chapter 2 of the Act (Sec. 1026.9(e) of the 
regulation) are preempted. State laws relating to the enforcement of 
section 127(c) and (d) of the Act are not preempted.



Sec. 1026.29  State exemptions.

    (a) General rule. Any state may apply to the Bureau to exempt a 
class of transactions within the state from the requirements of chapter 
2 (Credit transactions) or chapter 4 (Credit billing) of the Act and the 
corresponding provisions of this part. The Bureau shall grant an 
exemption if it determines that:
    (1) The state law is substantially similar to the Federal law or, in 
the case of chapter 4, affords the consumer greater protection than the 
Federal law; and
    (2) There is adequate provision for enforcement.
    (b) Civil liability. (1) No exemptions granted under this section 
shall extend to the civil liability provisions of sections 130 and 131 
of the Act.
    (2) If an exemption has been granted, the disclosures required by 
the applicable state law (except any additional requirements not imposed 
by Federal law) shall constitute the disclosures required by the Act.
    (c) Applications. The procedures under which a state may apply for 
an exemption under this section are set forth in appendix B to this 
part.



Sec. 1026.30  Limitation on rates.

    A creditor shall include in any consumer credit contract secured by 
a dwelling and subject to the Act and this part the maximum interest 
rate that may be imposed during the term of the obligation when:
    (a) In the case of closed-end credit, the annual percentage rate may 
increase after consummation, or
    (b) In the case of open-end credit, the annual percentage rate may 
increase during the plan.



     Subpart E_Special Rules for Certain Home Mortgage Transactions



Sec. 1026.31  General rules.

    (a) Relation to other subparts in this part. The requirements and 
limitations of this subpart are in addition to and not in lieu of those 
contained in other subparts of this part.
    (b) Form of disclosures. The creditor shall make the disclosures 
required by this subpart clearly and conspicuously in writing, in a form 
that the consumer may keep. The disclosures required by this subpart may 
be provided to the consumer in electronic form, subject to compliance 
with the consumer consent and other applicable provisions of the 
Electronic Signatures in Global and National Commerce Act (E-Sign Act) 
(15 U.S.C. 7001 et seq.).
    (c) Timing of disclosure--(1) Disclosures for certain closed-end 
home mortgages. The creditor shall furnish the disclosures required by 
Sec. 1026.32 at least three business days prior to consummation of a 
mortgage transaction covered by Sec. 1026.32.
    (i) Change in terms. After complying with paragraph (c)(1) of this 
section and prior to consummation, if the creditor changes any term that 
makes the disclosures inaccurate, new disclosures shall be provided in 
accordance with the requirements of this subpart.
    (ii) Telephone disclosures. A creditor may provide new disclosures 
by telephone if the consumer initiates the change and if, at 
consummation:
    (A) The creditor provides new written disclosures; and
    (B) The consumer and creditor sign a statement that the new 
disclosures were provided by telephone at least three days prior to 
consummation.
    (iii) Consumer's waiver of waiting period before consummation. The 
consumer may, after receiving the disclosures required by paragraph 
(c)(1) of this section, modify or waive the three-day waiting period 
between delivery of those disclosures and consummation if the consumer 
determines that the extension of credit is needed to meet a bona fide 
personal financial emergency. To modify or waive the right, the consumer 
shall give the creditor a dated written statement that describes

[[Page 605]]

the emergency, specifically modifies or waives the waiting period, and 
bears the signature of all the consumers entitled to the waiting period. 
Printed forms for this purpose are prohibited, except when creditors are 
permitted to use printed forms pursuant to Sec. 1026.23(e)(2).
    (2) Disclosures for reverse mortgages. The creditor shall furnish 
the disclosures required by Sec. 1026.33 at least three business days 
prior to:
    (i) Consummation of a closed-end credit transaction; or
    (ii) The first transaction under an open-end credit plan.
    (d) Basis of disclosures and use of estimates--(1) Legal obligation. 
Disclosures shall reflect the terms of the legal obligation between the 
parties.
    (2) Estimates. If any information necessary for an accurate 
disclosure is unknown to the creditor, the creditor shall make the 
disclosure based on the best information reasonably available at the 
time the disclosure is provided, and shall state clearly that the 
disclosure is an estimate.
    (3) Per-diem interest. For a transaction in which a portion of the 
interest is determined on a per-diem basis and collected at 
consummation, any disclosure affected by the per-diem interest shall be 
considered accurate if the disclosure is based on the information known 
to the creditor at the time that the disclosure documents are prepared.
    (e) Multiple creditors; multiple consumers. If a transaction 
involves more than one creditor, only one set of disclosures shall be 
given and the creditors shall agree among themselves which creditor must 
comply with the requirements that this part imposes on any or all of 
them. If there is more than one consumer, the disclosures may be made to 
any consumer who is primarily liable on the obligation. If the 
transaction is rescindable under Sec. 1026.15 or Sec. 1026.23, 
however, the disclosures shall be made to each consumer who has the 
right to rescind.
    (f) Effect of subsequent events. If a disclosure becomes inaccurate 
because of an event that occurs after the creditor delivers the required 
disclosures, the inaccuracy is not a violation of Regulation Z (12 CFR 
part 1026), although new disclosures may be required for mortgages 
covered by Sec. 1026.32 under paragraph (c) of this section, Sec. 
1026.9(c), Sec. 1026.19, or Sec. 1026.20.
    (g) Accuracy of annual percentage rate. For purposes of Sec. 
1026.32, the annual percentage rate shall be considered accurate, and 
may be used in determining whether a transaction is covered by Sec. 
1026.32, if it is accurate according to the requirements and within the 
tolerances under Sec. 1026.22. The finance charge tolerances for 
rescission under Sec. 1026.23(g) or (h) shall not apply for this 
purpose.



Sec. 1026.32  Requirements for certain closed-end home mortgages.

    (a) Coverage. (1) Except as provided in paragraph (a)(2) of this 
section, the requirements of this section apply to a consumer credit 
transaction that is secured by the consumer's principal dwelling, and in 
which either:
    (i) The annual percentage rate at consummation will exceed by more 
than 8 percentage points for first-lien loans, or by more than 10 
percentage points for subordinate-lien loans, the yield on Treasury 
securities having comparable periods of maturity to the loan maturity as 
of the fifteenth day of the month immediately preceding the month in 
which the application for the extension of credit is received by the 
creditor; or
    (ii) The total points and fees payable by the consumer at or before 
loan closing will exceed the greater of 8 percent of the total loan 
amount, or $400; the $400 figure shall be adjusted annually on January 1 
by the annual percentage change in the Consumer Price Index that was 
reported on the preceding June 1.
    (2) This section does not apply to the following:
    (i) A residential mortgage transaction.
    (ii) A reverse mortgage transaction subject to Sec. 1026.33.
    (iii) An open-end credit plan subject to subpart B of this part.
    (b) Definitions. For purposes of this subpart, the following 
definitions apply:
    (1) For purposes of paragraph (a)(1)(ii) of this section, points and 
fees means:

[[Page 606]]

    (i) All items required to be disclosed under Sec. 1026.4(a) and 
1026.4(b), except interest or the time-price differential;
    (ii) All compensation paid to mortgage brokers;
    (iii) All items listed in Sec. 1026.4(c)(7) (other than amounts 
held for future payment of taxes) unless the charge is reasonable, the 
creditor receives no direct or indirect compensation in connection with 
the charge, and the charge is not paid to an affiliate of the creditor; 
and
    (iv) Premiums or other charges for credit life, accident, health, or 
loss-of-income insurance, or debt-cancellation coverage (whether or not 
the debt-cancellation coverage is insurance under applicable law) that 
provides for cancellation of all or part of the consumer's liability in 
the event of the loss of life, health, or income or in the case of 
accident, written in connection with the credit transaction.
    (2) Affiliate means any company that controls, is controlled by, or 
is under common control with another company, as set forth in the Bank 
Holding Company Act of 1956 (12 U.S.C. 1841 et seq.).
    (c) Disclosures. In addition to other disclosures required by this 
part, in a mortgage subject to this section, the creditor shall disclose 
the following in conspicuous type size:
    (1) Notices. The following statement: ``You are not required to 
complete this agreement merely because you have received these 
disclosures or have signed a loan application. If you obtain this loan, 
the lender will have a mortgage on your home. You could lose your home, 
and any money you have put into it, if you do not meet your obligations 
under the loan.''
    (2) Annual percentage rate. The annual percentage rate.
    (3) Regular payment; balloon payment. The amount of the regular 
monthly (or other periodic) payment and the amount of any balloon 
payment. The regular payment disclosed under this paragraph shall be 
treated as accurate if it is based on an amount borrowed that is deemed 
accurate and is disclosed under paragraph (c)(5) of this section.
    (4) Variable-rate. For variable-rate transactions, a statement that 
the interest rate and monthly payment may increase, and the amount of 
the single maximum monthly payment, based on the maximum interest rate 
required to be disclosed under Sec. 1026.30.
    (5) Amount borrowed. For a mortgage refinancing, the total amount 
the consumer will borrow, as reflected by the face amount of the note; 
and where the amount borrowed includes premiums or other charges for 
optional credit insurance or debt-cancellation coverage, that fact shall 
be stated, grouped together with the disclosure of the amount borrowed. 
The disclosure of the amount borrowed shall be treated as accurate if it 
is not more than $100 above or below the amount required to be 
disclosed.
    (d) Limitations. A mortgage transaction subject to this section 
shall not include the following terms:
    (1)(i) Balloon payment. For a loan with a term of less than five 
years, a payment schedule with regular periodic payments that when 
aggregated do not fully amortize the outstanding principal balance.
    (ii) Exception. The limitations in paragraph (d)(1)(i) of this 
section do not apply to loans with maturities of less than one year, if 
the purpose of the loan is a ``bridge'' loan connected with the 
acquisition or construction of a dwelling intended to become the 
consumer's principal dwelling.
    (2) Negative amortization. A payment schedule with regular periodic 
payments that cause the principal balance to increase.
    (3) Advance payments. A payment schedule that consolidates more than 
two periodic payments and pays them in advance from the proceeds.
    (4) Increased interest rate. An increase in the interest rate after 
default.
    (5) Rebates. A refund calculated by a method less favorable than the 
actuarial method (as defined by section 933(d) of the Housing and 
Community Development Act of 1992, 15 U.S.C. 1615(d)), for rebates of 
interest arising from a loan acceleration due to default.
    (6) Prepayment penalties. Except as allowed under paragraph (d)(7) 
of this section, a penalty for paying all or part of the principal 
before the date on

[[Page 607]]

which the principal is due. A prepayment penalty includes computing a 
refund of unearned interest by a method that is less favorable to the 
consumer than the actuarial method, as defined by section 933(d) of the 
Housing and Community Development Act of 1992, 15 U.S.C. 1615(d).
    (7) Prepayment penalty exception. A mortgage transaction subject to 
this section may provide for a prepayment penalty (including a refund 
calculated according to the rule of 78s) otherwise permitted by law if, 
under the terms of the loan:
    (i) The penalty will not apply after the two-year period following 
consummation;
    (ii) The penalty will not apply if the source of the prepayment 
funds is a refinancing by the creditor or an affiliate of the creditor;
    (iii) At consummation, the consumer's total monthly debt payments 
(including amounts owed under the mortgage) do not exceed 50 percent of 
the consumer's monthly gross income, as verified in accordance with 
Sec. 1026.34(a)(4)(ii); and
    (iv) The amount of the periodic payment of principal or interest or 
both may not change during the four-year period following consummation.
    (8) Due-on-demand clause. A demand feature that permits the creditor 
to terminate the loan in advance of the original maturity date and to 
demand repayment of the entire outstanding balance, except in the 
following circumstances:
    (i) There is fraud or material misrepresentation by the consumer in 
connection with the loan;
    (ii) The consumer fails to meet the repayment terms of the agreement 
for any outstanding balance; or
    (iii) There is any action or inaction by the consumer that adversely 
affects the creditor's security for the loan, or any right of the 
creditor in such security.



Sec. 1026.33  Requirements for reverse mortgages.

    (a) Definition. For purposes of this subpart, reverse mortgage 
transaction means a nonrecourse consumer credit obligation in which:
    (1) A mortgage, deed of trust, or equivalent consensual security 
interest securing one or more advances is created in the consumer's 
principal dwelling; and
    (2) Any principal, interest, or shared appreciation or equity is due 
and payable (other than in the case of default) only after:
    (i) The consumer dies;
    (ii) The dwelling is transferred; or
    (iii) The consumer ceases to occupy the dwelling as a principal 
dwelling.
    (b) Content of disclosures. In addition to other disclosures 
required by this part, in a reverse mortgage transaction the creditor 
shall provide the following disclosures in a form substantially similar 
to the model form found in paragraph (d) of appendix K of this part:
    (1) Notice. A statement that the consumer is not obligated to 
complete the reverse mortgage transaction merely because the consumer 
has received the disclosures required by this section or has signed an 
application for a reverse mortgage loan.
    (2) Total annual loan cost rates. A good-faith projection of the 
total cost of the credit, determined in accordance with paragraph (c) of 
this section and expressed as a table of ``total annual loan cost 
rates,'' using that term, in accordance with appendix K of this part.
    (3) Itemization of pertinent information. An itemization of loan 
terms, charges, the age of the youngest borrower and the appraised 
property value.
    (4) Explanation of table. An explanation of the table of total 
annual loan cost rates as provided in the model form found in paragraph 
(d) of appendix K of this part.
    (c) Projected total cost of credit. The projected total cost of 
credit shall reflect the following factors, as applicable:
    (1) Costs to consumer. All costs and charges to the consumer, 
including the costs of any annuity the consumer purchases as part of the 
reverse mortgage transaction.
    (2) Payments to consumer. All advances to and for the benefit of the 
consumer, including annuity payments that the consumer will receive from 
an annuity that the consumer purchases

[[Page 608]]

as part of the reverse mortgage transaction.
    (3) Additional creditor compensation. Any shared appreciation or 
equity in the dwelling that the creditor is entitled by contract to 
receive.
    (4) Limitations on consumer liability. Any limitation on the 
consumer's liability (such as nonrecourse limits and equity conservation 
agreements).
    (5) Assumed annual appreciation rates. Each of the following assumed 
annual appreciation rates for the dwelling:
    (i) 0 percent.
    (ii) 4 percent.
    (iii) 8 percent.
    (6) Assumed loan period. (i) Each of the following assumed loan 
periods, as provided in appendix L of this part:
    (A) Two years.
    (B) The actuarial life expectancy of the consumer to become 
obligated on the reverse mortgage transaction (as of that consumer's 
most recent birthday). In the case of multiple consumers, the period 
shall be the actuarial life expectancy of the youngest consumer (as of 
that consumer's most recent birthday).
    (C) The actuarial life expectancy specified by paragraph 
(c)(6)(i)(B) of this section, multiplied by a factor of 1.4 and rounded 
to the nearest full year.
    (ii) At the creditor's option, the actuarial life expectancy 
specified by paragraph (c)(6)(i)(B) of this section, multiplied by a 
factor of .5 and rounded to the nearest full year.



Sec. 1026.34  Prohibited acts or practices in connection with high-cost mortgages.

    (a) Prohibited acts or practices for high-cost mortgages. A creditor 
extending mortgage credit subject to Sec. 1026.32 shall not:
    (1) Home improvement contracts. Pay a contractor under a home 
improvement contract from the proceeds of a mortgage covered by Sec. 
1026.32, other than:
    (i) By an instrument payable to the consumer or jointly to the 
consumer and the contractor; or
    (ii) At the election of the consumer, through a third-party escrow 
agent in accordance with terms established in a written agreement signed 
by the consumer, the creditor, and the contractor prior to the 
disbursement.
    (2) Notice to assignee. Sell or otherwise assign a mortgage subject 
to Sec. 1026.32 without furnishing the following statement to the 
purchaser or assignee: ``Notice: This is a mortgage subject to special 
rules under the Federal Truth in Lending Act. Purchasers or assignees of 
this mortgage could be liable for all claims and defenses with respect 
to the mortgage that the borrower could assert against the creditor.''
    (3) Refinancings within one-year period. Within one year of having 
extended credit subject to Sec. 1026.32, refinance any loan subject to 
Sec. 1026.32 to the same borrower into another loan subject to Sec. 
1026.32, unless the refinancing is in the borrower's interest. An 
assignee holding or servicing an extension of mortgage credit subject to 
Sec. 1026.32, shall not, for the remainder of the one-year period 
following the date of origination of the credit, refinance any loan 
subject to Sec. 1026.32 to the same borrower into another loan subject 
to Sec. 1026.32, unless the refinancing is in the borrower's interest. 
A creditor (or assignee) is prohibited from engaging in acts or 
practices to evade this provision, including a pattern or practice of 
arranging for the refinancing of its own loans by affiliated or 
unaffiliated creditors, or modifying a loan agreement (whether or not 
the existing loan is satisfied and replaced by the new loan) and 
charging a fee.
    (4) Repayment ability. Extend credit subject to Sec. 1026.32 to a 
consumer based on the value of the consumer's collateral without regard 
to the consumer's repayment ability as of consummation, including the 
consumer's current and reasonably expected income, employment, assets 
other than the collateral, current obligations, and mortgage-related 
obligations.
    (i) Mortgage-related obligations. For purposes of this paragraph 
(a)(4), mortgage-related obligations are expected property taxes, 
premiums for mortgage-related insurance required by the creditor as set 
forth in Sec. 1026.35(b)(3)(i), and similar expenses.
    (ii) Verification of repayment ability. Under this paragraph (a)(4) 
a creditor

[[Page 609]]

must verify the consumer's repayment ability as follows:
    (A) A creditor must verify amounts of income or assets that it 
relies on to determine repayment ability, including expected income or 
assets, by the consumer's Internal Revenue Service Form W-2, tax 
returns, payroll receipts, financial institution records, or other 
third-party documents that provide reasonably reliable evidence of the 
consumer's income or assets.
    (B) Notwithstanding paragraph (a)(4)(ii)(A), a creditor has not 
violated paragraph (a)(4)(ii) if the amounts of income and assets that 
the creditor relied upon in determining repayment ability are not 
materially greater than the amounts of the consumer's income or assets 
that the creditor could have verified pursuant to paragraph 
(a)(4)(ii)(A) at the time the loan was consummated.
    (C) A creditor must verify the consumer's current obligations.
    (iii) Presumption of compliance. A creditor is presumed to have 
complied with this paragraph (a)(4) with respect to a transaction if the 
creditor:
    (A) Verifies the consumer's repayment ability as provided in 
paragraph (a)(4)(ii);
    (B) Determines the consumer's repayment ability using the largest 
payment of principal and interest scheduled in the first seven years 
following consummation and taking into account current obligations and 
mortgage-related obligations as defined in paragraph (a)(4)(i); and
    (C) Assesses the consumer's repayment ability taking into account at 
least one of the following: The ratio of total debt obligations to 
income, or the income the consumer will have after paying debt 
obligations.
    (iv) Exclusions from presumption of compliance. Notwithstanding the 
previous paragraph, no presumption of compliance is available for a 
transaction for which:
    (A) The regular periodic payments for the first seven years would 
cause the principal balance to increase; or
    (B) The term of the loan is less than seven years and the regular 
periodic payments when aggregated do not fully amortize the outstanding 
principal balance.
    (v) Exemption. This paragraph (a)(4) does not apply to temporary or 
``bridge'' loans with terms of twelve months or less, such as a loan to 
purchase a new dwelling where the consumer plans to sell a current 
dwelling within twelve months.
    (b) Prohibited acts or practices for dwelling-secured loans; open-
end credit. In connection with credit secured by the consumer's dwelling 
that does not meet the definition in Sec. 1026.2(a)(20), a creditor 
shall not structure a home-secured loan as an open-end plan to evade the 
requirements of Sec. 1026.32.



Sec. 1026.35  Prohibited acts or practices in connection with 
higher-priced mortgage loans.

    (a) Higher-priced mortgage loans. (1) For purposes of this section, 
except as provided in paragraph (b)(3)(v) of this section, a higher-
priced mortgage loan is a consumer credit transaction secured by the 
consumer's principal dwelling with an annual percentage rate that 
exceeds the average prime offer rate for a comparable transaction as of 
the date the interest rate is set by 1.5 or more percentage points for 
loans secured by a first lien on a dwelling, or by 3.5 or more 
percentage points for loans secured by a subordinate lien on a dwelling.
    (2) ``Average prime offer rate'' means an annual percentage rate 
that is derived from average interest rates, points, and other loan 
pricing terms currently offered to consumers by a representative sample 
of creditors for mortgage transactions that have low-risk pricing 
characteristics. The Bureau publishes average prime offer rates for a 
broad range of types of transactions in a table updated at least weekly 
as well as the methodology the Bureau uses to derive these rates.
    (3) Notwithstanding paragraph (a)(1) of this section, the term 
``higher-priced mortgage loan'' does not include a transaction to 
finance the initial construction of a dwelling, a temporary or 
``bridge'' loan with a term of twelve months or less, such as a loan to 
purchase a new dwelling where the consumer plans to sell a current 
dwelling within twelve months, a reverse-mortgage transaction subject to 
Sec. 1026.33, or

[[Page 610]]

a home equity line of credit subject to Sec. 1026.40.
    (b) Rules for higher-priced mortgage loans. Higher-priced mortgage 
loans are subject to the following restrictions:
    (1) Repayment ability. A creditor shall not extend credit based on 
the value of the consumer's collateral without regard to the consumer's 
repayment ability as of consummation as provided in Sec. 1026.34(a)(4).
    (2) Prepayment penalties. A loan may not include a penalty described 
by Sec. 1026.32(d)(6) unless:
    (i) The penalty is otherwise permitted by law, including Sec. 
1026.32(d)(7) if the loan is a mortgage transaction described in Sec. 
1026.32(a); and
    (ii) Under the terms of the loan:
    (A) The penalty will not apply after the two-year period following 
consummation;
    (B) The penalty will not apply if the source of the prepayment funds 
is a refinancing by the creditor or an affiliate of the creditor; and
    (C) The amount of the periodic payment of principal or interest or 
both may not change during the four-year period following consummation.
    (3) Escrows--(i) Failure to escrow for property taxes and insurance. 
Except as provided in paragraph (b)(3)(ii) of this section, a creditor 
may not extend a loan secured by a first lien on a principal dwelling 
unless an escrow account is established before consummation for payment 
of property taxes and premiums for mortgage-related insurance required 
by the creditor, such as insurance against loss of or damage to 
property, or against liability arising out of the ownership or use of 
the property, or insurance protecting the creditor against the 
consumer's default or other credit loss.
    (ii) Exemptions for loans secured by shares in a cooperative and for 
certain condominium units. (A) Escrow accounts need not be established 
for loans secured by shares in a cooperative; and
    (B) Insurance premiums described in paragraph (b)(3)(i) of this 
section need not be included in escrow accounts for loans secured by 
condominium units, where the condominium association has an obligation 
to the condominium unit owners to maintain a master policy insuring 
condominium units.
    (iii) Cancellation. A creditor or servicer may permit a consumer to 
cancel the escrow account required in paragraph (b)(3)(i) of this 
section only in response to a consumer's dated written request to cancel 
the escrow account that is received no earlier than 365 days after 
consummation.
    (iv) Definition of escrow account. For purposes of this section, 
``escrow account'' shall have the same meaning as in 12 CFR 1024.17(b) 
as amended.
    (v) ``Jumbo'' loans. For purposes of this Sec. 1026.35(b)(3), for a 
transaction with a principal obligation at consummation that exceeds the 
limit in effect as of the date the transaction's interest rate is set 
for the maximum principal obligation eligible for purchase by Freddie 
Mac, the coverage threshold set forth in paragraph (a)(1) of this 
section for loans secured by a first lien on a dwelling shall be 2.5 or 
more percentage points greater than the applicable average prime offer 
rate.
    (4) Evasion; open-end credit. In connection with credit secured by a 
consumer's principal dwelling that does not meet the definition of open-
end credit in Sec. 1026.2(a)(20), a creditor shall not structure a 
home-secured loan as an open-end plan to evade the requirements of this 
section.



Sec. 1026.36  Prohibited acts or practices in connection with credit secured by a dwelling.

    (a) Loan originator and mortgage broker defined--(1) Loan 
originator. For purposes of this section, the term ``loan originator'' 
means with respect to a particular transaction, a person who for 
compensation or other monetary gain, or in expectation of compensation 
or other monetary gain, arranges, negotiates, or otherwise obtains an 
extension of consumer credit for another person. The term ``loan 
originator'' includes an employee of the creditor if the employee meets 
this definition. The term ``loan originator'' includes the creditor only 
if the creditor does not provide the funds for the transaction at 
consummation out of the creditor's own resources, including drawing on a 
bona fide warehouse line of credit, or out of deposits held by the 
creditor.

[[Page 611]]

    (2) Mortgage broker. For purposes of this section, a mortgage broker 
with respect to a particular transaction is any loan originator that is 
not an employee of the creditor.
    (b) [Reserved]
    (c) Servicing practices. (1) In connection with a consumer credit 
transaction secured by a consumer's principal dwelling, no servicer 
shall:
    (i) Fail to credit a payment to the consumer's loan account as of 
the date of receipt, except when a delay in crediting does not result in 
any charge to the consumer or in the reporting of negative information 
to a consumer reporting agency, or except as provided in paragraph 
(c)(2) of this section;
    (ii) Impose on the consumer any late fee or delinquency charge in 
connection with a payment, when the only delinquency is attributable to 
late fees or delinquency charges assessed on an earlier payment, and the 
payment is otherwise a full payment for the applicable period and is 
paid on its due date or within any applicable grace period; or
    (iii) Fail to provide, within a reasonable time after receiving a 
request from the consumer or any person acting on behalf of the 
consumer, an accurate statement of the total outstanding balance that 
would be required to satisfy the consumer's obligation in full as of a 
specified date.
    (2) If a servicer specifies in writing requirements for the consumer 
to follow in making payments, but accepts a payment that does not 
conform to the requirements, the servicer shall credit the payment as of 
5 days after receipt.
    (3) For purposes of this paragraph (c), the terms ``servicer'' and 
``servicing'' have the same meanings as provided in 12 CFR 1024.2(b), as 
amended.
    (d) Prohibited payments to loan originators--(1) Payments based on 
transaction terms or conditions. (i) In connection with a consumer 
credit transaction secured by a dwelling, no loan originator shall 
receive and no person shall pay to a loan originator, directly or 
indirectly, compensation in an amount that is based on any of the 
transaction's terms or conditions.
    (ii) For purposes of this paragraph (d)(1), the amount of credit 
extended is not deemed to be a transaction term or condition, provided 
compensation received by or paid to a loan originator, directly or 
indirectly, is based on a fixed percentage of the amount of credit 
extended; however, such compensation may be subject to a minimum or 
maximum dollar amount.
    (iii) This paragraph (d)(1) shall not apply to any transaction in 
which paragraph (d)(2) of this section applies.
    (2) Payments by persons other than consumer. If any loan originator 
receives compensation directly from a consumer in a consumer credit 
transaction secured by a dwelling:
    (i) No loan originator shall receive compensation, directly or 
indirectly, from any person other than the consumer in connection with 
the transaction; and
    (ii) No person who knows or has reason to know of the consumer-paid 
compensation to the loan originator (other than the consumer) shall pay 
any compensation to a loan originator, directly or indirectly, in 
connection with the transaction.
    (3) Affiliates. For purposes of this paragraph (d), affiliates shall 
be treated as a single ``person.''
    (e) Prohibition on steering--(1) General. In connection with a 
consumer credit transaction secured by a dwelling, a loan originator 
shall not direct or ``steer'' a consumer to consummate a transaction 
based on the fact that the originator will receive greater compensation 
from the creditor in that transaction than in other transactions the 
originator offered or could have offered to the consumer, unless the 
consummated transaction is in the consumer's interest.
    (2) Permissible transactions. A transaction does not violate 
paragraph (e)(1) of this section if the consumer is presented with loan 
options that meet the conditions in paragraph (e)(3) of this section for 
each type of transaction in which the consumer expressed an interest. 
For purposes of paragraph (e) of this section, the term ``type of 
transaction'' refers to whether:
    (i) A loan has an annual percentage rate that cannot increase after 
consummation;
    (ii) A loan has an annual percentage rate that may increase after 
consummation; or

[[Page 612]]

    (iii) A loan is a reverse mortgage.
    (3) Loan options presented. A transaction satisfies paragraph (e)(2) 
of this section only if the loan originator presents the loan options 
required by that paragraph and all of the following conditions are met:
    (i) The loan originator must obtain loan options from a significant 
number of the creditors with which the originator regularly does 
business and, for each type of transaction in which the consumer 
expressed an interest, must present the consumer with loan options that 
include:
    (A) The loan with the lowest interest rate;
    (B) The loan with the lowest interest rate without negative 
amortization, a prepayment penalty, interest-only payments, a balloon 
payment in the first 7 years of the life of the loan, a demand feature, 
shared equity, or shared appreciation; or, in the case of a reverse 
mortgage, a loan without a prepayment penalty, or shared equity or 
shared appreciation; and
    (C) The loan with the lowest total dollar amount for origination 
points or fees and discount points.
    (ii) The loan originator must have a good faith belief that the 
options presented to the consumer pursuant to paragraph (e)(3)(i) of 
this section are loans for which the consumer likely qualifies.
    (iii) For each type of transaction, if the originator presents to 
the consumer more than three loans, the originator must highlight the 
loans that satisfy the criteria specified in paragraph (e)(3)(i) of this 
section.
    (4) Number of loan options presented. The loan originator can 
present fewer than three loans and satisfy paragraphs (e)(2) and 
(e)(3)(i) of this section if the loan(s) presented to the consumer 
satisfy the criteria of the options in paragraph (e)(3)(i) of this 
section and the provisions of paragraph (e)(3) of this section are 
otherwise met.
    (f) This section does not apply to a home-equity line of credit 
subject to Sec. 1026.40. Section 1026.36(d) and (e) do not apply to a 
loan that is secured by a consumer's interest in a timeshare plan 
described in 11 U.S.C. 101(53D).



Sec. Sec. 1026.37-1026.38  [Reserved]



Sec. 1026.39  Mortgage transfer disclosures.

    (a) Scope. The disclosure requirements of this section apply to any 
covered person except as otherwise provided in this section. For 
purposes of this section:
    (1) A ``covered person'' means any person, as defined in Sec. 
1026.2(a)(22), that becomes the owner of an existing mortgage loan by 
acquiring legal title to the debt obligation, whether through a 
purchase, assignment or other transfer, and who acquires more than one 
mortgage loan in any twelve-month period. For purposes of this section, 
a servicer of a mortgage loan shall not be treated as the owner of the 
obligation if the servicer holds title to the loan, or title is assigned 
to the servicer, solely for the administrative convenience of the 
servicer in servicing the obligation.
    (2) A ``mortgage loan'' means any consumer credit transaction that 
is secured by the principal dwelling of a consumer.
    (b) Disclosure required. Except as provided in paragraph (c) of this 
section, each covered person is subject to the requirements of this 
section and shall mail or deliver the disclosures required by this 
section to the consumer on or before the 30th calendar day following the 
date of transfer.
    (1) Form of disclosures. The disclosures required by this section 
shall be provided clearly and conspicuously in writing, in a form that 
the consumer may keep. The disclosures required by this section may be 
provided to the consumer in electronic form, subject to compliance with 
the consumer consent and other applicable provisions of the Electronic 
Signatures in Global and National Commerce Act (E-Sign Act) (15 U.S.C. 
7001 et seq.).
    (2) The date of transfer. For purposes of this section, the date of 
transfer to the covered person may, at the covered person's option, be 
either the date of acquisition recognized in the books and records of 
the acquiring party, or the date of transfer recognized in the books and 
records of the transferring party.

[[Page 613]]

    (3) Multiple consumers. If more than one consumer is liable on the 
obligation, a covered person may mail or deliver the disclosures to any 
consumer who is primarily liable.
    (4) Multiple transfers. If a mortgage loan is acquired by a covered 
person and subsequently sold, assigned, or otherwise transferred to 
another covered person, a single disclosure may be provided on behalf of 
both covered persons if the disclosure satisfies the timing and content 
requirements applicable to each covered person.
    (5) Multiple covered persons. If an acquisition involves multiple 
covered persons who jointly acquire the loan, a single disclosure must 
be provided on behalf of all covered persons.
    (c) Exceptions. Notwithstanding paragraph (b) of this section, a 
covered person is not subject to the requirements of this section with 
respect to a particular mortgage loan if:
    (1) The covered person sells, or otherwise transfers or assigns 
legal title to the mortgage loan on or before the 30th calendar day 
following the date that the covered person acquired the mortgage loan 
which shall be the date of transfer recognized for purposes of paragraph 
(b)(2) of this section;
    (2) The mortgage loan is transferred to the covered person in 
connection with a repurchase agreement that obligates the transferor to 
repurchase the loan. However, if the transferor does not repurchase the 
loan, the covered person must provide the disclosures required by this 
section within 30 days after the date that the transaction is recognized 
as an acquisition on its books and records; or
    (3) The covered person acquires only a partial interest in the loan 
and the party authorized to receive the consumer's notice of the right 
to rescind and resolve issues concerning the consumer's payments on the 
loan does not change as a result of the transfer of the partial 
interest.
    (d) Content of required disclosures. The disclosures required by 
this section shall identify the loan that was sold, assigned or 
otherwise transferred, and state the following:
    (1) The name, address, and telephone number of the covered person.
    (i) If a single disclosure is provided on behalf of more than one 
covered person, the information required by this paragraph shall be 
provided for each of them unless paragraph (d)(1)(ii) of this section 
applies.
    (ii) If a single disclosure is provided on behalf of more than one 
covered person and one of them has been authorized in accordance with 
paragraph (d)(3) of this section to receive the consumer's notice of the 
right to rescind and resolve issues concerning the consumer's payments 
on the loan, the information required by paragraph (d)(1) of this 
section may be provided only for that covered person.
    (2) The date of transfer.
    (3) The name, address and telephone number of an agent or party 
authorized to receive notice of the right to rescind and resolve issues 
concerning the consumer's payments on the loan. However, no information 
is required to be provided under this paragraph if the consumer can use 
the information provided under paragraph (d)(1) of this section for 
these purposes.
    (4) Where transfer of ownership of the debt to the covered person is 
or may be recorded in public records, or, alternatively, that the 
transfer of ownership has not been recorded in public records at the 
time the disclosure is provided.
    (e) Optional disclosures. In addition to the information required to 
be disclosed under paragraph (d) of this section, a covered person may, 
at its option, provide any other information regarding the transaction.



Sec. 1026.40  Requirements for home equity plans.

    The requirements of this section apply to open-end credit plans 
secured by the consumer's dwelling. For purposes of this section, an 
annual percentage rate is the annual percentage rate corresponding to 
the periodic rate as determined under Sec. 1026.14(b).
    (a) Form of disclosures--(1) General. The disclosures required by 
paragraph (d) of this section shall be made clearly and conspicuously 
and shall be grouped together and segregated from all unrelated 
information. The disclosures may be provided on the application form or

[[Page 614]]

on a separate form. The disclosure described in paragraph (d)(4)(iii), 
the itemization of third-party fees described in paragraph (d)(8), and 
the variable-rate information described in paragraph (d)(12) of this 
section may be provided separately from the other required disclosures.
    (2) Precedence of certain disclosures. The disclosures described in 
paragraph (d)(1) through (4)(ii) of this section shall precede the other 
required disclosures.
    (3) For an application that is accessed by the consumer in 
electronic form, the disclosures required under this section may be 
provided to the consumer in electronic form on or with the application.
    (b) Time of disclosures. The disclosures and brochure required by 
paragraphs (d) and (e) of this section shall be provided at the time an 
application is provided to the consumer. The disclosures and the 
brochure may be delivered or placed in the mail not later than three 
business days following receipt of a consumer's application in the case 
of applications contained in magazines or other publications, or when 
the application is received by telephone or through an intermediary 
agent or broker.
    (c) Duties of third parties. Persons other than the creditor who 
provide applications to consumers for home equity plans must provide the 
brochure required under paragraph (e) of this section at the time an 
application is provided. If such persons have the disclosures required 
under paragraph (d) of this section for a creditor's home equity plan, 
they also shall provide the disclosures at such time. The disclosures 
and the brochure may be delivered or placed in the mail not later than 
three business days following receipt of a consumer's application in the 
case of applications contained in magazines or other publications, or 
when the application is received by telephone or through an intermediary 
agent or broker.
    (d) Content of disclosures. The creditor shall provide the following 
disclosures, as applicable:
    (1) Retention of information. A statement that the consumer should 
make or otherwise retain a copy of the disclosures.
    (2) Conditions for disclosed terms. (i) A statement of the time by 
which the consumer must submit an application to obtain specific terms 
disclosed and an identification of any disclosed term that is subject to 
change prior to opening the plan.
    (ii) A statement that, if a disclosed term changes (other than a 
change due to fluctuations in the index in a variable-rate plan) prior 
to opening the plan and the consumer therefore elects not to open the 
plan, the consumer may receive a refund of all fees paid in connection 
with the application.
    (3) Security interest and risk to home. A statement that the 
creditor will acquire a security interest in the consumer's dwelling and 
that loss of the dwelling may occur in the event of default.
    (4) Possible actions by creditor. (i) A statement that, under 
certain conditions, the creditor may terminate the plan and require 
payment of the outstanding balance in full in a single payment and 
impose fees upon termination; prohibit additional extensions of credit 
or reduce the credit limit; and, as specified in the initial agreement, 
implement certain changes in the plan.
    (ii) A statement that the consumer may receive, upon request, 
information about the conditions under which such actions may occur.
    (iii) In lieu of the disclosure required under paragraph (d)(4)(ii) 
of this section, a statement of such conditions.
    (5) Payment terms. The payment terms of the plan. If different 
payment terms may apply to the draw and any repayment period, or if 
different payment terms may apply within either period, the disclosures 
shall reflect the different payment terms. The payment terms of the plan 
include:
    (i) The length of the draw period and any repayment period.
    (ii) An explanation of how the minimum periodic payment will be 
determined and the timing of the payments. If paying only the minimum 
periodic payments may not repay any of the principal or may repay less 
than the outstanding balance, a statement of this fact, as well as a 
statement that a

[[Page 615]]

balloon payment may result. A balloon payment results if paying the 
minimum periodic payments does not fully amortize the outstanding 
balance by a specified date or time, and the consumer must repay the 
entire outstanding balance at such time.
    (iii) An example, based on a $10,000 outstanding balance and a 
recent annual percentage rate, showing the minimum periodic payment, any 
balloon payment, and the time it would take to repay the $10,000 
outstanding balance if the consumer made only those payments and 
obtained no additional extensions of credit. For fixed-rate plans, a 
recent annual percentage rate is a rate that has been in effect under 
the plan within the twelve months preceding the date the disclosures are 
provided to the consumer. For variable-rate plans, a recent annual 
percentage rate is the most recent rate provided in the historical 
example described in paragraph (d)(12)(xi) of this section or a rate 
that has been in effect under the plan since the date of the most recent 
rate in the table.
    (6) Annual percentage rate. For fixed-rate plans, a recent annual 
percentage rate imposed under the plan and a statement that the rate 
does not include costs other than interest. A recent annual percentage 
rate is a rate that has been in effect under the plan within the twelve 
months preceding the date the disclosures are provided to the consumer.
    (7) Fees imposed by creditor. An itemization of any fees imposed by 
the creditor to open, use, or maintain the plan, stated as a dollar 
amount or percentage, and when such fees are payable.
    (8) Fees imposed by third parties to open a plan. A good faith 
estimate, stated as a single dollar amount or range, of any fees that 
may be imposed by persons other than the creditor to open the plan, as 
well as a statement that the consumer may receive, upon request, a good 
faith itemization of such fees. In lieu of the statement, the 
itemization of such fees may be provided.
    (9) Negative amortization. A statement that negative amortization 
may occur and that negative amortization increases the principal balance 
and reduces the consumer's equity in the dwelling.
    (10) Transaction requirements. Any limitations on the number of 
extensions of credit and the amount of credit that may be obtained 
during any time period, as well as any minimum outstanding balance and 
minimum draw requirements, stated as dollar amounts or percentages.
    (11) Tax implications. A statement that the consumer should consult 
a tax advisor regarding the deductibility of interest and charges under 
the plan.
    (12) Disclosures for variable-rate plans. For a plan in which the 
annual percentage rate is variable, the following disclosures, as 
applicable:
    (i) The fact that the annual percentage rate, payment, or term may 
change due to the variable-rate feature.
    (ii) A statement that the annual percentage rate does not include 
costs other than interest.
    (iii) The index used in making rate adjustments and a source of 
information about the index.
    (iv) An explanation of how the annual percentage rate will be 
determined, including an explanation of how the index is adjusted, such 
as by the addition of a margin.
    (v) A statement that the consumer should ask about the current index 
value, margin, discount or premium, and annual percentage rate.
    (vi) A statement that the initial annual percentage rate is not 
based on the index and margin used to make later rate adjustments, and 
the period of time such initial rate will be in effect.
    (vii) The frequency of changes in the annual percentage rate.
    (viii) Any rules relating to changes in the index value and the 
annual percentage rate and resulting changes in the payment amount, 
including, for example, an explanation of payment limitations and rate 
carryover.
    (ix) A statement of any annual or more frequent periodic limitations 
on changes in the annual percentage rate (or a statement that no annual 
limitation exists), as well as a statement of the maximum annual 
percentage rate that may be imposed under each payment option.

[[Page 616]]

    (x) The minimum periodic payment required when the maximum annual 
percentage rate for each payment option is in effect for a $10,000 
outstanding balance, and a statement of the earliest date or time the 
maximum rate may be imposed.
    (xi) An historical example, based on a $10,000 extension of credit, 
illustrating how annual percentage rates and payments would have been 
affected by index value changes implemented according to the terms of 
the plan. The historical example shall be based on the most recent 15 
years of index values (selected for the same time period each year) and 
shall reflect all significant plan terms, such as negative amortization, 
rate carryover, rate discounts, and rate and payment limitations, that 
would have been affected by the index movement during the period.
    (xii) A statement that rate information will be provided on or with 
each periodic statement.
    (e) Brochure. The home equity brochure entitled ``What You Should 
Know About Home Equity Lines of Credit'' or a suitable substitute shall 
be provided.
    (f) Limitations on home equity plans. No creditor may, by contract 
or otherwise:
    (1) Change the annual percentage rate unless:
    (i) Such change is based on an index that is not under the 
creditor's control; and
    (ii) Such index is available to the general public.
    (2) Terminate a plan and demand repayment of the entire outstanding 
balance in advance of the original term (except for reverse mortgage 
transactions that are subject to paragraph (f)(4) of this section) 
unless:
    (i) There is fraud or material misrepresentation by the consumer in 
connection with the plan;
    (ii) The consumer fails to meet the repayment terms of the agreement 
for any outstanding balance;
    (iii) Any action or inaction by the consumer adversely affects the 
creditor's security for the plan, or any right of the creditor in such 
security; or
    (iv) Federal law dealing with credit extended by a depository 
institution to its executive officers specifically requires that as a 
condition of the plan the credit shall become due and payable on demand, 
provided that the creditor includes such a provision in the initial 
agreement.
    (3) Change any term, except that a creditor may:
    (i) Provide in the initial agreement that it may prohibit additional 
extensions of credit or reduce the credit limit during any period in 
which the maximum annual percentage rate is reached. A creditor also may 
provide in the initial agreement that specified changes will occur if a 
specified event takes place (for example, that the annual percentage 
rate will increase a specified amount if the consumer leaves the 
creditor's employment).
    (ii) Change the index and margin used under the plan if the original 
index is no longer available, the new index has an historical movement 
substantially similar to that of the original index, and the new index 
and margin would have resulted in an annual percentage rate 
substantially similar to the rate in effect at the time the original 
index became unavailable.
    (iii) Make a specified change if the consumer specifically agrees to 
it in writing at that time.
    (iv) Make a change that will unequivocally benefit the consumer 
throughout the remainder of the plan.
    (v) Make an insignificant change to terms.
    (vi) Prohibit additional extensions of credit or reduce the credit 
limit applicable to an agreement during any period in which:
    (A) The value of the dwelling that secures the plan declines 
significantly below the dwelling's appraised value for purposes of the 
plan;
    (B) The creditor reasonably believes that the consumer will be 
unable to fulfill the repayment obligations under the plan because of a 
material change in the consumer's financial circumstances;
    (C) The consumer is in default of any material obligation under the 
agreement;
    (D) The creditor is precluded by government action from imposing the 
annual percentage rate provided for in the agreement;

[[Page 617]]

    (E) The priority of the creditor's security interest is adversely 
affected by government action to the extent that the value of the 
security interest is less than 120 percent of the credit line; or
    (F) The creditor is notified by its regulatory agency that continued 
advances constitute an unsafe and unsound practice.
    (4) For reverse mortgage transactions that are subject to Sec. 
1026.33, terminate a plan and demand repayment of the entire outstanding 
balance in advance of the original term except:
    (i) In the case of default;
    (ii) If the consumer transfers title to the property securing the 
note;
    (iii) If the consumer ceases using the property securing the note as 
the primary dwelling; or
    (iv) Upon the consumer's death.
    (g) Refund of fees. A creditor shall refund all fees paid by the 
consumer to anyone in connection with an application if any term 
required to be disclosed under paragraph (d) of this section changes 
(other than a change due to fluctuations in the index in a variable-rate 
plan) before the plan is opened and, as a result, the consumer elects 
not to open the plan.
    (h) Imposition of nonrefundable fees. Neither a creditor nor any 
other person may impose a nonrefundable fee in connection with an 
application until three business days after the consumer receives the 
disclosures and brochure required under this section. If the disclosures 
and brochure are mailed to the consumer, the consumer is considered to 
have received them three business days after they are mailed.



Sec. 1026.41  [Reserved]



Sec. 1026.42  Valuation independence.

    (a) Scope. This section applies to any consumer credit transaction 
secured by the consumer's principal dwelling.
    (b) Definitions. For purposes of this section:
    (1) ``Covered person'' means a creditor with respect to a covered 
transaction or a person that provides ``settlement services,'' as 
defined in 12 U.S.C. 2602(3) and implementing regulations, in connection 
with a covered transaction.
    (2) ``Covered transaction'' means an extension of consumer credit 
that is or will be secured by the consumer's principal dwelling, as 
defined in Sec. 1026.2(a)(19).
    (3) ``Valuation'' means an estimate of the value of the consumer's 
principal dwelling in written or electronic form, other than one 
produced solely by an automated model or system.
    (4) ``Valuation management functions'' means:
    (i) Recruiting, selecting, or retaining a person to prepare a 
valuation;
    (ii) Contracting with or employing a person to prepare a valuation;
    (iii) Managing or overseeing the process of preparing a valuation, 
including by providing administrative services such as receiving orders 
for and receiving a valuation, submitting a completed valuation to 
creditors and underwriters, collecting fees from creditors and 
underwriters for services provided in connection with a valuation, and 
compensating a person that prepares valuations; or
    (iv) Reviewing or verifying the work of a person that prepares 
valuations.
    (c) Valuation of consumer's principal dwelling--(1) Coercion. In 
connection with a covered transaction, no covered person shall or shall 
attempt to directly or indirectly cause the value assigned to the 
consumer's principal dwelling to be based on any factor other than the 
independent judgment of a person that prepares valuations, through 
coercion, extortion, inducement, bribery, or intimidation of, 
compensation or instruction to, or collusion with a person that prepares 
valuations or performs valuation management functions.
    (i) Examples of actions that violate paragraph (c)(1) include:
    (A) Seeking to influence a person that prepares a valuation to 
report a minimum or maximum value for the consumer's principal dwelling;
    (B) Withholding or threatening to withhold timely payment to a 
person that prepares a valuation or performs valuation management 
functions because the person does not value the consumer's principal 
dwelling at or above a certain amount;
    (C) Implying to a person that prepares valuations that current or 
future

[[Page 618]]

retention of the person depends on the amount at which the person 
estimates the value of the consumer's principal dwelling;
    (D) Excluding a person that prepares a valuation from consideration 
for future engagement because the person reports a value for the 
consumer's principal dwelling that does not meet or exceed a 
predetermined threshold; and
    (E) Conditioning the compensation paid to a person that prepares a 
valuation on consummation of the covered transaction.
    (2) Mischaracterization of value--(i) Misrepresentation. In 
connection with a covered transaction, no person that prepares 
valuations shall materially misrepresent the value of the consumer's 
principal dwelling in a valuation. A misrepresentation is material for 
purposes of this paragraph (c)(2)(i) if it is likely to significantly 
affect the value assigned to the consumer's principal dwelling. A bona 
fide error shall not be a misrepresentation.
    (ii) Falsification or alteration. In connection with a covered 
transaction, no covered person shall falsify and no covered person other 
than a person that prepares valuations shall materially alter a 
valuation. An alteration is material for purposes of this paragraph 
(c)(2)(ii) if it is likely to significantly affect the value assigned to 
the consumer's principal dwelling.
    (iii) Inducement of mischaracterization. In connection with a 
covered transaction, no covered person shall induce a person to violate 
paragraph (c)(2)(i) or (ii) of this section.
    (3) Permitted actions. Examples of actions that do not violate 
paragraph (c)(1) or (c)(2) include:
    (i) Asking a person that prepares a valuation to consider 
additional, appropriate property information, including information 
about comparable properties, to make or support a valuation;
    (ii) Requesting that a person that prepares a valuation provide 
further detail, substantiation, or explanation for the person's 
conclusion about the value of the consumer's principal dwelling;
    (iii) Asking a person that prepares a valuation to correct errors in 
the valuation;
    (iv) Obtaining multiple valuations for the consumer's principal 
dwelling to select the most reliable valuation;
    (v) Withholding compensation due to breach of contract or 
substandard performance of services; and
    (vi) Taking action permitted or required by applicable Federal or 
state statute, regulation, or agency guidance.
    (d) Prohibition on conflicts of interest--(1)(i) In general. No 
person preparing a valuation or performing valuation management 
functions for a covered transaction may have a direct or indirect 
interest, financial or otherwise, in the property or transaction for 
which the valuation is or will be performed.
    (ii) Employees and affiliates of creditors; providers of multiple 
settlement services. In any covered transaction, no person violates 
paragraph (d)(1)(i) of this section based solely on the fact that the 
person:
    (A) Is an employee or affiliate of the creditor; or
    (B) Provides a settlement service in addition to preparing 
valuations or performing valuation management functions, or based solely 
on the fact that the person's affiliate performs another settlement 
service.
    (2) Employees and affiliates of creditors with assets of more than 
$250 million for both of the past two calendar years. For any covered 
transaction in which the creditor had assets of more than $250 million 
as of December 31st for both of the past two calendar years, a person 
subject to paragraph (d)(1)(i) of this section who is employed by or 
affiliated with the creditor does not have a conflict of interest in 
violation of paragraph (d)(1)(i) of this section based on the person's 
employment or affiliate relationship with the creditor if:
    (i) The compensation of the person preparing a valuation or 
performing valuation management functions is not based on the value 
arrived at in any valuation;
    (ii) The person preparing a valuation or performing valuation 
management functions reports to a person who is not part of the 
creditor's loan production function, as defined in paragraph (d)(5)(i) 
of this section, and whose compensation is not based on the closing of

[[Page 619]]

the transaction to which the valuation relates; and
    (iii) No employee, officer or director in the creditor's loan 
production function, as defined in paragraph (d)(5)(i) of this section, 
is directly or indirectly involved in selecting, retaining, recommending 
or influencing the selection of the person to prepare a valuation or 
perform valuation management functions, or to be included in or excluded 
from a list of approved persons who prepare valuations or perform 
valuation management functions.
    (3) Employees and affiliates of creditors with assets of $250 
million or less for either of the past two calendar years. For any 
covered transaction in which the creditor had assets of $250 million or 
less as of December 31st for either of the past two calendar years, a 
person subject to paragraph (d)(1)(i) of this section who is employed by 
or affiliated with the creditor does not have a conflict of interest in 
violation of paragraph (d)(1)(i) of this section based on the person's 
employment or affiliate relationship with the creditor if:
    (i) The compensation of the person preparing a valuation or 
performing valuation management functions is not based on the value 
arrived at in any valuation; and
    (ii) The creditor requires that any employee, officer or director of 
the creditor who orders, performs, or reviews a valuation for a covered 
transaction abstain from participating in any decision to approve, not 
approve, or set the terms of that transaction.
    (4) Providers of multiple settlement services. For any covered 
transaction, a person who prepares a valuation or performs valuation 
management functions in addition to performing another settlement 
service for the transaction, or whose affiliate performs another 
settlement service for the transaction, does not have a conflict of 
interest in violation of paragraph (d)(1)(i) of this section as a result 
of the person or the person's affiliate performing another settlement 
service for the transaction if:
    (i) The creditor had assets of more than $250 million as of December 
31st for both of the past two calendar years and the conditions in 
paragraph (d)(2)(i)-(iii) are met; or
    (ii) The creditor had assets of $250 million or less as of December 
31st for either of the past two calendar years and the conditions in 
paragraph (d)(3)(i)-(ii) are met.
    (5) Definitions. For purposes of this paragraph (d), the following 
definitions apply:
    (i) Loan production function. The term ``loan production function'' 
means an employee, officer, director, department, division, or other 
unit of a creditor with responsibility for generating covered 
transactions, approving covered transactions, or both.
    (ii) Settlement service. The term ``settlement service'' has the 
same meaning as in the Real Estate Settlement Procedures Act, 12 U.S.C. 
2601 et seq.
    (iii) Affiliate. The term ``affiliate'' has the same meaning as in 
Regulation Y of the Board of Governors of the Federal Reserve System, 12 
CFR 225.2(a).
    (e) When extension of credit prohibited. In connection with a 
covered transaction, a creditor that knows, at or before consummation, 
of a violation of paragraph (c) or (d) of this section in connection 
with a valuation shall not extend credit based on the valuation, unless 
the creditor documents that it has acted with reasonable diligence to 
determine that the valuation does not materially misstate or 
misrepresent the value of the consumer's principal dwelling. For 
purposes of this paragraph (e), a valuation materially misstates or 
misrepresents the value of the consumer's principal dwelling if the 
valuation contains a misstatement or misrepresentation that affects the 
credit decision or the terms on which credit is extended.
    (f) Customary and reasonable compensation--(1) Requirement to 
provide customary and reasonable compensation to fee appraisers. In any 
covered transaction, the creditor and its agents shall compensate a fee 
appraiser for performing appraisal services at a rate that is customary 
and reasonable for comparable appraisal services performed in the 
geographic market of the property being appraised. For purposes of 
paragraph (f) of this section, ``agents'' of the creditor do not include 
any fee appraiser as defined in paragraph (f)(4)(i) of this section.

[[Page 620]]

    (2) Presumption of compliance. A creditor and its agents shall be 
presumed to comply with paragraph (f)(1) of this section if:
    (i) The creditor or its agents compensate the fee appraiser in an 
amount that is reasonably related to recent rates paid for comparable 
appraisal services performed in the geographic market of the property 
being appraised. In determining this amount, a creditor or its agents 
shall review the factors below and make any adjustments to recent rates 
paid in the relevant geographic market necessary to ensure that the 
amount of compensation is reasonable:
    (A) The type of property,
    (B) The scope of work,
    (C) The time in which the appraisal services are required to be 
performed,
    (D) Fee appraiser qualifications,
    (E) Fee appraiser experience and professional record, and
    (F) Fee appraiser work quality; and
    (ii) The creditor and its agents do not engage in any 
anticompetitive acts in violation of state or Federal law that affect 
the compensation paid to fee appraisers, including:
    (A) Entering into any contracts or engaging in any conspiracies to 
restrain trade through methods such as price fixing or market 
allocation, as prohibited under section 1 of the Sherman Antitrust Act, 
15 U.S.C. 1, or any other relevant antitrust laws; or
    (B) Engaging in any acts of monopolization such as restricting any 
person from entering the relevant geographic market or causing any 
person to leave the relevant geographic market, as prohibited under 
section 2 of the Sherman Antitrust Act, 15 U.S.C. 2, or any other 
relevant antitrust laws.
    (3) Alternative presumption of compliance. A creditor and its agents 
shall be presumed to comply with paragraph (f)(1) of this section if the 
creditor or its agents determine the amount of compensation paid to the 
fee appraiser by relying on information about rates that:
    (i) Is based on objective third-party information, including fee 
schedules, studies, and surveys prepared by independent third parties 
such as government agencies, academic institutions, and private research 
firms;
    (ii) Is based on recent rates paid to a representative sample of 
providers of appraisal services in the geographic market of the property 
being appraised or the fee schedules of those providers; and
    (iii) In the case of information based on fee schedules, studies, 
and surveys, such fee schedules, studies, or surveys, or the information 
derived therefrom, excludes compensation paid to fee appraisers for 
appraisals ordered by appraisal management companies, as defined in 
paragraph (f)(4)(iii) of this section.
    (4) Definitions. For purposes of this paragraph (f), the following 
definitions apply:
    (i) Fee appraiser. The term ``fee appraiser'' means:
    (A) A natural person who is a state-licensed or state-certified 
appraiser and receives a fee for performing an appraisal, but who is not 
an employee of the person engaging the appraiser; or
    (B) An organization that, in the ordinary course of business, 
employs state-licensed or state-certified appraisers to perform 
appraisals, receives a fee for performing appraisals, and is not subject 
to the requirements of section 1124 of the Financial Institutions 
Reform, Recovery, and Enforcement Act of 1989 (12 U.S.C. 3353).
    (ii) Appraisal services. The term ``appraisal services'' means the 
services required to perform an appraisal, including defining the scope 
of work, inspecting the property, reviewing necessary and appropriate 
public and private data sources (for example, multiple listing services, 
tax assessment records and public land records), developing and 
rendering an opinion of value, and preparing and submitting the 
appraisal report.
    (iii) Appraisal management company. The term ``appraisal management 
company'' means any person authorized to perform one or more of the 
following actions on behalf of the creditor:
    (A) Recruit, select, and retain fee appraisers;
    (B) Contract with fee appraisers to perform appraisal services;
    (C) Manage the process of having an appraisal performed, including 
providing administrative services such as

[[Page 621]]

receiving appraisal orders and appraisal reports, submitting completed 
appraisal reports to creditors and underwriters, collecting fees from 
creditors and underwriters for services provided, and compensating fee 
appraisers for services performed; or
    (D) Review and verify the work of fee appraisers.
    (g) Mandatory reporting--(1) Reporting required. Any covered person 
that reasonably believes an appraiser has not complied with the Uniform 
Standards of Professional Appraisal Practice or ethical or professional 
requirements for appraisers under applicable state or Federal statutes 
or regulations shall refer the matter to the appropriate state agency if 
the failure to comply is material. For purposes of this paragraph 
(g)(1), a failure to comply is material if it is likely to significantly 
affect the value assigned to the consumer's principal dwelling.
    (2) Timing of reporting. A covered person shall notify the 
appropriate state agency within a reasonable period of time after the 
person determines that there is a reasonable basis to believe that a 
failure to comply required to be reported under paragraph (g)(1) of this 
section has occurred.
    (3) Definition. For purposes of this paragraph (g), ``state agency'' 
means ``state appraiser certifying and licensing agency'' under 12 
U.S.C. 3350(1) and any implementing regulations. The appropriate state 
agency to which a covered person must refer a matter under paragraph 
(g)(1) of this section is the agency for the state in which the 
consumer's principal dwelling is located.



Sec. Sec. 1026.43-1026.45  [Reserved]



           Subpart F_Special Rules for Private Education Loans



Sec. 1026.46  Special disclosure requirements for private education loans.

    (a) Coverage. The requirements of this subpart apply to private 
education loans as defined in Sec. 1026.46(b)(5). A creditor may, at 
its option, comply with the requirements of this subpart for an 
extension of credit subject to Sec. Sec. 1026.17 and 1026.18 that is 
extended to a consumer for expenses incurred after graduation from a 
law, medical, dental, veterinary, or other graduate school and related 
to relocation, study for a bar or other examination, participation in an 
internship or residency program, or similar purposes.
    (1) Relation to other subparts in this part. Except as otherwise 
specifically provided, the requirements and limitations of this subpart 
are in addition to and not in lieu of those contained in other subparts 
of this Part.
    (2) [Reserved]
    (b) Definitions. For purposes of this subpart, the following 
definitions apply:
    (1) Covered educational institution means:
    (i) An educational institution that meets the definition of an 
institution of higher education, as defined in paragraph (b)(2) of this 
section, without regard to the institution's accreditation status; and
    (ii) Includes an agent, officer, or employee of the institution of 
higher education. An agent means an institution-affiliated organization 
as defined by section 151 of the Higher Education Act of 1965 (20 U.S.C. 
1019) or an officer or employee of an institution-affiliated 
organization.
    (2) Institution of higher education has the same meaning as in 
sections 101 and 102 of the Higher Education Act of 1965 (20 U.S.C. 
1001-1002) and the implementing regulations published by the U.S. 
Department of Education.
    (3) Postsecondary educational expenses means any of the expenses 
that are listed as part of the cost of attendance, as defined under 
section 472 of the Higher Education Act of 1965 (20 U.S.C. 1087ll), of a 
student at a covered educational institution. These expenses include 
tuition and fees, books, supplies, miscellaneous personal expenses, room 
and board, and an allowance for any loan fee, origination fee, or 
insurance premium charged to a student or parent for a loan incurred to 
cover the cost of the student's attendance.
    (4) Preferred lender arrangement has the same meaning as in section 
151 of the Higher Education Act of 1965 (20 U.S.C. 1019).
    (5) Private education loan means an extension of credit that:

[[Page 622]]

    (i) Is not made, insured, or guaranteed under Title IV of the Higher 
Education Act of 1965 (20 U.S.C. 1070 et seq.);
    (ii) Is extended to a consumer expressly, in whole or in part, for 
postsecondary educational expenses, regardless of whether the loan is 
provided by the educational institution that the student attends;
    (iii) Does not include open-end credit or any loan that is secured 
by real property or a dwelling; and
    (iv) Does not include an extension of credit in which the covered 
educational institution is the creditor if:
    (A) The term of the extension of credit is 90 days or less; or
    (B) an interest rate will not be applied to the credit balance and 
the term of the extension of credit is one year or less, even if the 
credit is payable in more than four installments.
    (c) Form of disclosures--(1) Clear and conspicuous. The disclosures 
required by this subpart shall be made clearly and conspicuously.
    (2) Transaction disclosures. (i) The disclosures required under 
Sec. Sec. 1026.47(b) and (c) shall be made in writing, in a form that 
the consumer may keep. The disclosures shall be grouped together, shall 
be segregated from everything else, and shall not contain any 
information not directly related to the disclosures required under 
Sec. Sec. 1026.47(b) and (c), which include the disclosures required 
under Sec. 1026.18.
    (ii) The disclosures may include an acknowledgement of receipt, the 
date of the transaction, and the consumer's name, address, and account 
number. The following disclosures may be made together with or 
separately from other required disclosures: the creditor's identity 
under Sec. 1026.18(a), insurance or debt cancellation under Sec. 
1026.18(n), and certain security interest charges under Sec. 
1026.18(o).
    (iii) The term ``finance charge'' and corresponding amount, when 
required to be disclosed under Sec. 1026.18(d), and the interest rate 
required to be disclosed under Sec. Sec. 1026.47(b)(1)(i) and (c)(1), 
shall be more conspicuous than any other disclosure, except the 
creditor's identity under Sec. 1026.18(a).
    (3) Electronic disclosures. The disclosures required under 
Sec. Sec. 1026.47(b) and (c) may be provided to the consumer in 
electronic form, subject to compliance with the consumer consent and 
other applicable provisions of the Electronic Signatures in Global and 
National Commerce Act (E-Sign Act) (15 U.S.C. 7001 et seq.). The 
disclosures required by Sec. 1026.47(a) may be provided to the consumer 
in electronic form on or with an application or solicitation that is 
accessed by the consumer in electronic form without regard to the 
consumer consent or other provisions of the E-Sign Act. The form 
required to be received under Sec. 1026.48(e) may be accepted by the 
creditor in electronic form as provided for in that section.
    (d) Timing of disclosures--(1) Application or solicitation 
disclosures. (i) The disclosures required by Sec. 1026.47(a) shall be 
provided on or with any application or solicitation. For purposes of 
this subpart, the term solicitation means an offer of credit that does 
not require the consumer to complete an application. A ``firm offer of 
credit'' as defined in section 603(l) of the Fair Credit Reporting Act 
(15 U.S.C. 1681a(l)) is a solicitation for purposes of this section.
    (ii) The creditor may, at its option, disclose orally the 
information in Sec. 1026.47(a) in a telephone application or 
solicitation. Alternatively, if the creditor does not disclose orally 
the information in Sec. 1026.47(a), the creditor must provide the 
disclosures or place them in the mail no later than three business days 
after the consumer has applied for the credit, except that, if the 
creditor either denies the consumer's application or provides or places 
in the mail the disclosures in Sec. 1026.47(b) no later than three 
business days after the consumer requests the credit, the creditor need 
not also provide the Sec. 1026.47(a) disclosures.
    (iii) Notwithstanding paragraph (d)(1)(i) of this section, for a 
loan that the consumer may use for multiple purposes including, but not 
limited to, postsecondary educational expenses, the creditor need not 
provide the disclosures required by Sec. 1026.47(a).
    (2) Approval disclosures. The creditor shall provide the disclosures 
required by Sec. 1026.47(b) before consummation on or with any notice 
of approval provided to the consumer. If the creditor mails notice of 
approval, the disclosures

[[Page 623]]

must be mailed with the notice. If the creditor communicates notice of 
approval by telephone, the creditor must mail the disclosures within 
three business days of providing the notice of approval. If the creditor 
communicates notice of approval electronically, the creditor may provide 
the disclosures in electronic form in accordance with Sec. 
1026.46(d)(3); otherwise the creditor must mail the disclosures within 
three business days of communicating the notice of approval. If the 
creditor communicates approval in person, the creditor must provide the 
disclosures to the consumer at that time.
    (3) Final disclosures. The disclosures required by Sec. 1026.47(c) 
shall be provided after the consumer accepts the loan in accordance with 
Sec. 1026.48(c)(1).
    (4) Receipt of mailed disclosures. If the disclosures under 
paragraphs (d)(1), (d)(2) or (d)(3) of this section are mailed to the 
consumer, the consumer is considered to have received them three 
business days after they are mailed.
    (e) Basis of disclosures and use of estimates--(1) Legal obligation. 
Disclosures shall reflect the terms of the legal obligation between the 
parties.
    (2) Estimates. If any information necessary for an accurate 
disclosure is unknown to the creditor, the creditor shall make the 
disclosure based on the best information reasonably available at the 
time the disclosure is provided, and shall state clearly that the 
disclosure is an estimate.
    (f) Multiple creditors; multiple consumers. If a transaction 
involves more than one creditor, only one set of disclosures shall be 
given and the creditors shall agree among themselves which creditor will 
comply with the requirements that this part imposes on any or all of 
them. If there is more than one consumer, the disclosures may be made to 
any consumer who is primarily liable on the obligation.
    (g) Effect of subsequent events--(1) Approval disclosures. If a 
disclosure under Sec. 1026.47(b) becomes inaccurate because of an event 
that occurs after the creditor delivers the required disclosures, the 
inaccuracy is not a violation of Regulation Z (12 CFR part 1026), 
although new disclosures may be required under Sec. 1026.48(c).
    (2) Final disclosures. If a disclosure under Sec. 1026.47(c) 
becomes inaccurate because of an event that occurs after the creditor 
delivers the required disclosures, the inaccuracy is not a violation of 
Regulation Z (12 CFR part 1026).



Sec. 1026.47  Content of disclosures.

    (a) Application or solicitation disclosures. A creditor shall 
provide the disclosures required under paragraph (a) of this section on 
or with a solicitation or an application for a private education loan.
    (1) Interest rates. (i) The interest rate or range of interest rates 
applicable to the loan and actually offered by the creditor at the time 
of application or solicitation. If the rate will depend, in part, on a 
later determination of the consumer's creditworthiness or other factors, 
a statement that the rate for which the consumer may qualify will depend 
on the consumer's creditworthiness and other factors, if applicable.
    (ii) Whether the interest rates applicable to the loan are fixed or 
variable.
    (iii) If the interest rate may increase after consummation of the 
transaction, any limitations on the interest rate adjustments, or lack 
thereof; a statement that the consumer's actual rate could be higher or 
lower than the rates disclosed under paragraph (a)(1)(i) of this 
section, if applicable; and, if the limitation is determined by 
applicable law, that fact.
    (iv) Whether the applicable interest rates typically will be higher 
if the loan is not co-signed or guaranteed.
    (2) Fees and default or late payment costs. (i) An itemization of 
the fees or range of fees required to obtain the private education loan.
    (ii) Any fees, changes to the interest rate, and adjustments to 
principal based on the consumer's defaults or late payments.
    (3) Repayment terms. (i) The term of the loan, which is the period 
during which regularly scheduled payments of principal and interest will 
be due.
    (ii) A description of any payment deferral options, or, if the 
consumer does not have the option to defer payments, that fact.

[[Page 624]]

    (iii) For each payment deferral option applicable while the student 
is enrolled at a covered educational institution:
    (A) Whether interest will accrue during the deferral period; and
    (B) If interest accrues, whether payment of interest may be deferred 
and added to the principal balance.
    (iv) A statement that if the consumer files for bankruptcy, the 
consumer may still be required to pay back the loan.
    (4) Cost estimates. An example of the total cost of the loan 
calculated as the total of payments over the term of the loan:
    (i) Using the highest rate of interest disclosed under paragraph 
(a)(1) of this section and including all finance charges applicable to 
loans at that rate;
    (ii) Using an amount financed of $10,000, or $5000 if the creditor 
only offers loans of this type for less than $10,000; and
    (iii) Calculated for each payment option.
    (5) Eligibility. Any age or school enrollment eligibility 
requirements relating to the consumer or cosigner.
    (6) Alternatives to private education loans. (i) A statement that 
the consumer may qualify for Federal student financial assistance 
through a program under Title IV of the Higher Education Act of 1965 (20 
U.S.C. 1070 et seq.).
    (ii) The interest rates available under each program under Title IV 
of the Higher Education Act of 1965 (20 U.S.C. 1070 et seq.) and whether 
the rates are fixed or variable.
    (iii) A statement that the consumer may obtain additional 
information concerning Federal student financial assistance from the 
institution of higher education that the student attends, or at the Web 
site of the U.S. Department of Education, including an appropriate Web 
site address.
    (iv) A statement that a covered educational institution may have 
school-specific education loan benefits and terms not detailed on the 
disclosure form.
    (7) Rights of the consumer. A statement that if the loan is 
approved, the terms of the loan will be available and will not change 
for 30 days except as a result of adjustments to the interest rate and 
other changes permitted by law.
    (8) Self-certification information. A statement that, before the 
loan may be consummated, the consumer must complete the self-
certification form and that the form may be obtained from the 
institution of higher education that the student attends.
    (b) Approval disclosures. On or with any notice of approval provided 
to the consumer, the creditor shall disclose the information required 
under Sec. 1026.18 and the following information:
    (1) Interest rate. (i) The interest rate applicable to the loan.
    (ii) Whether the interest rate is fixed or variable.
    (iii) If the interest rate may increase after consummation of the 
transaction, any limitations on the rate adjustments, or lack thereof.
    (2) Fees and default or late payment costs. (i) An itemization of 
the fees or range of fees required to obtain the private education loan.
    (ii) Any fees, changes to the interest rate, and adjustments to 
principal based on the consumer's defaults or late payments.
    (3) Repayment terms. (i) The principal amount of the loan for which 
the consumer has been approved.
    (ii) The term of the loan, which is the period during which 
regularly scheduled payments of principal and interest will be due.
    (iii) A description of the payment deferral option chosen by the 
consumer, if applicable, and any other payment deferral options that the 
consumer may elect at a later time.
    (iv) Any payments required while the student is enrolled at a 
covered educational institution, based on the deferral option chosen by 
the consumer.
    (v) The amount of any unpaid interest that will accrue while the 
student is enrolled at a covered educational institution, based on the 
deferral option chosen by the consumer.
    (vi) A statement that if the consumer files for bankruptcy, the 
consumer may still be required to pay back the loan.
    (vii) An estimate of the total amount of payments calculated based 
on:
    (A) The interest rate applicable to the loan. Compliance with Sec. 
1026.18(h)

[[Page 625]]

constitutes compliance with this requirement.
    (B) The maximum possible rate of interest for the loan or, if a 
maximum rate cannot be determined, a rate of 25%.
    (C) If a maximum rate cannot be determined, the estimate of the 
total amount for repayment must include a statement that there is no 
maximum rate and that the total amount for repayment disclosed under 
paragraph (b)(3)(vii)(B) of this section is an estimate and will be 
higher if the applicable interest rate increases.
    (viii) The maximum monthly payment based on the maximum rate of 
interest for the loan or, if a maximum rate cannot be determined, a rate 
of 25%. If a maximum cannot be determined, a statement that there is no 
maximum rate and that the monthly payment amount disclosed is an 
estimate and will be higher if the applicable interest rate increases.
    (4) Alternatives to private education loans. (i) A statement that 
the consumer may qualify for Federal student financial assistance 
through a program under Title IV of the Higher Education Act of 1965 (20 
U.S.C. 1070 et seq.).
    (ii) The interest rates available under each program under Title IV 
of the Higher Education Act of 1965 (20 U.S.C. 1070 et seq.), and 
whether the rates are fixed or variable.
    (iii) A statement that the consumer may obtain additional 
information concerning Federal student financial assistance from the 
institution of higher education that the student attends, or at the Web 
site of the U.S. Department of Education, including an appropriate Web 
site address.
    (5) Rights of the consumer. (i) A statement that the consumer may 
accept the terms of the loan until the acceptance period under Sec. 
1026.48(c)(1) has expired. The statement must include the specific date 
on which the acceptance period expires, based on the date upon which the 
consumer receives the disclosures required under this subsection for the 
loan. The disclosure must also specify the method or methods by which 
the consumer may communicate acceptance.
    (ii) A statement that, except for changes to the interest rate and 
other changes permitted by law, the rates and terms of the loan may not 
be changed by the creditor during the period described in paragraph 
(b)(5)(i) of this section.
    (c) Final disclosures. After the consumer has accepted the loan in 
accordance with Sec. 1026.48(c)(1), the creditor shall disclose to the 
consumer the information required by Sec. 1026.18 and the following 
information:
    (1) Interest rate. Information required to be disclosed under Sec. 
1026.47(b)(1).
    (2) Fees and default or late payment costs. Information required to 
be disclosed under Sec. 1026.47(b)(2).
    (3) Repayment terms. Information required to be disclosed under 
Sec. 1026.47(b)(3).
    (4) Cancellation right. A statement that:
    (i) The consumer has the right to cancel the loan, without penalty, 
at any time before the cancellation period under Sec. 1026.48(d) 
expires, and
    (ii) Loan proceeds will not be disbursed until after the 
cancellation period under Sec. 1026.48(d) expires. The statement must 
include the specific date on which the cancellation period expires and 
state that the consumer may cancel by that date. The statement must also 
specify the method or methods by which the consumer may cancel. If the 
creditor permits cancellation by mail, the statement must specify that 
the consumer's mailed request will be deemed timely if placed in the 
mail not later than the cancellation date specified on the disclosure. 
The disclosures required by this paragraph (c)(4) must be made more 
conspicuous than any other disclosure required under this section, 
except for the finance charge, the interest rate, and the creditor's 
identity, which must be disclosed in accordance with the requirements of 
Sec. 1026.46(c)(2)(iii).



Sec. 1026.48  Limitations on private education loans.

    (a) Co-branding prohibited. (1) Except as provided in paragraph (b) 
of this section, a creditor, other than the covered educational 
institution itself, shall not use the name, emblem, mascot, or logo of a 
covered educational institution, or

[[Page 626]]

other words, pictures, or symbols identified with a covered educational 
institution, in the marketing of private education loans in a way that 
implies that the covered education institution endorses the creditor's 
loans.
    (2) A creditor's marketing of private education loans does not imply 
that the covered education institution endorses the creditor's loans if 
the marketing includes a clear and conspicuous disclosure that is 
equally prominent and closely proximate to the reference to the covered 
educational institution that the covered educational institution does 
not endorse the creditor's loans and that the creditor is not affiliated 
with the covered educational institution.
    (b) Endorsed lender arrangements. If a creditor and a covered 
educational institution have entered into an arrangement where the 
covered educational institution agrees to endorse the creditor's private 
education loans, and such arrangement is not prohibited by other 
applicable law or regulation, paragraph (a)(1) of this section does not 
apply if the private education loan marketing includes a clear and 
conspicuous disclosure that is equally prominent and closely proximate 
to the reference to the covered educational institution that the 
creditor's loans are not offered or made by the covered educational 
institution, but are made by the creditor.
    (c) Consumer's right to accept. (1) The consumer has the right to 
accept the terms of a private education loan at any time within 30 
calendar days following the date on which the consumer receives the 
disclosures required under Sec. 1026.47(b).
    (2) Except for changes permitted under paragraphs (c)(3) and (c)(4), 
the rate and terms of the private education loan that are required to be 
disclosed under Sec. Sec. 1026.47(b) and (c) may not be changed by the 
creditor prior to the earlier of:
    (i) The date of disbursement of the loan; or
    (ii) The expiration of the 30 calendar day period described in 
paragraph (c)(1) of this section if the consumer has not accepted the 
loan within that time.
    (3) Exceptions not requiring re-disclosure. (i) Notwithstanding 
paragraph (c)(2) of this section, nothing in this section prevents the 
creditor from:
    (A) Withdrawing an offer before consummation of the transaction if 
the extension of credit would be prohibited by law or if the creditor 
has reason to believe that the consumer has committed fraud in 
connection with the loan application;
    (B) Changing the interest rate based on adjustments to the index 
used for a loan;
    (C) Changing the interest rate and terms if the change will 
unequivocally benefit the consumer; or
    (D) Reducing the loan amount based upon a certification or other 
information received from the covered educational institution, or from 
the consumer, indicating that the student's cost of attendance has 
decreased or the consumer's other financial aid has increased. A 
creditor may make corresponding changes to the rate and other terms only 
to the extent that the consumer would have received the terms if the 
consumer had applied for the reduced loan amount.
    (ii) If the creditor changes the rate or terms of the loan under 
this paragraph (c)(3), the creditor need not provide the disclosures 
required under Sec. 1026.47(b) for the new loan terms, nor need the 
creditor provide an additional 30-day period to the consumer to accept 
the new terms of the loan under paragraph (c)(1) of this section.
    (4) Exceptions requiring re-disclosure. (i) Notwithstanding 
paragraphs (c)(2) or (c)(3) of this section, nothing in this section 
prevents the creditor, at its option, from changing the rate or terms of 
the loan to accommodate a specific request by the consumer. For example, 
if the consumer requests a different repayment option, the creditor may, 
but need not, offer to provide the requested repayment option and make 
any other changes to the rate and terms.
    (ii) If the creditor changes the rate or terms of the loan under 
this paragraph (c)(4), the creditor shall provide the disclosures 
required under Sec. 1026.47(b) and shall provide the consumer the 30-
day period to accept the loan under paragraph (c)(1) of this section. 
The creditor shall not make further changes to the rates and terms of 
the loan, except as specified in paragraphs

[[Page 627]]

(c)(3) and (4) of this section. Except as permitted under Sec. 
1026.48(c)(3), unless the consumer accepts the loan offered by the 
creditor in response to the consumer's request, the creditor may not 
withdraw or change the rates or terms of the loan for which the consumer 
was approved prior to the consumer's request for a change in loan terms.
    (d) Consumer's right to cancel. The consumer may cancel a private 
education loan, without penalty, until midnight of the third business 
day following the date on which the consumer receives the disclosures 
required by Sec. 1026.47(c). No funds may be disbursed for a private 
education loan until the three-business day period has expired.
    (e) Self-certification form. For a private education loan intended 
to be used for the postsecondary educational expenses of a student while 
the student is attending an institution of higher education, the 
creditor shall obtain from the consumer or the institution of higher 
education the form developed by the Secretary of Education under section 
155 of the Higher Education Act of 1965, signed by the consumer, in 
written or electronic form, before consummating the private education 
loan.
    (f) Provision of information by preferred lenders. A creditor that 
has a preferred lender arrangement with a covered educational 
institution shall provide to the covered educational institution the 
information required under Sec. Sec. 1026.47(a)(1) through (5), for 
each type of private education loan that the lender plans to offer to 
consumers for students attending the covered educational institution for 
the period beginning July 1 of the current year and ending June 30 of 
the following year. The creditor shall provide the information annually 
by the later of the 1st day of April, or within 30 days after entering 
into, or learning the creditor is a party to, a preferred lender 
arrangement.



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



Sec. 1026.51  Ability to pay.

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

[[Page 628]]

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



Sec. 1026.52  Limitations on fees.

    (a) Limitations prior to account opening and 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 prior to account opening and 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.
    (2) Fees not subject to limitations. Paragraph (a) of this section 
does not apply to:
    (i) Late payment fees, over-the-limit fees, and returned-payment 
fees; or
    (ii) Fees that the consumer is not required to pay with respect to 
the account.
    (3) Rule of construction. Paragraph (a) of this section does not 
authorize the imposition or payment of fees or charges otherwise 
prohibited by law.
    (b) Limitations on penalty fees. A card issuer must not impose a fee 
for violating the terms or other requirements of a credit card account 
under an open-end (not home-secured) consumer credit plan unless the 
dollar amount of the fee is consistent with paragraphs (b)(1) and (b)(2) 
of this section.
    (1) General rule. Except as provided in paragraph (b)(2) of this 
section, a card issuer may impose a fee for violating the terms or other 
requirements of a credit card account under an open-end (not home-
secured) consumer credit plan if the dollar amount of the fee is 
consistent with either paragraph (b)(1)(i) or (b)(1)(ii) of this 
section.
    (i) Fees based on costs. A card issuer may impose a fee for 
violating the terms or other requirements of an account if the card 
issuer has determined that the dollar amount of the fee represents a 
reasonable proportion of the total costs incurred by the card issuer as 
a result of that type of violation. A card issuer must reevaluate this 
determination at least once every twelve months. If as a result of the 
reevaluation the card issuer determines that a lower fee represents a 
reasonable proportion of the total costs incurred by the card issuer as 
a result of that type of violation, the card issuer must begin imposing 
the lower fee within 45 days after completing the reevaluation. If as a 
result of the reevaluation the card

[[Page 629]]

issuer determines that a higher fee represents a reasonable proportion 
of the total costs incurred by the card issuer as a result of that type 
of violation, the card issuer may begin imposing the higher fee after 
complying with the notice requirements in Sec. 1026.9.
    (ii) Safe harbors. A card issuer may impose a fee for violating the 
terms or other requirements of an account if the dollar amount of the 
fee does not exceed, as applicable:
    (A) $25.00;
    (B) $35.00 if the card issuer previously imposed a fee pursuant to 
paragraph (b)(1)(ii)(A) of this section for a violation of the same type 
that occurred during the same billing cycle or one of the next six 
billing cycles; or
    (C) Three percent of the delinquent balance on a charge card account 
that requires payment of outstanding balances in full at the end of each 
billing cycle if the card issuer has not received the required payment 
for two or more consecutive billing cycles.
    (D) The amounts in paragraphs (b)(1)(ii)(A) and (b)(1)(ii)(B) of 
this section will be adjusted annually by the Bureau to reflect changes 
in the Consumer Price Index.
    (2) Prohibited fees--(i) Fees that exceed dollar amount associated 
with violation--(A) Generally. A card issuer must not impose a fee for 
violating the terms or other requirements of a credit card account under 
an open-end (not home-secured) consumer credit plan that exceeds the 
dollar amount associated with the violation.
    (B) No dollar amount associated with violation. A card issuer must 
not impose a fee for violating the terms or other requirements of a 
credit card account under an open-end (not home-secured) consumer credit 
plan when there is no dollar amount associated with the violation. For 
purposes of paragraph (b)(2)(i) of this section, there is no dollar 
amount associated with the following violations:
    (1) Transactions that the card issuer declines to authorize;
    (2) Account inactivity; and
    (3) The closure or termination of an account.
    (ii) Multiple fees based on a single event or transaction. A card 
issuer must not impose more than one fee for violating the terms or 
other requirements of a credit card account under an open-end (not home-
secured) consumer credit plan based on a single event or transaction. A 
card issuer may, at its option, comply with this prohibition by imposing 
no more than one fee for violating the terms or other requirements of an 
account during a billing cycle.



Sec. 1026.53  Allocation of payments.

    (a) General rule. Except as provided in paragraph (b) of this 
section, when a consumer makes a payment in excess of the required 
minimum periodic payment for a credit card account under an open-end 
(not home-secured) consumer credit plan, the card issuer must allocate 
the excess amount first to the balance with the highest annual 
percentage rate and any remaining portion to the other balances in 
descending order based on the applicable annual percentage rate.
    (b) Special rules--(1) Accounts with balances subject to deferred 
interest or similar program. When a balance on a credit card account 
under an open-end (not home-secured) consumer credit plan is subject to 
a deferred interest or similar program that provides that a consumer 
will not be obligated to pay interest that accrues on the balance if the 
balance is paid in full prior to the expiration of a specified period of 
time:
    (i) Last two billing cycles. The card issuer must allocate any 
amount paid by the consumer in excess of the required minimum periodic 
payment consistent with paragraph (a) of this section, 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 
paragraph (a) of this section; or
    (ii) Consumer request. The card issuer may at its option allocate 
any 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.
    (2) Accounts with secured balances. When a balance on a credit card 
account under an open-end (not home-secured) consumer credit plan is 
secured,

[[Page 630]]

the card issuer may at its option allocate any amount paid by the 
consumer in excess of the required minimum periodic payment to that 
balance if requested by the consumer.



Sec. 1026.54  Limitations on the imposition of finance charges.

    (a) Limitations on imposing finance charges as a result of the loss 
of a grace period--(1) General rule. Except as provided in paragraph (b) 
of this section, a card issuer must not impose finance charges as a 
result of the loss of a grace period on a credit card account under an 
open-end (not home-secured) consumer credit plan if those finance 
charges are based on:
    (i) Balances for days in billing cycles that precede the most recent 
billing cycle; or
    (ii) Any portion of a balance subject to a grace period that was 
repaid prior to the expiration of the grace period.
    (2) Definition of grace period. For purposes of paragraph (a)(1) of 
this section, ``grace period'' has the same meaning as in Sec. 
1026.5(b)(2)(ii)(B)(3).
    (b) Exceptions. Paragraph (a) of this section does not apply to:
    (1) Adjustments to finance charges as a result of the resolution of 
a dispute under Sec. 1026.12 or Sec. 1026.13; or
    (2) Adjustments to finance charges as a result of the return of a 
payment.



Sec. 1026.55  Limitations on increasing annual percentage rates, fees, and charges.

    (a) General rule. Except as provided in paragraph (b) of this 
section, a card issuer must not increase an annual percentage rate or a 
fee or charge required to be disclosed under Sec. 1026.6(b)(2)(ii), 
(b)(2)(iii), or (b)(2)(xii) on a credit card account under an open-end 
(not home-secured) consumer credit plan.
    (b) Exceptions. A card issuer may increase an annual percentage rate 
or a fee or charge required to be disclosed under Sec. 
1026.6(b)(2)(ii), (b)(2)(iii), or (b)(2)(xii) pursuant to an exception 
set forth in this paragraph even if that increase would not be permitted 
under a different exception.
    (1) Temporary rate, fee, or charge exception. A card issuer may 
increase an annual percentage rate or a fee or charge required to be 
disclosed under Sec. 1026.6(b)(2)(ii), (b)(2)(iii), or (b)(2)(xii) upon 
the expiration of a specified period of six months or longer, provided 
that:
    (i) Prior to the commencement of that period, the card issuer 
disclosed in writing to the consumer, in a clear and conspicuous manner, 
the length of the period and the annual percentage rate, fee, or charge 
that would apply after expiration of the period; and
    (ii) Upon expiration of the specified period:
    (A) The card issuer must not apply an annual percentage rate, fee, 
or charge to transactions that occurred prior to the period that exceeds 
the annual percentage rate, fee, or charge that applied to those 
transactions prior to the period;
    (B) If the disclosures required by paragraph (b)(1)(i) of this 
section are provided pursuant to Sec. 1026.9(c), the card issuer must 
not apply an annual percentage rate, fee, or charge to transactions that 
occurred within 14 days after provision of the notice that exceeds the 
annual percentage rate, fee, or charge that applied to that category of 
transactions prior to provision of the notice; and
    (C) The card issuer must not apply an annual percentage rate, fee, 
or charge to transactions that occurred during the period that exceeds 
the increased annual percentage rate, fee, or charge disclosed pursuant 
to paragraph (b)(1)(i) of this section.
    (2) Variable rate exception. A card issuer may increase an annual 
percentage rate when:
    (i) The annual percentage rate varies according to an index that is 
not under the card issuer's control and is available to the general 
public; and
    (ii) The increase in the annual percentage rate is due to an 
increase in the index.
    (3) Advance notice exception. A card issuer may increase an annual 
percentage rate or a fee or charge required to be disclosed under Sec. 
1026.6(b)(2)(ii), (b)(2)(iii), or (b)(2)(xii) after complying with the 
applicable notice requirements in Sec. 1026.9(b), (c), or (g), provided 
that:
    (i) If a card issuer discloses an increased annual percentage rate, 
fee, or charge pursuant to Sec. 1026.9(b), the card

[[Page 631]]

issuer must not apply that rate, fee, or charge to transactions that 
occurred prior to provision of the notice;
    (ii) If a card issuer discloses an increased annual percentage rate, 
fee, or charge pursuant to Sec. 1026.9(c) or (g), the card issuer must 
not apply that rate, fee, or charge to transactions that occurred prior 
to or within 14 days after provision of the notice; and
    (iii) This exception does not permit a card issuer to increase an 
annual percentage rate or a fee or charge required to be disclosed under 
Sec. 1026.6(b)(2)(ii), (iii), or (xii) during the first year after the 
account is opened, while the account is closed, or while the card issuer 
does not permit the consumer to use the account for new transactions. 
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.
    (4) Delinquency exception. A card issuer may increase an annual 
percentage rate or a fee or charge required to be disclosed under Sec. 
1026.6(b)(2)(ii), (b)(2)(iii), or (b)(2)(xii) due to the card issuer not 
receiving the consumer's required minimum periodic payment within 60 
days after the due date for that payment, provided that:
    (i) The card issuer must disclose in a clear and conspicuous manner 
in the notice of the increase pursuant to Sec. 1026.9(c) or (g):
    (A) A statement of the reason for the increase; and
    (B) That the increased annual percentage rate, fee, or charge will 
cease to apply if the card issuer receives six consecutive required 
minimum periodic payments on or before the payment due date beginning 
with the first payment due following the effective date of the increase; 
and
    (ii) If the card issuer receives six consecutive required minimum 
periodic payments on or before the payment due date beginning with the 
first payment due following the effective date of the increase, the card 
issuer must reduce any annual percentage rate, fee, or charge increased 
pursuant to this exception to the annual percentage rate, fee, or charge 
that applied prior to the increase with respect to transactions that 
occurred prior to or within 14 days after provision of the Sec. 
1026.9(c) or (g) notice.
    (5) Workout and temporary hardship arrangement exception. A card 
issuer may increase an annual percentage rate or a fee or charge 
required to be disclosed under Sec. 1026.6(b)(2)(ii), (b)(2)(iii), or 
(b)(2)(xii) due to the consumer's completion of a workout or temporary 
hardship arrangement or the consumer's failure to comply with the terms 
of such an arrangement, provided that:
    (i) Prior to commencement of the arrangement (except as provided in 
Sec. 1026.9(c)(2)(v)(D)), the card issuer has provided the consumer 
with a clear and conspicuous written disclosure of the terms of the 
arrangement (including any increases due to the completion or failure of 
the arrangement); and
    (ii) Upon the completion or failure of the arrangement, the card 
issuer must not apply to any transactions that occurred prior to 
commencement of the arrangement an annual percentage rate, fee, or 
charge that exceeds the annual percentage rate, fee, or charge that 
applied to those transactions prior to commencement of the arrangement.
    (6) Servicemembers Civil Relief Act exception. If an annual 
percentage rate or a fee or charge required to be disclosed under Sec. 
1026.6(b)(2)(ii), (iii), or (xii) has been decreased pursuant to 50 
U.S.C. app. 527 or a similar Federal or state statute or regulation, a 
card issuer may increase that annual percentage rate, fee, or charge 
once 50 U.S.C. app. 527 or the similar statute or regulation no longer 
applies, provided that the card issuer must not apply to any 
transactions that occurred prior to the decrease an annual percentage 
rate, fee, or charge that exceeds the annual percentage rate, fee, or 
charge that applied to those transactions prior to the decrease.
    (c) Treatment of protected balances--(1) Definition of protected 
balance. For purposes of this paragraph, ``protected balance'' means the 
amount owed for a category of transactions to which an increased annual 
percentage rate or an increased fee or charge required to be disclosed 
under Sec. 1026.6(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

[[Page 632]]

transactions has been increased pursuant to paragraph (b)(3) of this 
section.
    (2) Repayment of protected balance. The card issuer must not require 
repayment of the protected balance using a method that is less 
beneficial to the consumer than one of the following methods:
    (i) The method of repayment for the account before the effective 
date of the increase;
    (ii) An amortization period of not less than five years, beginning 
no earlier than the effective date of the increase; or
    (iii) A required minimum periodic payment that includes a percentage 
of the balance that is equal to no more than twice the percentage 
required before the effective date of the increase.
    (d) Continuing application. This section continues to apply to a 
balance on a credit card account under an open-end (not home-secured) 
consumer credit plan after:
    (1) The account is closed or acquired by another creditor; or
    (2) The balance 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 (unless the account to which the balance is transferred is 
subject to Sec. 1026.40).
    (e) Promotional waivers or rebates of interest, fees, and other 
charges. If a card issuer promotes the waiver or rebate of finance 
charges due to a periodic interest rate or fees or charges required to 
be disclosed under Sec. 1026.6(b)(2)(ii), (iii), or (xii) and applies 
the waiver or rebate to a credit card account under an open-end (not 
home-secured) consumer credit plan, any cessation of the waiver or 
rebate on that account constitutes an increase in an annual percentage 
rate, fee, or charge for purposes of this section.



Sec. 1026.56  Requirements for over-the-limit transactions.

    (a) Definition. For purposes of this section, the term ``over-the-
limit transaction'' means any extension of credit by a card issuer to 
complete a transaction that causes a consumer's credit card account 
balance to exceed the credit limit.
    (b) Opt-in requirement--(1) General. A card issuer shall not assess 
a fee or charge on a consumer's credit card account under an open-end 
(not home-secured) consumer credit plan for an over-the-limit 
transaction unless the card issuer:
    (i) Provides the consumer with an oral, written or electronic 
notice, segregated from all other information, describing the consumer's 
right to affirmatively consent, or opt in, to the card issuer's payment 
of an over-the-limit transaction;
    (ii) Provides a reasonable opportunity for the consumer to 
affirmatively consent, or opt in, to the card issuer's payment of over-
the-limit transactions;
    (iii) Obtains the consumer's affirmative consent, or opt-in, to the 
card issuer's payment of such transactions;
    (iv) Provides the consumer with confirmation of the consumer's 
consent in writing, or if the consumer agrees, electronically; and
    (v) Provides the consumer notice in writing of the right to revoke 
that consent following the assessment of an over-the-limit fee or 
charge.
    (2) Completion of over-the-limit transactions without consumer 
consent. Notwithstanding the absence of a consumer's affirmative consent 
under paragraph (b)(1)(iii) of this section, a card issuer may pay any 
over-the-limit transaction on a consumer's account provided that the 
card issuer does not impose any fee or charge on the account for paying 
that over-the-limit transaction.
    (c) Method of election. A card issuer may permit a consumer to 
consent to the card issuer's payment of any over-the-limit transaction 
in writing, orally, or electronically, at the card issuer's option. The 
card issuer must also permit the consumer to revoke his or her consent 
using the same methods available to the consumer for providing consent.
    (d) Timing and placement of notices--(1) Initial notice--(i) 
General. The notice required by paragraph (b)(1)(i) of this section 
shall be provided prior to the assessment of any over-the-limit fee or 
charge on a consumer's account.
    (ii) Oral or electronic consent. If a consumer consents to the card 
issuer's

[[Page 633]]

payment of any over-the-limit transaction by oral or electronic means, 
the card issuer must provide the notice required by paragraph (b)(1)(i) 
of this section immediately prior to obtaining that consent.
    (2) Confirmation of opt-in. The notice required by paragraph 
(b)(1)(iv) of this section may be provided no later than the first 
periodic statement sent after the consumer has consented to the card 
issuer's payment of over-the-limit transactions.
    (3) Notice of right of revocation. The notice required by paragraph 
(b)(1)(v) of this section shall be provided on the front of any page of 
each periodic statement that reflects the assessment of an over-the-
limit fee or charge on a consumer's account.
    (e) Content--(1) Initial notice. The notice required by paragraph 
(b)(1)(i) of this section shall include all applicable items in this 
paragraph (e)(1) and may not contain any information not specified in or 
otherwise permitted by this paragraph.
    (i) Fees. The dollar amount of any fees or charges assessed by the 
card issuer on a consumer's account for an over-the-limit transaction;
    (ii) APRs. Any increased periodic rate(s) (expressed as an annual 
percentage rate(s)) that may be imposed on the account as a result of an 
over-the-limit transaction; and
    (iii) Disclosure of opt-in right. An explanation of the consumer's 
right to affirmatively consent to the card issuer's payment of over-the-
limit transactions, including the method(s) by which the consumer may 
consent.
    (2) Subsequent notice. The notice required by paragraph (b)(1)(v) of 
this section shall describe the consumer's right to revoke any consent 
provided under paragraph (b)(1)(iii) of this section, including the 
method(s) by which the consumer may revoke.
    (3) Safe harbor. Use of Model Forms G-25(A) or G-25(B) of appendix G 
to this part, or substantially similar notices, constitutes compliance 
with the notice content requirements of paragraph (e) of this section.
    (f) Joint relationships. If two or more consumers are jointly liable 
on a credit card account under an open-end (not home-secured) consumer 
credit plan, the card issuer shall treat the affirmative consent of any 
of the joint consumers as affirmative consent for that account. 
Similarly, the card issuer shall treat a revocation of consent by any of 
the joint consumers as revocation of consent for that account.
    (g) Continuing right to opt in or revoke opt-in. A consumer may 
affirmatively consent to the card issuer's payment of over-the-limit 
transactions at any time in the manner described in the notice required 
by paragraph (b)(1)(i) of this section. Similarly, the consumer may 
revoke the consent at any time in the manner described in the notice 
required by paragraph (b)(1)(v) of this section.
    (h) Duration of opt-in. A consumer's affirmative consent to the card 
issuer's payment of over-the-limit transactions is effective until 
revoked by the consumer, or until the card issuer decides for any reason 
to cease paying over-the-limit transactions for the consumer.
    (i) Time to comply with revocation request. A card issuer must 
comply with a consumer's revocation request as soon as reasonably 
practicable after the card issuer receives it.
    (j) Prohibited practices. Notwithstanding a consumer's affirmative 
consent to a card issuer's payment of over-the-limit transactions, a 
card issuer is prohibited from engaging in the following practices:
    (1) Fees or charges imposed per cycle--(i) General rule. A card 
issuer may not impose more than one over-the-limit fee or charge on a 
consumer's credit card account per billing cycle, and, in any event, 
only if the credit limit was exceeded during the billing cycle. In 
addition, except as provided in paragraph (j)(1)(ii) of this section, a 
card issuer may not impose an over-the-limit fee or charge on the 
consumer's credit card account for more than three billing cycles for 
the same over-the-limit transaction where the consumer has not reduced 
the account balance below the credit limit by the payment due date for 
either of the last two billing cycles.
    (ii) Exception. The prohibition in paragraph (j)(1)(i) of this 
section on imposing an over-the-limit fee or charge in more than three 
billing cycles for

[[Page 634]]

the same over-the-limit transaction(s) does not apply if another over-
the-limit transaction occurs during either of the last two billing 
cycles.
    (2) Failure to promptly replenish. A card issuer may not impose an 
over-the-limit fee or charge solely because of the card issuer's failure 
to promptly replenish the consumer's available credit following the 
crediting of the consumer's payment under Sec. 1026.10.
    (3) Conditioning. A card issuer may not condition the amount of a 
consumer's credit limit on the consumer affirmatively consenting to the 
card issuer's payment of over-the-limit transactions if the card issuer 
assesses a fee or charge for such service.
    (4) Over-the-limit fees attributed to fees or interest. A card 
issuer may not impose an over-the-limit fee or charge for a billing 
cycle if a consumer exceeds a credit limit solely because of fees or 
interest charged by the card issuer to the consumer's account during 
that billing cycle. For purposes of this paragraph (j)(4), the relevant 
fees or interest charges are charges imposed as part of the plan under 
Sec. 1026.6(b)(3).



Sec. 1026.57  Reporting and marketing rules for college student open-end credit.

    (a) Definitions--(1) College student credit card. The term ``college 
student credit card'' as used in this section means a credit card issued 
under a credit card account under an open-end (not home-secured) 
consumer credit plan to any college student.
    (2) College student. The term ``college student'' as used in this 
section means a consumer who is a full-time or part-time student of an 
institution of higher education.
    (3) Institution of higher education. The term ``institution of 
higher education'' as used in this section has the same meaning as in 
sections 101 and 102 of the Higher Education Act of 1965 (20 U.S.C. 1001 
and 1002).
    (4) Affiliated organization. The term ``affiliated organization'' as 
used in this section means an alumni organization or foundation 
affiliated with or related to an institution of higher education.
    (5) College credit card agreement. The term ``college credit card 
agreement'' as used in this section means any business, marketing or 
promotional agreement between a card issuer and an institution of higher 
education or an affiliated organization in connection with which college 
student credit cards are issued to college students currently enrolled 
at that institution.
    (b) Public disclosure of agreements. An institution of higher 
education shall publicly disclose any contract or other agreement made 
with a card issuer or creditor for the purpose of marketing a credit 
card.
    (c) Prohibited inducements. No card issuer or creditor may offer a 
college student any tangible item to induce such student to apply for or 
open an open-end consumer credit plan offered by such card issuer or 
creditor, if such offer is made:
    (1) On the campus of an institution of higher education;
    (2) Near the campus of an institution of higher education; or
    (3) At an event sponsored by or related to an institution of higher 
education.
    (d) Annual report to the Bureau--(1) Requirement to report. Any card 
issuer that was a party to one or more college credit card agreements in 
effect at any time during a calendar year must submit to the Bureau an 
annual report regarding those agreements in the form and manner 
prescribed by the Bureau.
    (2) Contents of report. The annual report to the Bureau must include 
the following:
    (i) Identifying information about 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);
    (ii) A copy of any college credit card agreement to which the card 
issuer was a party that was in effect at any time during the period 
covered by the report;
    (iii) A copy of any memorandum of understanding in effect at any 
time during the period covered by the report between the card issuer and 
an institution of higher education or affiliated organization that 
directly or indirectly relates to the college credit card agreement or 
that controls or directs any

[[Page 635]]

obligations or distribution of benefits between any such entities;
    (iv) The total dollar amount of any payments pursuant to a college 
credit card agreement from the card issuer to an institution of higher 
education or affiliated organization during the period covered by the 
report, and the method or formula used to determine such amounts;
    (v) The total number of credit card accounts opened pursuant to any 
college credit card agreement during the period covered by the report; 
and
    (vi) The total number of credit card accounts opened pursuant to any 
such agreement that were open at the end of the period covered by the 
report.
    (3) Timing of reports. Except for the initial report described in 
this paragraph (d)(3), a card issuer must submit its annual report for 
each calendar year to the Bureau by the first business day on or after 
March 31 of the following calendar year.



Sec. 1026.58  Internet posting of credit card agreements.

    (a) Applicability. The requirements of this section apply to any 
card issuer that issues credit cards under a credit card account under 
an open-end (not home-secured) consumer credit plan.
    (b) Definitions--(1) Agreement. For purposes of this section, 
``agreement'' or ``credit card agreement'' means the 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. ``Agreement'' or ``credit card agreement'' also includes the 
pricing information, as defined in Sec. 1026.58(b)(7).
    (2) Amends. For purposes of this section, an issuer ``amends'' an 
agreement if it makes a substantive change (an ``amendment'') 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. 1026.58(b)(7), is 
deemed to be substantive.
    (3) Business day. For purposes of this section, ``business day'' 
means a day on which the creditor's offices are open to the public for 
carrying on substantially all of its business functions.
    (4) Card issuer. For purposes of this section, ``card issuer'' or 
``issuer'' means the entity to which a consumer is legally obligated, or 
would be legally obligated, under the terms of a credit card agreement.
    (5) Offers. For purposes of this section, an issuer ``offers'' or 
``offers to the public'' an agreement if the issuer is soliciting or 
accepting applications for accounts that would be subject to that 
agreement.
    (6) Open account. For purposes of this section, 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 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.''
    (7) Pricing information. For purposes of this section, ``pricing 
information'' means the information listed in Sec. 1026.6(b)(2)(i) 
through (b)(2)(xii). Pricing information does not include temporary or 
promotional rates and terms or rates and terms that apply only to 
protected balances.
    (8) Private label credit card account and private label credit card 
plan. For purposes of this section:
    (i) ``private label credit card account'' means 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
    (ii) ``private label credit card plan'' means 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.
    (c) Submission of agreements to Bureau--(1) Quarterly submissions. A 
card issuer must make quarterly submissions to the Bureau, in the form 
and

[[Page 636]]

manner specified by the Bureau. Quarterly submissions must be sent to 
the Bureau no later than the first business day on or after January 31, 
April 30, July 31, and October 31 of each year. Each submission must 
contain:
    (i) Identifying information about 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);
    (ii) The credit card agreements that the card issuer offered to the 
public as of the last business day of the preceding calendar quarter 
that the card issuer has not previously submitted to the Bureau;
    (iii) Any credit card agreement previously submitted to the Bureau 
that was amended during the preceding calendar quarter and that the card 
issuer offered to the public as of the last business day of the 
preceding calendar quarter, as described in Sec. 1026.58(c)(3); and
    (iv) Notification regarding any credit card agreement previously 
submitted to the Bureau that the issuer is withdrawing, as described in 
Sec. 1026.58(c)(4), (c)(5), (c)(6), and (c)(7).
    (2) [Reserved]
    (3) Amended agreements. If a credit card agreement has been 
submitted to the Bureau, the agreement has not been amended and the card 
issuer continues to offer the agreement to the public, no additional 
submission regarding that agreement is required. If a credit card 
agreement that previously has been submitted to the Bureau is amended 
and the card issuer offered the amended agreement to the public as of 
the last business day of the calendar quarter in which the change became 
effective, the card issuer must submit the entire amended agreement to 
the Bureau, in the form and manner specified by the Bureau, by the first 
quarterly submission deadline after the last day of the calendar quarter 
in which the change became effective.
    (4) Withdrawal of agreements. If a card issuer no longer offers to 
the public a credit card agreement that previously has been submitted to 
the Bureau, the card issuer must notify the Bureau, in the form and 
manner specified by the Bureau, by the first quarterly submission 
deadline after the last day of the calendar quarter in which the issuer 
ceased to offer the agreement.
    (5) De minimis exception. (i) A card issuer is not required to 
submit any credit card agreements to the Bureau if the card issuer had 
fewer than 10,000 open credit card accounts as of the last business day 
of the calendar quarter.
    (ii) If an issuer that previously qualified for the de minimis 
exception ceases to qualify, the card issuer must begin making quarterly 
submissions to the Bureau no later than the first quarterly submission 
deadline after the date as of which the issuer ceased to qualify.
    (iii) If a card 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 Bureau until 
the issuer notifies the Bureau that the card issuer is withdrawing all 
agreements it previously submitted to the Bureau.
    (6) Private label credit card exception. (i) A card issuer is not 
required to submit to the Bureau 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.
    (ii) 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 Bureau no later than the first quarterly submission 
deadline after the date as of which the agreement ceased to qualify.
    (iii) 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 Bureau 
with respect to that agreement until the issuer notifies the Bureau that 
the agreement is being withdrawn.
    (7) Product testing exception. (i) A card issuer is not required to 
submit to the Bureau a credit card agreement if, as of the last business 
day of the calendar quarter, the agreement:

[[Page 637]]

    (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.
    (ii) If an agreement that previously qualified for the product 
testing exception ceases to qualify, the card issuer must submit the 
agreement to the Bureau no later than the first quarterly submission 
deadline after the date as of which the agreement ceased to qualify.
    (iii) 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 Bureau with respect 
to that agreement until the issuer notifies the Bureau that the 
agreement is being withdrawn.
    (8) Form and content of agreements submitted to the Bureau--(i) Form 
and content generally. (A) 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.
    (B) Agreements must not include any personally identifiable 
information relating to any cardholder, such as name, address, telephone 
number, or account number.
    (C) The following are not deemed to be part of the agreement for 
purposes of Sec. 1026.58, and therefore are not required to be included 
in submissions to the Bureau:
    (1) Disclosures required by state or Federal law, such as affiliate 
marketing notices, privacy policies, billing rights notices, or 
disclosures under the E-Sign Act;
    (2) Solicitation materials;
    (3) Periodic statements;
    (4) Ancillary agreements between the issuer and the consumer, such 
as debt cancellation contracts or debt suspension agreements;
    (5) Offers for credit insurance or other optional products and other 
similar advertisements; and
    (6) 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.
    (D) Agreements must be presented in a clear and legible font.
    (ii) Pricing information. (A) Pricing information must be set forth 
in a single addendum to the agreement. The addendum must contain all of 
the pricing information, as defined by Sec. 1026.58(b)(7). The addendum 
may, but is not required to, contain any other information listed in 
Sec. 1026.6(b), provided that information is complete and accurate as 
of the applicable date under Sec. 1026.58. The addendum may not contain 
any other information.
    (B) 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).
    (C) 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 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 range of margins (such as the prime rate plus from 5 to 12 percent). 
The value of the rate and the value of the index are not required to be 
disclosed.
    (iii) Optional variable terms addendum. 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.
    (iv) Integrated agreement. 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 the optional 
variable terms addendum). Changes in provisions or pricing information 
must be

[[Page 638]]

integrated into the text of the agreement, the pricing information 
addendum or the optional variable terms addendum, as appropriate.
    (d) Posting of agreements offered to the public. (1) Except as 
provided below, a card issuer must post and maintain on its publicly 
available Web site the credit card agreements that the issuer is 
required to submit to the Bureau under Sec. 1026.58(c). With respect to 
an agreement offered solely for accounts under one or more private label 
credit card plans, an issuer may fulfill this requirement by posting and 
maintaining the agreement in accordance with the requirements of this 
section 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.
    (2) Except as provided in Sec. 1026.58(d), agreements posted 
pursuant to Sec. 1026.58(d) must conform to the form and content 
requirements for agreements submitted to the Bureau specified in Sec. 
1026.58(c)(8).
    (3) Agreements posted pursuant to Sec. 1026.58(d) may be posted in 
any electronic format that is readily usable by the general public. 
Agreements must be placed in a location that is prominent and readily 
accessible by the public and must be accessible without submission of 
personally identifiable information.
    (4) The card issuer must update the agreements posted on its Web 
site pursuant to Sec. 1026.58(d) at least as frequently as the 
quarterly schedule required for submission of agreements to the Bureau 
under Sec. 1026.58(c). 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.
    (e) Agreements for all open accounts(1)--Availability of individual 
cardholder's agreement. With respect to any open credit card account, a 
card issuer must either:
    (i) Post and maintain the cardholder's agreement on its Web site; or
    (ii) Promptly provide a copy of the cardholder's agreement to the 
cardholder upon the cardholder's request. If the card issuer makes an 
agreement available upon request, the issuer must provide the cardholder 
with the ability to request a copy of the agreement both by using the 
issuer's Web site (such as by clicking on a clearly identified box to 
make the request) and by calling a readily available telephone line the 
number for which is displayed on the issuer's Web site and clearly 
identified as to purpose. The card issuer must send to the cardholder or 
otherwise make available to the cardholder a copy of the cardholder's 
agreement in electronic or paper form no later than 30 days after the 
issuer receives the cardholder's request.
    (2) Special rule for issuers without interactive Web sites. An 
issuer that does not maintain a Web site from which cardholders can 
access specific information about their individual accounts, instead of 
complying with Sec. 1026.58(e)(1), 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 displayed on the issuer's Web site and clearly 
identified as to purpose or included on each periodic statement sent to 
the cardholder and clearly identified as to purpose. The issuer must 
send to the cardholder or otherwise make available to the cardholder a 
copy of the cardholder's agreement in electronic or paper form no later 
than 30 days after the issuer receives the cardholder's request.
    (3) Form and content of agreements. (i) Except as provided in Sec. 
1026.58(e), agreements posted on the card issuer's Web site pursuant to 
Sec. 1026.58(e)(1)(i) or made available upon the cardholder's request 
pursuant to Sec. 1026.58(e)(1)(ii) or (e)(2) must conform to the form 
and content requirements for agreements submitted to the Bureau 
specified in Sec. 1026.58(c)(8).
    (ii) If the card issuer posts an agreement on its Web site or 
otherwise provides an agreement to a cardholder electronically under 
Sec. 1026.58(e), the agreement may be posted or provided in any 
electronic format that is readily usable by the general public and must

[[Page 639]]

be placed in a location that is prominent and readily accessible to the 
cardholder.
    (iii) Agreements posted or otherwise provided pursuant to Sec. 
1026.58(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.
    (iv) Agreements posted or otherwise provided pursuant to Sec. 
1026.58(e) must set forth the specific provisions and pricing 
information applicable to the particular cardholder. Provisions and 
pricing information must be complete and accurate as of a date no more 
than 60 days prior to:
    (A) The date on which the agreement is posted on the card issuer's 
Web site under Sec. 1026.58(e)(1)(i); or
    (B) The date the cardholder's request is received under Sec. 
1026.58(e)(1)(ii) or (e)(2).
    (v) Agreements provided upon cardholder request pursuant to Sec. 
1026.58(e)(1)(ii) or (e)(2) may be provided by the issuer in either 
electronic or paper form, regardless of the form of the cardholder's 
request.
    (f) E-Sign Act requirements. Card issuers may provide credit card 
agreements in electronic form under Sec. 1026.58(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.).



Sec. 1026.59  Reevaluation of rate increases.

    (a) General rule(1) --Evaluation of increased rate. If a card issuer 
increases an annual percentage rate that applies to a credit card 
account under an open-end (not home-secured) consumer credit plan, based 
on the credit risk of the consumer, market conditions, or other factors, 
or increased such a rate on or after January 1, 2009, and 45 days' 
advance notice of the rate increase is required pursuant to Sec. 
1026.9(c)(2) or (g), the card issuer must:
    (i) Evaluate the factors described in paragraph (d) of this section; 
and
    (ii) Based on its review of such factors, reduce the annual 
percentage rate applicable to the consumer's account, as appropriate.
    (2) Rate reductions--(i) Timing. If a card issuer is required to 
reduce the rate applicable to an account pursuant to paragraph (a)(1) of 
this section, the card issuer must reduce the rate not later than 45 
days after completion of the evaluation described in paragraph (a)(1).
    (ii) Applicability of rate reduction. Any reduction in an annual 
percentage rate required pursuant to paragraph (a)(1) of this section 
shall apply to:
    (A) Any outstanding balances to which the increased rate described 
in paragraph (a)(1) of this section has been applied; and
    (B) New transactions that occur after the effective date of the rate 
reduction that would otherwise have been subject to the increased rate.
    (b) Policies and procedures. A card issuer must have reasonable 
written policies and procedures in place to conduct the review described 
in paragraph (a) of this section.
    (c) Timing. A card issuer that is subject to paragraph (a) of this 
section must conduct the review described in paragraph (a)(1) of this 
section not less frequently than once every six months after the rate 
increase.
    (d) Factors--(1) In general. Except as provided in paragraph (d)(2) 
of this section, a card issuer must review either:
    (i) The factors on which the increase in an annual percentage rate 
was originally based; or
    (ii) The factors that the card issuer currently considers when 
determining the annual percentage rates applicable to similar new credit 
card accounts under an open-end (not home-secured) consumer credit plan.
    (2) Rate increases imposed between January 1, 2009 and February 21, 
2010. For rate increases imposed between January 1, 2009 and February 
21, 2010, an issuer must consider the factors described in paragraph 
(d)(1)(ii) when conducting the first two reviews required under 
paragraph (a) of this section, unless the rate increase subject to 
paragraph (a) of this section was based

[[Page 640]]

solely upon factors specific to the consumer, such as a decline in the 
consumer's credit risk, the consumer's delinquency or default, or a 
violation of the terms of the account.
    (e) Rate increases due to delinquency. If an issuer increases a rate 
applicable to a consumer's account pursuant to Sec. 1026.55(b)(4) based 
on the card issuer not receiving the consumer's required minimum 
periodic payment within 60 days after the due date, the issuer is not 
required to perform the review described in paragraph (a) of this 
section prior to the sixth payment due date after the effective date of 
the increase. However, if the annual percentage rate applicable to the 
consumer's account is not reduced pursuant to Sec. 1026.55(b)(4)(ii), 
the card issuer must perform the review described in paragraph (a) of 
this section. The first such review must occur no later than six months 
after the sixth payment due following the effective date of the rate 
increase.
    (f) Termination of obligation to review factors. The obligation to 
review factors described in paragraph (a) and (d) of this section ceases 
to apply:
    (1) If the issuer reduces the annual percentage rate applicable to a 
credit card account under an open-end (not home-secured) consumer credit 
plan to the rate applicable immediately prior to the increase, or, if 
the rate applicable immediately prior to the increase was a variable 
rate, to a variable rate determined by the same formula (index and 
margin) that was used to calculate the rate applicable immediately prior 
to the increase; or
    (2) If the issuer reduces the annual percentage rate to a rate that 
is lower than the rate described in paragraph (f)(1) of this section.
    (g) Acquired accounts--(1) General. Except as provided in paragraph 
(g)(2) of this section, this section applies to credit card accounts 
that have been acquired by the card issuer from another card issuer. A 
card issuer that complies with this section by reviewing the factors 
described in paragraph (d)(1)(i) must review the factors considered by 
the card issuer from which it acquired the accounts in connection with 
the rate increase.
    (2) Review of acquired portfolio. If, not later than six months 
after the acquisition of such accounts, a card issuer reviews all of the 
credit card accounts it acquires in accordance with the factors that it 
currently considers in determining the rates applicable to its similar 
new credit card accounts:
    (i) Except as provided in paragraph (g)(2)(iii), the card issuer is 
required to conduct reviews described in paragraph (a) of this section 
only for rate increases that are imposed as a result of its review under 
this paragraph. See Sec. Sec. 1026.9 and 1026.55 for additional 
requirements regarding rate increases on acquired accounts.
    (ii) Except as provided in paragraph (g)(2)(iii) of this section, 
the card issuer is not required to conduct reviews in accordance with 
paragraph (a) of this section for any rate increases made prior to the 
card issuer's acquisition of such accounts.
    (iii) If as a result of the card issuer's review, an account is 
subject to, or continues to be subject to, an increased rate as a 
penalty, or due to the consumer's delinquency or default, the 
requirements of paragraph (a) of this section apply.
    (h) Exceptions--(1) Servicemembers Civil Relief Act exception. The 
requirements of this section do not apply to increases in an annual 
percentage rate that was previously decreased pursuant to 50 U.S.C. app. 
527, provided that such a rate increase is made in accordance with Sec. 
1026.55(b)(6).
    (2) Charged off accounts. The requirements of this section do not 
apply to accounts that the card issuer has charged off in accordance 
with loan-loss provisions.



Sec. 1026.60  Credit and charge card applications and solicitations.

    (a) General rules. The card issuer shall provide the disclosures 
required under this section on or with a solicitation or an application 
to open a credit or charge card account.
    (1) Definition of solicitation. For purposes of this section, the 
term solicitation means an offer by the card issuer to open a credit or 
charge card account that does not require the consumer to complete an 
application. A ``firm offer of credit'' as defined in section 603(l) of

[[Page 641]]

the Fair Credit Reporting Act (15 U.S.C. 1681a(l)) for a credit or 
charge card is a solicitation for purposes of this section.
    (2) Form of disclosures; tabular format. (i) The disclosures in 
paragraphs (b)(1) through (5) (except for (b)(1)(iv)(B)) and (b)(7) 
through (15) of this section made pursuant to paragraph (c), (d)(2), 
(e)(1) or (f) of this section generally shall be in the form of a table 
with headings, content, and format substantially similar to any of the 
applicable tables found in G-10 in appendix G to this part.
    (ii) The table described in paragraph (a)(2)(i) of this section 
shall contain only the information required or permitted by this 
section. Other information may be presented on or with an application or 
solicitation, provided such information appears outside the required 
table.
    (iii) Disclosures required by paragraphs (b)(1)(iv)(B), 
(b)(1)(iv)(C) and (b)(6) of this section must be placed directly beneath 
the table.
    (iv) When a tabular format is required, any annual percentage rate 
required to be disclosed pursuant to paragraph (b)(1) of this section, 
any introductory rate required to be disclosed pursuant to paragraph 
(b)(1)(ii) of this section, any rate that will apply after a premium 
initial rate expires required to be disclosed under paragraph 
(b)(1)(iii) of this section, and any fee or percentage amounts or 
maximum limits on fee amounts disclosed pursuant to paragraphs (b)(2), 
(b)(4), (b)(8) through (b)(13) of this section must be disclosed in bold 
text. However, bold text shall not be used for: The amount of any 
periodic fee disclosed pursuant to paragraph (b)(2) of this section that 
is not an annualized amount; and other annual percentage rates or fee 
amounts disclosed in the table.
    (v) For an application or a solicitation that is accessed by the 
consumer in electronic form, the disclosures required under this section 
may be provided to the consumer in electronic form on or with the 
application or solicitation.
    (vi)(A) Except as provided in paragraph (a)(2)(vi)(B) of this 
section, the table described in paragraph (a)(2)(i) of this section must 
be provided in a prominent location on or with an application or a 
solicitation.
    (B) If the table described in paragraph (a)(2)(i) of this section is 
provided electronically, it must be provided in close proximity to the 
application or solicitation.
    (3) Fees based on a percentage. If the amount of any fee required to 
be disclosed under this section is determined on the basis of a 
percentage of another amount, the percentage used and the identification 
of the amount against which the percentage is applied may be disclosed 
instead of the amount of the fee.
    (4) Fees that vary by state. Card issuers that impose fees referred 
to in paragraphs (b)(8) through (12) of this section that vary by state 
may, at the issuer's option, disclose in the table required by paragraph 
(a)(2)(i) of this section: The specific fee applicable to the consumer's 
account; or the range of the fees, if the disclosure includes a 
statement that the amount of the fee varies by state and refers the 
consumer to a disclosure provided with the table where the amount of the 
fee applicable to the consumer's account is disclosed. A card issuer may 
not list fees for multiple states in the table.
    (5) Exceptions. This section does not apply to:
    (i) Home-equity plans accessible by a credit or charge card that are 
subject to the requirements of Sec. 1026.40;
    (ii) Overdraft lines of credit tied to asset accounts accessed by 
check-guarantee cards or by debit cards;
    (iii) Lines of credit accessed by check-guarantee cards or by debit 
cards that can be used only at automated teller machines;
    (iv) Lines of credit accessed solely by account numbers;
    (v) Additions of a credit or charge card to an existing open-end 
plan;
    (vi) General purpose applications unless the application, or 
material accompanying it, indicates that it can be used to open a credit 
or charge card account; or
    (vii) Consumer-initiated requests for applications.
    (b) Required disclosures. The card issuer shall disclose the items 
in this paragraph on or with an application or a solicitation in 
accordance with the

[[Page 642]]

requirements of paragraphs (c), (d), (e)(1) or (f) of this section. A 
credit card issuer shall disclose all applicable items in this paragraph 
except for paragraph (b)(7) of this section. A charge card issuer shall 
disclose the applicable items in paragraphs (b)(2), (4), (7) through 
(12), and (15) of this section.
    (1) Annual percentage rate. Each periodic rate that may be used to 
compute the finance charge on an outstanding balance for purchases, a 
cash advance, or a balance transfer, expressed as an annual percentage 
rate (as determined by Sec. 1026.14(b)). When more than one rate 
applies for a category of transactions, the range of balances to which 
each rate is applicable shall also be disclosed. The annual percentage 
rate for purchases disclosed pursuant to this paragraph shall be in at 
least 16-point type, except for the following: Oral disclosures of the 
annual percentage rate for purchases; or a penalty rate that may apply 
upon the occurrence of one or more specific events.
    (i) Variable rate information. If a rate disclosed under paragraph 
(b)(1) of this section is a variable rate, the card issuer shall also 
disclose the fact that the rate may vary and how the rate is determined. 
In describing how the applicable rate will be determined, the card 
issuer must identify the type of index or formula that is used in 
setting the rate. The value of the index and the amount of the margin 
that are used to calculate the variable rate shall not be disclosed in 
the table. A disclosure of any applicable limitations on rate increases 
shall not be included in the table.
    (ii) Discounted initial rate. If the initial rate is an introductory 
rate, as that term is defined in Sec. 1026.16(g)(2)(ii), the card 
issuer must disclose in the table the introductory rate, the time period 
during which the introductory rate will remain in effect, and must use 
the term ``introductory'' or ``intro'' in immediate proximity to the 
introductory rate. The card issuer also must disclose the rate that 
would otherwise apply to the account pursuant to paragraph (b)(1) of 
this section. Where the rate is not tied to an index or formula, the 
card issuer must disclose the rate that will apply after the 
introductory rate expires. In a variable-rate account, the card issuer 
must disclose a rate based on the applicable index or formula in 
accordance with the accuracy requirements set forth in paragraphs 
(c)(2), (d)(3), or (e)(4) of this section, as applicable.
    (iii) Premium initial rate. If the initial rate is temporary and is 
higher than the rate that will apply after the temporary rate expires, 
the card issuer must disclose the premium initial rate pursuant to 
paragraph (b)(1) of this section and the time period during which the 
premium initial rate will remain in effect. Consistent with paragraph 
(b)(1) of this section, the premium initial rate for purchases must be 
in at least 16-point type. The issuer must also disclose in the table 
the rate that will apply after the premium initial rate expires, in at 
least 16-point type.
    (iv) Penalty rates--(A) In general. Except as provided in paragraph 
(b)(1)(iv)(B) and (C) of this section, if a rate may increase as a 
penalty for one or more events specified in the account agreement, such 
as a late payment or an extension of credit that exceeds the credit 
limit, the card issuer must disclose pursuant to this paragraph (b)(1) 
the increased rate that may apply, a brief description of the event or 
events that may result in the increased rate, and a brief description of 
how long the increased rate will remain in effect.
    (B) Introductory rates. If the issuer discloses an introductory 
rate, as that term is defined in Sec. 1026.16(g)(2)(ii), in the table 
or in any written or electronic promotional materials accompanying 
applications or solicitations subject to paragraph (c) or (e) of this 
section, the issuer must briefly disclose directly beneath the table the 
circumstances, if any, under which the introductory rate may be revoked, 
and the type of rate that will apply after the introductory rate is 
revoked.
    (C) Employee preferential rates. If a card issuer discloses in the 
table a preferential annual percentage rate for which only employees of 
the card issuer, employees of a third party, or other individuals with 
similar affiliations with the card issuer or third party, such as 
executive officers, directors, or principal shareholders are eligible, 
the card issuer must briefly disclose directly beneath the table the

[[Page 643]]

circumstances under which such preferential rate may be revoked, and the 
rate that will apply after such preferential rate is revoked.
    (v) Rates that depend on consumer's creditworthiness. If a rate 
cannot be determined at the time disclosures are given because the rate 
depends, at least in part, on a later determination of the consumer's 
creditworthiness, the card issuer must disclose the specific rates or 
the range of rates that could apply and a statement that the rate for 
which the consumer may qualify at account opening will depend on the 
consumer's creditworthiness, and other factors if applicable. If the 
rate that depends, at least in part, on a later determination of the 
consumer's creditworthiness is a penalty rate, as described in paragraph 
(b)(1)(iv) of this section, the card issuer at its option may disclose 
the highest rate that could apply, instead of disclosing the specific 
rates or the range of rates that could apply.
    (vi) APRs that vary by state. Issuers imposing annual percentage 
rates that vary by state may, at the issuer's option, disclose in the 
table: the specific annual percentage rate applicable to the consumer's 
account; or the range of the annual percentage rates, if the disclosure 
includes a statement that the annual percentage rate varies by state and 
refers the consumer to a disclosure provided with the table where the 
annual percentage rate applicable to the consumer's account is 
disclosed. A card issuer may not list annual percentage rates for 
multiple states in the table.
    (2) Fees for issuance or availability. (i) Any annual or other 
periodic fee that may be imposed for the issuance or availability of a 
credit or charge card, including any fee based on account activity or 
inactivity; how frequently it will be imposed; and the annualized amount 
of the fee.
    (ii) Any non-periodic fee that relates to opening an account. A card 
issuer must disclose that the fee is a one-time fee.
    (3) Fixed finance charge; minimum interest charge. Any fixed finance 
charge and a brief description of the charge. Any minimum interest 
charge if it exceeds $1.00 that could be imposed during a billing cycle, 
and a brief description of the charge. The $1.00 threshold amount shall 
be adjusted periodically by the Bureau to reflect changes in the 
Consumer Price Index. The Bureau shall calculate each year a price level 
adjusted minimum interest charge using the Consumer Price Index in 
effect on June 1 of that year. When the cumulative change in the 
adjusted minimum value derived from applying the annual Consumer Price 
level to the current minimum interest charge threshold has risen by a 
whole dollar, the minimum interest charge will be increased by $1.00. 
The issuer may, at its option, disclose in the table minimum interest 
charges below this threshold.
    (4) Transaction charges. Any transaction charge imposed by the card 
issuer for the use of the card for purchases.
    (5) Grace period. The date by which or the period within which any 
credit extended for purchases may be repaid without incurring a finance 
charge due to a periodic interest rate and any conditions on the 
availability of the grace period. If no grace period is provided, that 
fact must be disclosed. If the length of the grace period varies, the 
card issuer may disclose the range of days, the minimum number of days, 
or the average number of days in the grace period, if the disclosure is 
identified as a range, minimum, or average. In disclosing in the tabular 
format a grace period that applies to all types of purchases, the phrase 
``How to Avoid Paying Interest on Purchases'' shall be used as the 
heading for the row describing the grace period. If a grace period is 
not offered on all types of purchases, in disclosing this fact in the 
tabular format, the phrase ``Paying Interest'' shall be used as the 
heading for the row describing this fact.
    (6) Balance computation method. The name of the balance computation 
method listed in paragraph (g) of this section that is used to determine 
the balance for purchases on which the finance charge is computed, or an 
explanation of the method used if it is not listed. In determining which 
balance computation method to disclose, the card issuer shall assume 
that credit extended for purchases will not be repaid within the grace 
period, if any.

[[Page 644]]

    (7) Statement on charge card payments. A statement that charges 
incurred by use of the charge card are due when the periodic statement 
is received.
    (8) Cash advance fee. Any fee imposed for an extension of credit in 
the form of cash or its equivalent.
    (9) Late payment fee. Any fee imposed for a late payment.
    (10) Over-the-limit fee. Any fee imposed for exceeding a credit 
limit.
    (11) Balance transfer fee. Any fee imposed to transfer an 
outstanding balance.
    (12) Returned-payment fee. Any fee imposed by the card issuer for a 
returned payment.
    (13) Required insurance, debt cancellation or debt suspension 
coverage. (i) A fee for insurance described in Sec. 1026.4(b)(7) or 
debt cancellation or suspension coverage described in Sec. 
1026.4(b)(10), if the insurance or debt cancellation or suspension 
coverage is required as part of the plan; and
    (ii) A cross reference to any additional information provided about 
the insurance or coverage accompanying the application or solicitation, 
as applicable.
    (14) Available credit. If a card issuer requires fees for the 
issuance or availability of credit described in paragraph (b)(2) of this 
section, or requires a security deposit for such credit, and the total 
amount of those required fees and/or security deposit that will be 
imposed and charged to the account when the account is opened is 15 
percent or more of the minimum credit limit for the card, a card issuer 
must disclose the available credit remaining after these fees or 
security deposit are debited to the account, assuming that the consumer 
receives the minimum credit limit. In determining whether the 15 percent 
threshold test is met, the issuer must only consider fees for issuance 
or availability of credit, or a security deposit, that are required. If 
fees for issuance or availability are optional, these fees should not be 
considered in determining whether the disclosure must be given. 
Nonetheless, if the 15 percent threshold test is met, the issuer in 
providing the disclosure must disclose the amount of available credit 
calculated by excluding those optional fees, and the available credit 
including those optional fees. This paragraph does not apply with 
respect to fees or security deposits that are not debited to the 
account.
    (15) Web site reference. A reference to the Web site established by 
the Bureau and a statement that consumers may obtain on the Web site 
information about shopping for and using credit cards. Until January 1, 
2013, issuers may substitute for this reference a reference to the Web 
site established by the Board of Governors of the Federal Reserve 
System.
    (c) Direct mail and electronic applications and solicitations--(1) 
General. The card issuer shall disclose the applicable items in 
paragraph (b) of this section on or with an application or solicitation 
that is mailed to consumers or provided to consumers in electronic form.
    (2) Accuracy. (i) Disclosures in direct mail applications and 
solicitations must be accurate as of the time the disclosures are 
mailed. An accurate variable annual percentage rate is one in effect 
within 60 days before mailing.
    (ii) Disclosures provided in electronic form must be accurate as of 
the time they are sent, in the case of disclosures sent to a consumer's 
email address, or as of the time they are viewed by the public, in the 
case of disclosures made available at a location such as a card issuer's 
Web site. An accurate variable annual percentage rate provided in 
electronic form is one in effect within 30 days before it is sent to a 
consumer's email address, or viewed by the public, as applicable.
    (d) Telephone applications and solicitations--(1) Oral disclosure. 
The card issuer shall disclose orally the information in paragraphs 
(b)(1) through (7) and (b)(14) of this section, to the extent 
applicable, in a telephone application or solicitation initiated by the 
card issuer.
    (2) Alternative disclosure. The oral disclosure under paragraph 
(d)(1) of this section need not be given if the card issuer either:
    (i)(A) Does not impose a fee described in paragraph (b)(2) of this 
section; or
    (B) Imposes such a fee but provides the consumer with a right to 
reject the plan consistent with Sec. 1026.5(b)(1)(iv); and

[[Page 645]]

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

[[Page 646]]

by adding the outstanding balance (excluding new purchases and deducting 
payments and credits) for each day in the billing cycle, and then 
dividing by the number of days in the billing cycle.
    (2) Adjusted balance. This balance is figured by deducting payments 
and credits made during the billing cycle from the outstanding balance 
at the beginning of the billing cycle.
    (3) Previous balance. This balance is the outstanding balance at the 
beginning of the billing cycle.
    (4) Daily balance. For each day in the billing cycle, this balance 
is figured by taking the beginning balance each day, adding any new 
purchases, and subtracting any payment and credits.



           Sec. Appendix A to Part 1026--Effect on State Laws

                        Request for Determination

    A request for a determination that a state law is inconsistent or 
that a state law is substantially the same as the Act and regulation 
shall be in writing and addressed to the Executive Secretary, Bureau of 
Consumer Financial Protection, 1700 G Street NW., Washington, DC 20006. 
The request shall be made pursuant to the procedures herein.

                          Supporting Documents

    A request for a determination shall include the following items:
    (1) The text of the state statute, regulation, or other document 
that is the subject of the request.
    (2) Any other statute, regulation, or judicial or administrative 
opinion that implements, interprets, or applies the relevant provision.
    (3) A comparison of the state law with the corresponding provision 
of the Federal law, including a full discussion of the basis for the 
requesting party's belief that the state provision is either 
inconsistent or substantially the same.
    (4) Any other information that the requesting party believes may 
assist the Bureau in its determination.

                     Public Notice of Determination

    Notice that the Bureau intends to make a determination (either on 
request or on its own motion) will be published in the Federal Register, 
with an opportunity for public comment, unless the Bureau finds that 
notice and opportunity for comment would be impracticable, unnecessary, 
or contrary to the public interest and publishes its reasons for such 
decision.
    Subject to the Bureau's rules on Disclosure of Records and 
Information (12 CFR Part 1070), all requests made, including any 
documents and other material submitted in support of the requests, will 
be made available for public inspection and copying.

                       Notice After Determination

    Notice of a final determination will be published in the Federal 
Register, and the Bureau will furnish a copy of such notice to the party 
who made the request and to the appropriate state official.

                        Reversal of Determination

    The Bureau reserves the right to reverse a determination for any 
reason bearing on the coverage or effect of state or Federal law.
    Notice of reversal of a determination will be published in the 
Federal Register and a copy furnished to the appropriate state official.



             Sec. Appendix B to Part 1026--State Exemptions

                               Application

    Any state may apply to the Bureau for a determination that a class 
of transactions subject to state law is exempt from the requirements of 
the Act and this part. An application shall be in writing and addressed 
to the Executive Secretary, Bureau of Consumer Financial Protection, 
1700 G Street, NW., Washington, DC 20006, and shall be signed by the 
appropriate state official. The application shall be made pursuant to 
the procedures herein.

                          Supporting Documents

    An application shall be accompanied by:
    (1) The text of the state statute or regulation that is the subject 
of the application, and any other statute, regulation, or judicial or 
administrative opinion that implements, interprets, or applies it.
    (2) A comparison of the state law with the corresponding provisions 
of the Federal law.
    (3) The text of the state statute or regulation that provides for 
civil and criminal liability and administrative enforcement of the state 
law.
    (4) A statement of the provisions for enforcement, including an 
identification of the state office that administers the relevant law, 
information on the funding and the number and qualifications of 
personnel engaged in enforcement, and a description of the enforcement 
procedures to be followed, including information on examination 
procedures, practices, and policies. If an exemption application extends 
to federally chartered institutions, the applicant must furnish evidence 
that arrangements have been made with the appropriate Federal agencies 
to ensure adequate enforcement of state law in regard to such creditors.

[[Page 647]]

    (5) A statement of reasons to support the applicant's claim that an 
exemption should be granted.

                      Public Notice of Application

    Notice of an application will be published, with an opportunity for 
public comment, in the Federal Register, unless the Bureau finds that 
notice and opportunity for comment would be impracticable, unnecessary, 
or contrary to the public interest and publishes its reasons for such 
decision.
    Subject to the Bureau's rules on Disclosure of Records and 
Information (12 CFR Part 1070), all applications made, including any 
documents and other material submitted in support of the applications, 
will be made available for public inspection and copying.

                         Favorable Determination

    If the Bureau determines on the basis of the information before it 
that an exemption should be granted, notice of the exemption will be 
published in the Federal Register, and a copy furnished to the applicant 
and to each Federal official responsible for administrative enforcement.
    The appropriate state official shall inform the Bureau within 30 
days of any change in its relevant law or regulations. The official 
shall file with the Bureau such periodic reports as the Bureau may 
require.
    The Bureau will inform the appropriate state official of any 
subsequent amendments to the Federal law, regulation, interpretations, 
or enforcement policies that might require an amendment to state law, 
regulation, interpretations, or enforcement procedures.

                          Adverse Determination

    If the Bureau makes an initial determination that an exemption 
should not be granted, the Bureau will afford the applicant a reasonable 
opportunity to demonstrate further that an exemption is proper. If the 
Bureau ultimately finds that an exemption should not be granted, notice 
of an adverse determination will be published in the Federal Register 
and a copy furnished to the applicant.

                         Revocation of Exemption

    The Bureau reserves the right to revoke an exemption if at any time 
it determines that the standards required for an exemption are not met.
    Before taking such action, the Bureau will notify the appropriate 
state official of its intent, and will afford the official such 
opportunity as it deems appropriate in the circumstances to demonstrate 
that revocation is improper. If the Bureau ultimately finds that 
revocation is proper, notice of the Bureau's intention to revoke such 
exemption will be published in the Federal Register with a reasonable 
period of time for interested persons to comment.
    Notice of revocation of an exemption will be published in the 
Federal Register. A copy of such notice will be furnished to the 
appropriate state official and to the Federal officials responsible for 
enforcement. Upon revocation of an exemption, creditors in that state 
shall then be subject to the requirements of the Federal law.



   Sec. Appendix C to Part 1026--Issuance of Official Interpretations

                        Official Interpretations

    Interpretations of this part issued by officials of the Bureau 
provide the protection afforded under section 130(f) of the Act. Except 
in unusual circumstances, such interpretations will not be issued 
separately but will be incorporated in an official commentary to the 
regulation which will be amended periodically.

            Requests for Issuance of Official Interpretations

    A request for an official interpretation shall be in writing and 
addressed to the Assistant Director, Office of Regulations, Division of 
Research, Markets, and Regulations, Bureau of Consumer Financial 
Protection, 1700 G Street, NW., Washington, DC 20006. The request shall 
contain a complete statement of all relevant facts concerning the issue, 
including copies of all pertinent documents.

                        Scope of Interpretations

    No interpretations will be issued approving creditors' forms, 
statements, or calculation tools or methods. This restriction does not 
apply to forms, statements, tools, or methods whose use is required or 
sanctioned by a government agency.



    Sec. Appendix D to Part 1026--Multiple Advance Construction Loans

    Section 1026.17(c)(6) permits creditors to treat multiple advance 
loans to finance construction of a dwelling that may be permanently 
financed by the same creditor either as a single transaction or as more 
than one transaction. If the actual schedule of advances is not known, 
the following methods may be used to estimate the interest portion of 
the finance charge and the annual percentage rate and to make 
disclosures. If the creditor chooses to disclose the construction phase 
separately, whether interest is payable periodically or at the end of 
construction, part I may be used. If the creditor chooses to disclose 
the construction and the permanent financing as one transaction, part II 
may be used.

[[Page 648]]

            Part I--Construction Period Disclosed Separately

    A. If interest is payable only on the amount actually advanced for 
the time it is outstanding:
    1. Estimated interest--Assume that one-half of the commitment amount 
is outstanding at the contract interest rate for the entire construction 
period.
    2. Estimated annual percentage rate--Assume a single payment loan 
that matures at the end of the construction period. The finance charge 
is the sum of the estimated interest and any prepaid finance charge. The 
amount financed for computation purposes is determined by subtracting 
any prepaid finance charge from one-half of the commitment amount.
    3. Repayment schedule--The number and amounts of any interest 
payments may be omitted in disclosing the payment schedule under Sec. 
1026.18(g). The fact that interest payments are required and the timing 
of such payments shall be disclosed.
    4. Amount financed--The amount financed for disclosure purposes is 
the entire commitment amount less any prepaid finance charge.
    B. If interest is payable on the entire commitment amount without 
regard to the dates or amounts of actual disbursement:
    1. Estimated interest--Assume that the entire commitment amount is 
outstanding at the contract interest rate for the entire construction 
period.
    2. Estimated annual percentage rate--Assume a single payment loan 
that matures at the end of the construction period. The finance charge 
is the sum of the estimated interest and any prepaid finance charge. The 
amount financed for computation purposes is determined by subtracting 
any prepaid finance charge from one-half of the commitment amount.
    3. Repayment schedule--Interest payments shall be disclosed in 
making the repayment schedule disclosure under Sec. 1026.18(g).
    4. Amount financed--The amount financed for disclosure purposes is 
the entire commitment amount less any prepaid finance charge.
[GRAPHIC] [TIFF OMITTED] TR22DE11.000


[[Page 649]]



     Part II--Construction and Permanent Financing Disclosed as One 
                               Transaction

    A. The creditor shall estimate the interest payable during the 
construction period to be included in the total finance charge as 
follows:
    1. If interest is payable only on the amount actually advanced for 
the time it is outstanding, assume that one-half of the commitment 
amount is outstanding at the contract interest rate for the entire 
construction period.
    2. If interest is payable on the entire commitment amount without 
regard to the dates or amounts of actual disbursements, assume that the 
entire commitment amount is outstanding at the contract rate for the 
entire construction period.
    B. The creditor shall compute the estimated annual percentage rate 
as follows:
    1. Estimated interest payable during the construction period shall 
be treated for computation purposes as a prepaid finance charge 
(although it shall not be treated as a prepaid finance charge for 
disclosure purposes).
    2. The number of payment shall not include any payments of interest 
only that are made during the construction period.
    3. The first payment period shall consist of one-half of the 
construction period plus the period between the end of the construction 
period and the amortization payment.
    C. The creditor shall disclose the repayment schedule as follows:
    1. For loans under paragraph A.1. of Part II, without reflecting the 
number or amounts of payments of interest only that are made during the 
construction period. The fact that interest payments must be made and 
the timing of such payments shall be disclosed.
    2. For loans under paragraph A.2. of Part II, including any payments 
of interest only that are made during the construction period.
    D. The creditor shall disclose the amount financed as the entire 
commitment amount less any prepaid finance charge.
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[[Page 650]]


[GRAPHIC] [TIFF OMITTED] TR22DE11.002



  Sec. Appendix E to Part 1026--Rules for Card Issuers That Bill on a 
                    Transaction-by-Transaction Basis

    The following provisions of Subpart B apply if credit cards are 
issued and the card issuer and the seller are the same or related 
persons; no finance charge is imposed; consumers are billed in full for 
each use of the card on a transaction-by-transaction basis, by means of 
an invoice or other statement reflecting each use of the card; and no 
cumulative account is maintained which reflects the transactions by each 
consumer during a period of time, such as a month. The term ``related 
person'' refers to, for example, a franchised or licensed seller of a 
creditor's product or service or a seller who assigns or sells sales 
accounts to a creditor or arranges for credit under a plan that allows 
the consumer to use the credit only in transactions with that seller. A 
seller is not related to the creditor merely because the seller and the 
creditor have an agreement authorizing the seller to honor the 
creditor's credit card.
    1. Section 1026.6(a)(5) or Sec. 1026.6(b)(5)(iii).
    2. Section 1026.6(a)(2) or Sec. 1026.6(b)(3)(ii)(B), as applicable. 
The disclosure required by Sec. 1026.6(a)(2) or Sec. 
1026.6(b)(3)(ii)(B) shall be limited to those charges that are or may be 
imposed as a result of the deferral of payment by use of the card, such 
as late payment or delinquency charges. A tabular format is not 
required.
    3. Section 1026.6(a)(4) or Sec. 1026.6(b)(5)(ii).
    4. Section 1026.7(a)(2) or Sec. 1026.7(b)(2), as applicable; Sec. 
1026.7(a)(9) or Sec. 1026.7(b)(9), as applicable. Creditors may comply 
by placing the

[[Page 651]]

required disclosures on the invoice or statement sent to the consumer 
for each transaction.
    5. Section 1026.9(a). Creditors may comply by mailing or delivering 
the statement required by Sec. 1026.6(a)(5) or Sec. 1026.6(b)(5)(iii) 
(see Appendix G-3 and G-3(A) to this part) to each consumer receiving a 
transaction invoice during a one-month period chosen by the card issuer 
or by sending either the statement prescribed by Sec. 1026.6(a)(5) or 
Sec. 1026.6(b)(5)(iii), or an alternative billing error rights 
statement substantially similar to that in Appendix G-4 and G-4(A) to 
this part, with each invoice sent to a consumer.
    6. Section 1026.9(c). A tabular format is not required.
    7. Section 1026.10.
    8. Section 1026.11(a). This section applies when a card issuer 
receives a payment or other credit that exceeds by more than $1 the 
amount due, as shown on the transaction invoice. The requirement to 
credit amounts to an account may be complied with by other reasonable 
means, such as by a credit memorandum. Since no periodic statement is 
provided, a notice of the credit balance shall be sent to the consumer 
within a reasonable period of time following its occurrence unless a 
refund of the credit balance is mailed or delivered to the consumer 
within seven business days of its receipt by the card issuer.
    9. Section 1026.12 including Sec. 1026.12(c) and (d), as 
applicable. Section 1026.12(e) is inapplicable.
    10. Section 1026.13, as applicable. All references to ``periodic 
statement'' shall be read to indicate the invoice or other statement for 
the relevant transaction. All actions with regard to correcting and 
adjusting a consumer's account may be taken by issuing a refund or a new 
invoice, or by other appropriate means consistent with the purposes of 
the section.
    11. Section 1026.15, as applicable.



     Sec. Appendix F to Part 1026--Optional Annual Percentage Rate 
 Computations for Creditors Offering Open-End Credit Plans Secured by a 
                           Consumer's Dwelling

    In determining the denominator of the fraction under Sec. 
1026.14(c)(3), no amount will be used more than once when adding the sum 
of the balances subject to periodic rates to the sum of the amounts 
subject to specific transaction charges. (Where a portion of the finance 
charge is determined by application of one or more daily periodic rates, 
the phrase ``sum of the balances'' shall also mean the ``average of 
daily balances.'') In every case, the full amount of transactions 
subject to specific transaction charges shall be included in the 
denominator. Other balances or parts of balances shall be included 
according to the manner of determining the balance subject to a periodic 
rate, as illustrated in the following examples of accounts on monthly 
billing cycles:
    1. Previous balance--none.
    A specific transaction of $100 occurs on the first day of the 
billing cycle. The average daily balance is $100. A specific transaction 
charge of 3% is applicable to the specific transaction. The periodic 
rate is 1[frac12]% applicable to the average daily balance. The 
numerator is the amount of the finance charge, which is $4.50. The 
denominator is the amount of the transaction (which is $100), plus the 
amount by which the balance subject to the periodic rate exceeds the 
amount of the specific transactions (such excess in this case is 0), 
totaling $100.
    The annual percentage rate is the quotient (which is 4[frac12]%) 
multiplied by 12 (the number of months in a year), i.e., 54%.
    2. Previous balance--$100.
    A specific transaction of $100 occurs at the midpoint of the billing 
cycle. The average daily balance is $150. A specific transaction charge 
of 3% is applicable to the specific transaction. The periodic rate is 
1[frac12]% applicable to the average daily balance. The numerator is the 
amount of the finance charge which is $5.25. The denominator is the 
amount of the transaction (which is $100), plus the amount by which the 
balance subject to the periodic rate exceeds the amount of the specific 
transaction (such excess in this case is $50), totaling $150. As 
explained in example 1, the annual percentage rate is 3[frac12]% x 12 = 
42%.
    3. If, in example 2, the periodic rate applies only to the previous 
balance, the numerator is $4.50 and the denominator is $200 (the amount 
of the transaction, $100, plus the balance subject only to the periodic 
rate, the $100 previous balance). As explained in example 1, the annual 
percentage rate is 2[frac14]% x 12 = 27%.
    4. If, in example 2, the periodic rate applies only to an adjusted 
balance (previous balance less payments and credits) and the consumer 
made a payment of $50 at the midpoint of the billing cycle, the 
numerator is $3.75 and the denominator is $150 (the amount of the 
transaction, $100, plus the balance subject to the periodic rate, the 
$50 adjusted balance). As explained in example 1, the annual percentage 
rate is 2[frac12]% x 12 = 30%.
    5. Previous balance--$100.
    A specific transaction (check) of $100 occurs at the midpoint of the 
billing cycle. The average daily balance is $150. The specific 
transaction charge is $.25 per check. The periodic rate is 1[frac12]% 
applied to the average daily balance. The numerator is the amount of the 
finance charge, which is $2.50 and includes the $.25 check charge and 
the $2.25 resulting from the application of the periodic rate. The 
denominator is the full amount of the specific transaction (which is 
$100) plus

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the amount by which the average daily balance exceeds the amount of the 
specific transaction (which in this case is $50), totaling $150. As 
explained in example 1, the annual percentage rate would be 1-2/3% x 12 
= 20%.
    6. Previous balance--none.
    A specific transaction of $100 occurs at the midpoint of the billing 
cycle. The average daily balance is $50. The specific transaction charge 
is 3% of the transaction amount or $3.00. The periodic rate is 
1[frac12]% per month applied to the average daily balance. The numerator 
is the amount of the finance charge, which is $3.75, including the $3.00 
transaction charge and $.75 resulting from application of the periodic 
rate. The denominator is the full amount of the specific transaction 
($100) plus the amount by which the balance subject to the periodic rate 
exceeds the amount of the transaction ($0). Where the specific 
transaction amount exceeds the balance subject to the periodic rate, the 
resulting number is considered to be zero rather than a negative number 
($50 - $100 = -$50). The denominator, in this case, is $100. As 
explained in example 1, the annual percentage rate is 3[frac34]% x 12 = 
45%.



     Sec. Appendix G to Part 1026--Open-End Model Forms and Clauses

G-1 Balance Computation Methods Model Clauses (Home-equity Plans) 
          (Sec. Sec. 1026.6 and 1026.7)
G-1(A) Balance Computation Methods Model Clauses (Plans other than Home-
          equity Plans) (Sec. Sec. 1026.6 and 1026.7)
G-2 Liability for Unauthorized Use Model Clause (Home-equity Plans) 
          (Sec. 1026.12)
G-2(A) Liability for Unauthorized Use Model Clause (Plans Other Than 
          Home-equity Plans) (Sec. 1026.12)
G-3 Long-Form Billing-Error Rights Model Form (Home-equity Plans) 
          (Sec. Sec. 1026.6 and 1026.9)
G-3(A Long-Form Billing-Error Rights Model Form (Plans Other Than Home-
          equity Plans) (Sec. Sec. 1026.6 and 1026.9)
G-4 Alternative Billing-Error Rights Model Form (Home-equity Plans) 
          (Sec. 1026.9)
G-4(A Alternative Billing-Error Rights Model Form (Plans Other Than 
          Home-equity Plans) (Sec. 1026.9)
G-5 Rescission Model Form (When Opening an Account) (Sec. 1026.15)
G-6 Rescission Model Form (For Each Transaction) (Sec. 1026.15)
G-7 Rescission Model Form (When Increasing the Credit Limit) (Sec. 
          1026.15)
G-8 Rescission Model Form (When Adding a Security Interest) (Sec. 
          1026.15)
G-9 Rescission Model Form (When Increasing the Security) (Sec. 1026.15)
G-10(A) Applications and Solicitations Model Form (Credit Cards) (Sec. 
          1026.60(b))
G-10(B) Applications and Solicitations Sample (Credit Cards) (Sec. 
          1026.60(b))
G-10(C) Applications and Solicitations Sample (Credit Cards) (Sec. 
          1026.60(b))
G-10(D) Applications and Solicitations Model Form (Charge Cards) (Sec. 
          1026.60(b))
G-10(E) Applications and Solicitations Sample (Charge Cards) (Sec. 
          1026.60(b))
G-11 Applications and Solicitations Made Available to General Public 
          Model Clauses (Sec. 1026.60(e))
G-12 Reserved
G-13(A) Change in Insurance Provider Model Form (Combined Notice) (Sec. 
          1026.9(f))
G-13(B) Change in Insurance Provider Model Form (Sec. 1026.9(f)(2))
G-14A Home-equity Sample
G-14B Home-equity Sample
G-1 Home-equity Model Clauses
G-16(A) Debt Suspension Model Clause (Sec. 1026.4(d)(3))
G-16(B) Debt Suspension Sample (Sec. 1026.4(d)(3))
G-17(A) Account-opening Model Form (Sec. 1026.6(b)(2))
G-17(B) Account-opening Sample (Sec. 1026.6(b)(2))
G-17(C) Account-opening Sample (Sec. 1026.6(b)(2))
G-17(D) Account-opening Sample (Sec. 1026.6(b)(2))
G-18(A) Transactions; Interest Charges; Fees Sample (Sec. 1026.7(b))
G-18(B) Late Payment Fee Sample (Sec. 1026.7(b))
G-18(C)(1) Minimum Payment Warning (When Amortization Occurs and the 36-
          Month Disclosures Are Required) (Sec. 1026.7(b))
G-18(C)(2) Minimum Payment Warning (When Amortization Occurs and the 36-
          Month Disclosures Are Not Required) (Sec. 1026.7(b))
G-18(C)(3) Minimum Payment Warning (When Negative or No Amortization 
          Occurs) (Sec. 1026.7(b))
G-18(D) Periodic Statement New Balance, Due Date, Late Payment and 
          Minimum Payment Sample (Credit cards) (Sec. 1026.7(b))
G-18(E) [Reserved]
G-18(F) Periodic Statement Form
G-18(G) Periodic Statement Form
G-18(H) Deferred Interest Periodic Statement Clause
G-19 Checks Accessing a Credit Card Account Sample (Sec. 1026.9(b)(3))
G-20 Change-in-Terms Sample (Increase in Annual Percentage Rate) (Sec. 
          1026.9(c)(2))
G-21 Change-in-Terms Sample (Increase in Fees) (Sec. 1026.9(c)(2))
G-22 Penalty Rate Increase Sample (Payment 60 or Fewer Days Late) (Sec. 
          1026.9(g)(3))

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G-23 Penalty Rate Increase Sample (Payment More Than 60 Days Late) 
          (Sec. 1026.9(g)(3))
G-24 Deferred Interest Offer Clauses (Sec. 1026.16(h))
G-25(A) Consent Form for Over-the-Limit Transactions (Sec. 1026.56)
G-25(B) Revocation Notice for Periodic Statement Regarding Over-the-
          Limit Transactions (Sec. 1026.56)

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

(a) Adjusted Balance Method
    We figure [a portion of] the finance charge on your account by 
applying the periodic rate to the ``adjusted balance'' of your account. 
We get the ``adjusted balance'' by taking the balance you owed at the 
end of the previous billing cycle and subtracting [any unpaid finance 
charges and] any payments and credits received during the present 
billing cycle.
(b) Previous Balance Method
    We figure [a portion of] the finance charge on your account by 
applying the periodic rate to the amount you owe at the beginning of 
each billing cycle [minus any unpaid finance charges]. We do not 
subtract any payments or credits received during the billing cycle. [The 
amount of payments and credits to your account this billing cycle was $ 
--------.]
(c) Average Daily Balance Method (Excluding Current Transactions)
    We figure [a portion of] the finance charge on your account by 
applying the periodic rate to the ``average daily balance'' of your 
account (excluding current transactions). To get the ``average daily 
balance'' we take the beginning balance of your account each day and 
subtract any payments or credits [and any unpaid finance charges]. We do 
not add in any new [purchases/advances/loans]. This gives us the daily 
balance. Then, we add all the daily balances for the billing cycle 
together and divide the total by the number of days in the billing 
cycle. This gives us the ``average daily balance.''
(d) Average Daily Balance Method (Including Current Transactions)
    We figure [a portion of] the finance charge on your account by 
applying the periodic rate to the ``average daily balance'' of your 
account (including current transactions). To get the ``average daily 
balance'' we take the beginning balance of your account each day, add 
any new [purchases/advances/loans], and subtract any payments or 
credits, [and unpaid finance charges]. This gives us the daily balance. 
Then, we add up all the daily balances for the billing cycle and divide 
the total by the number of days in the billing cycle. This gives us the 
``average daily balance.''
(e) Ending Balance Method
    We figure [a portion of] the finance charge on your account by 
applying the periodic rate to the amount you owe at the end of each 
billing cycle (including new purchases and deducting payments and 
credits made during the billing cycle).
(f) Daily Balance Method (Including Current Transactions)
    We figure [a portion of] the finance charge on your account by 
applying the periodic rate to the ``daily balance'' of your account for 
each day in the billing cycle. To get the ``daily balance'' we take the 
beginning balance of your account each day, add any new [purchases/
advances/fees], and subtract [any unpaid finance charges and] any 
payments or credits. This gives us the daily balance.
G-1(A)--Balance Computation Methods Model Clauses (Plans Other Than 
Home-Equity Plans)
(a) Adjusted Balance Method
    We figure the interest charge on your account by applying the 
periodic rate to the ``adjusted balance'' of your account. We get the 
``adjusted balance'' by taking the balance you owed at the end of the 
previous billing cycle and subtracting [any unpaid interest or other 
finance charges and] any payments and credits received during the 
present billing cycle.
(b) Previous Balance Method
    We figure the interest charge on your account by applying the 
periodic rate to the amount you owe at the beginning of each billing 
cycle. We do not subtract any payments or credits received during the 
billing cycle.
(c) Average Daily Balance Method (Excluding Current Transactions)
    We figure the interest charge on your account by applying the 
periodic rate to the ``average daily balance'' of your account. To get 
the ``average daily balance'' we take the beginning balance of your 
account each day and subtract [any unpaid interest or other finance 
charges and] any payments or credits. We do not add in any new 
[purchases/advances/fees]. This gives us the daily balance. Then, we add 
all the daily balances for the billing cycle together and divide the 
total by the number of days in the billing cycle. This gives us the 
``average daily balance.''
(d) Average Daily Balance Method (Including Current Transactions)
    We figure the interest charge on your account by applying the 
periodic rate to the ``average daily balance'' of your account. To get 
the ``average daily balance'' we take the beginning balance of your 
account each day, add any new [purchases/advances/fees], and subtract 
[any unpaid interest or other finance charges and] any payments or 
credits. This gives us the daily balance. Then, we add up all the daily 
balances for the billing cycle and divide the total by the number of 
days in the billing cycle. This gives us the ``average daily balance.''

[[Page 654]]

(e) Ending Balance Method
    We figure the interest charge on your account by applying the 
periodic rate to the amount you owe at the end of each billing cycle 
(including new [purchases/advances/fees] and deducting payments and 
credits made during the billing cycle).
(f) Daily Balance Method (Including Current Transactions)
    We figure the interest charge on your account by applying the 
periodic rate to the ``daily balance'' of your account for each day in 
the billing cycle. To get the ``daily balance'' we take the beginning 
balance of your account each day, add any new [purchases/advances/fees], 
and subtract [any unpaid interest or other finance charges and] any 
payments or credits. This gives us the daily balance.
G-2--Liability for Unauthorized Use Model Clause (Home-Equity Plans)
    You may be liable for the unauthorized use of your credit card [or 
other term that describes the credit card]. You will not be liable for 
unauthorized use that occurs after you notify [name of card issuer or 
its designee] at [address], orally or in writing, of the loss, theft, or 
possible unauthorized use. [You may also contact us on the Web: 
[Creditor Web or email address]] In any case, your liability will not 
exceed [insert $50 or any lesser amount under agreement with the 
cardholder].
G-2(A)--Liability for Unauthorized Use Model Clause (Plans Other Than 
Home-Equity Plans)
    If you notice the loss or theft of your credit card or a possible 
unauthorized use of your card, you should write to us immediately at: 
[address] [address listed on your bill],
    or call us at [telephone number].
    [You may also contact us on the Web: [Creditor Web or email 
address]]
    You will not be liable for any unauthorized use that occurs after 
you notify us. You may, however, be liable for unauthorized use that 
occurs before your notice to us. In any case, your liability will not 
exceed [insert $50 or any lesser amount under agreement with the 
cardholder].

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

                           YOUR BILLING RIGHTS

                     KEEP THIS NOTICE FOR FUTURE USE

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

        Notify Us in Case of Errors or Questions About Your Bill

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

   Your Rights and Our Responsibilities After We Receive Your Written 
                                 Notice

    We must acknowledge your letter within 30 days, unless we have 
corrected the error by then. Within 90 days, we must either correct the 
error or explain why we believe the bill was correct.
    After we receive your letter, we cannot try to collect any amount 
you question, or report you as delinquent. We can continue to bill you 
for the amount you question, including finance charges, and we can apply 
any unpaid amount against your credit limit. You do not have to pay any 
questioned amount while we are investigating, but you are still 
obligated to pay the parts of your bill that are not in question.
    If we find that we made a mistake on your bill, you will not have to 
pay any finance charges related to any questioned amount. If we didn't 
make a mistake, you may have to pay finance charges, and you will have 
to make up any missed payments on the questioned amount. In either case, 
we will send you a statement of the amount you owe and the date that it 
is due.
    If you fail to pay the amount that we think you owe, we may report 
you as delinquent. However, if our explanation does not satisfy you and 
you write to us within ten days telling us that you still refuse to pay, 
we must tell anyone we report you to that you have a question about your 
bill. And, we must tell you the name of anyone we reported you to. We 
must tell anyone we report you to that the matter has been settled 
between us when it finally is.
    If we don't follow these rules, we can't collect the first $50 of 
the questioned amount, even if your bill was correct.

[[Page 655]]

                 Special Rule for Credit Card Purchases

    If you have a problem with the quality of property or services that 
you purchased with a credit card, and you have tried in good faith to 
correct the problem with the merchant, you may have the right not to pay 
the remaining amount due on the property or services.
    There are two limitations on this right:
    (a) You must have made the purchase in your home state or, if not 
within your home state within 100 miles of your current mailing address; 
and
    (b) The purchase price must have been more than $50.
    These limitations do not apply if we own or operate the merchant, or 
if we mailed you the advertisement for the property or services.
    G-3(A)--Long-Form Billing-Error Rights Model Form (Plans Other Than 
Home-Equity Plans)

         Your Billing Rights: Keep This Document For Future Use

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

           What To Do If You Find A Mistake On Your Statement

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

              What Will Happen After We Receive Your Letter

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

   Your Rights If You Are Dissatisfied With Your Credit Card Purchases

    If you are dissatisfied with the goods or services that you have 
purchased with your credit card, and you have tried in good faith to 
correct the problem with the merchant, you may have the right not to pay 
the remaining amount due on the purchase.
    To use this right, all of the following must be true:
    1. The purchase must have been made in your home state or within 100 
miles of your current mailing address, and the purchase price must have 
been more than $50. (Note: Neither of these are necessary if your 
purchase was based on an advertisement we mailed to you, or if we own 
the company that sold you the goods or services.)

[[Page 656]]

    2. You must have used your credit card for the purchase. Purchases 
made with cash advances from an ATM or with a check that accesses your 
credit card account do not qualify.
    3. You must not yet have fully paid for the purchase.
    If all of the criteria above are met and you are still dissatisfied 
with the purchase, contact us in writing [or electronically] at:
    [Creditor Name]
    [Creditor Address]
    [[Creditor Web or email address]]
    While we investigate, the same rules apply to the disputed amount as 
discussed above. After we finish our investigation, we will tell you our 
decision. At that point, if we think you owe an amount and you do not 
pay, we may report you as delinquent.

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

                         BILLING RIGHTS SUMMARY

             In Case of Errors or Questions About Your Bill

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

                 Special Rule for Credit Card Purchases

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

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

      What To Do If You Think You Find A Mistake On Your Statement

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

   Your Rights If You Are Dissatisfied With Your Credit Card Purchases

    If you are dissatisfied with the goods or services that you have 
purchased with your credit card, and you have tried in good faith to 
correct the problem with the merchant, you may have the right not to pay 
the remaining amount due on the purchase.
    To use this right, all of the following must be true:
    1. The purchase must have been made in your home state or within 100 
miles of your current mailing address, and the purchase price must have 
been more than $50. (Note: Neither of these is necessary if your 
purchase was based on an advertisement we

[[Page 657]]

mailed to you, or if we own the company that sold you the goods or 
services.)
    2. You must have used your credit card for the purchase. Purchases 
made with cash advances from an ATM or with a check that accesses your 
credit card account do not qualify.
    3. You must not yet have fully paid for the purchase.
    If all of the criteria above are met and you are still dissatisfied 
with the purchase, contact us in writing [or electronically] at:
    [Creditor Name]
    [Creditor Address]
    [[Creditor Web address]]
    While we investigate, the same rules apply to the disputed amount as 
discussed above. After we finish our investigation, we will tell you our 
decision. At that point, if we think you owe an amount and you do not 
pay we may report you as delinquent.
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   G-11--Applications and Solicitations Made Available to the General 
                          Public Model Clauses

              (a) Disclosure of Required Credit Information

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

                 (b) No Disclosure of Credit Information

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

                             G-12 [Reserved]

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

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

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

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

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                  G-16(A) Debt Suspension Model Clause

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

                     G-16(B) Debt Suspension Sample

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

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

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

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                           G-18(E) [Reserved]

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

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

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                  G-24--Deferred Interest Offer Clauses

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

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

                      (b) For Other Open-End Plans

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

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

          Your Choice Regarding Over-the-Credit Limit Coverage

    Unless you tell us otherwise, we will decline any transaction that 
causes you to go over your credit limit. If you want us to authorize 
these transactions, you can request over-the-credit limit coverage.
    If you have over-the-credit limit coverage and you go over your 
credit limit, we will charge you a fee of up to $35. We may also 
increase your APRs to the Penalty APR of XX.XX%. You will only pay one 
fee per billing cycle, even if you go over your limit multiple times in 
the same cycle.
    Even if you request over-the-credit limit coverage, in some cases we 
may still decline a transaction that would cause you to go over your 
limit, such as if you are past due or significantly over your credit 
limit.
    If you want over-the-limit coverage and to allow us to authorize 
transactions that go over your credit limit, please:

--Call us at [telephone number];
--Visit [Web site]; or
--Check or initial the box below, and return the form to us at 
[address].
--------------------
    -- I want over-the-limit coverage. I understand that if I go over my 
credit limit, my APRs may be increased and I will be charged a fee of up 
to $35. [I have the right to cancel this coverage at any time.]
    [-- I do not want over-the-limit coverage. I understand that 
transactions that exceed my credit limit will not be authorized.]
Printed Name:___________________________________________________________
Date:___________________________________________________________________
[Account Number]:_______________________________________________________

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

    You currently have over-the-credit limit coverage on your account, 
which means that we pay transactions that cause you go to over your 
credit limit. If you do go over your credit limit, we will charge you a 
fee of up to $35. We may also increase your APRs. To remove over-the-
credit-limit coverage from your account, call us at 1-800-xxxxxxx or 
visit [insert Web site].
    [You may also write us at: [insert address].]
    [You may also check or initial the box below and return this form to 
us at: [insert address].
    -- I want to cancel over-the-limit coverage for my account.

Printed Name:___________________________________________________________
Date:___________________________________________________________________
[Account Number]:_______________________________________________________



    Sec. Appendix H to Part 1026--Closed-End Model Forms and Clauses

H-1 Credit Sale Model Form (Sec. 1026.18)
H-2 Loan Model Form (Sec. 1026.18)
H-3 Amount Financed Itemization Model Form (Sec. 1026.18(c))
H-4(A) Variable-Rate Model Clauses (Sec. 1026.18(f)(1))
H-4(B) Variable-Rate Model Clauses (Sec. 1026.18(f)(2))
H-4(C) Variable-Rate Model Clauses (Sec. 1026.19(b))
H-4(D) Variable-Rate Model Clauses (Sec. 1026.20(c))
H-4(E) Fixed-Rate Mortgage Interest Rate and Payment Summary Model 
Clause (Sec. 1026.18(s))
H-4(F) Adjustable-Rate Mortgage or Step-Rate Mortgage Interest Rate and 
Payment Summary Model Clause (Sec. 1026.18(s))
H-4(G) Mortgage with Negative Amortization Interest Rate and Payment 
Summary Model Clause (Sec. 1026.18(s))
H-4(H) Fixed-Rate Mortgage with Interest-Only Interest Rate and Payment 
Summary Model Clause (Sec. 1026.18(s))
H-4(I) Adjustable-Rate Mortgage Introductory Rate Disclosure Model 
Clause (Sec. 1026.18(s)(2)(iii))
H-4(J) Balloon Payment Disclosure Model Clause (Sec. 1026.18(s)(5))
H-4(K) No Guarantee to Refinance Statement Model Clause (Sec. 
1026.18(t))
H-5 Demand Feature Model Clauses (Sec. 1026.18(i))
H-6 Assumption Policy Model Clause (Sec. 1026.18(q))
H-7 Required Deposit Model Clause (Sec. 1026.18(r))
H-8 Rescission Model Form (General) (Sec. 1026.23)
H-9 Rescission Model Form (Refinancing (with Original Creditor)) (Sec. 
1026.23)
H-10 Credit Sale Sample
H-11 Installment Loan Sample
H-12 Refinancing Sample
H-13 Mortgage with Demand Feature Sample
H-14 Variable-Rate Mortgage Sample (Sec. 1026.19(b))

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H-15 Graduated-Payment Mortgage Sample
H-16 Mortgage Sample
H-17(A) Debt Suspension Model Clause
H-17(B) Debt Suspension Sample
H-18 Private Education Loan Application and Solicitation Model Form
H-19 Private Education Loan Approval Model Form
H-20 Private Education Loan Final Model Form
H-21 Private Education Loan Application and Solicitation Sample
H-22 Private Education Loan Approval Sample
H-23 Private Education Loan Final Sample
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                   H-4(C)--Variable-Rate Model Clauses

    This disclosure describes the features of the adjustable-rate 
mortgage (ARM) program you are considering. Information on other ARM 
programs is available upon request.
    How Your Interest Rate and Payment Are Determined

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     Your interest rate will be based on [an index 
plus a margin] [a formula].
     Your payment will be based on the interest rate, 
loan balance, and loan term.

    --[The interest rate will be based on (identification of index) plus 
our margin. Ask for our current interest rate and margin.]
    --[The interest rate will be based on (identification of formula). 
Ask us for our current interest rate.]
    --Information about the index [formula for rate adjustments] is 
published [can be found] ------------.
--[The initial interest rate is not based on the (index) (formula) used 
to make later adjustments. Ask us for the amount of current interest 
rate discounts.]

                    How Your Interest Rate Can Change

     Your interest rate can change (frequency).
     [Your interest rate cannot increase or decrease 
more than ---- percentage points at each adjustment.]
     Your interest rate cannot increase [or decrease] 
more than ---- percentage points over the term of the loan.

                       How Your Payment Can Change

     Your payment can change (frequency) based on 
changes in the interest rate.
     [Your payment cannot increase more than (amount 
or percentage) at each adjustment.]
     You will be notified in writing -------- days 
before the due date of a payment at a new level. This notice will 
contain information about your interest rates, payment amount, and loan 
balance.
     [You will be notified once each year during which 
interest rate adjustments, but no payment adjustments, have been made to 
your loan. This notice will contain information about your interest 
rates, payment amount, and loan balance.]
     [For example, on a $10,000 [term] loan with an 
initial interest rate of -------- [(the rate shown in the interest rate 
column below for the year 19 --------)] [(in effect (month) (year)], the 
maximum amount that the interest rate can rise under this program is --
------ percentage points, to --------%, and the monthly payment can rise 
from a first-year payment of $-------- to a maximum of $-------- in the 
---------- year. To see what your payments would be, divide your 
mortgage amount by $10,000; then multiply the monthly payment by that 
amount. (For example, the monthly payment for a mortgage amount of 
$60,000 would be: $60,000 / $10,000 = 6; 6 x -------- = $-------- per 
month.)]
    [Example
    The example below shows how your payments would have changed under 
this ARM program based on actual changes in the index from 1982 to 1996. 
This does not necessarily indicate how your index will change in the 
future.
    The example is based on the following assumptions:

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                 H-4(I)--Introductory Rate Model Clause

    [Introductory Rate Notice
    You have a discounted introductory rate of -------- % that ends 
after (period).
    In the (period in sequence), even if market rates do not change, 
this rate will increase to ---- %.]

                  H-4(J)--Balloon Payment Model Clause

    [Final Balloon Payment due (date): $------------]

      H-4(K)--``No-Guarantee-to-Refinance'' Statement Model Clause

    There is no guarantee that you will be able to refinance to lower 
your rate and payments.

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     H-9--Rescission Model Form (Refinancing With Original Creditor)

                        NOTICE OF RIGHT TO CANCEL

                          Your Right To Cancel

    You are entering into a new transaction to increase the amount of 
credit previously provided to you. Your home is the security for this 
new transaction. You have a legal right under Federal law to cancel this 
new transaction, without cost, within three business days from whichever 
of the following events occurs last:
    (1) the date of this new transaction, which is ------------; or
    (2) the date you received your new Truth in Lending disclosures; or
    (3) the date you received this notice of your right to cancel.
    If you cancel this new transaction, it will not affect any amount 
that you presently owe. Your home is the security for that amount. 
Within 20 calendar days after we receive your notice of cancellation of 
this new transaction, we must take the steps necessary to reflect the 
fact that your home does not secure the increase of credit. We must also 
return any money you have given to us or anyone else in connection with 
this new transaction.
    You may keep any money we have given you in this new transaction 
until we have done the things mentioned above, but you must then offer 
to return the money at the address below.
    If we do not take possession of the money within 20 calendar days of 
your offer, you may keep it without further obligation.

                              How To Cancel

    If you decide to cancel this new transaction, you may do so by 
notifying us in writing, at

________________________________________________________________________

(Creditor's name and business address).

    You may use any written statement that is signed and dated by you 
and states your intention to cancel, or you may use this notice by 
dating and signing below. Keep one copy of this notice because it 
contains important information about your rights.
    If you cancel by mail or telegram, you must send the notice no later 
than midnight of

________________________________________________________________________

(Date)__________________________________________________________________
(or midnight of the third business day following the latest of the three 
events listed above).

    If you send or deliver your written notice to cancel some other way, 
it must be delivered to the above address no later than that time.

                            I WISH TO CANCEL

Consumer's Signature____________________________________________________
Date____________________________________________________________________

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                   H-14--Variable-Rate Mortgage Sample

    This disclosure describes the features of the adjustable-rate 
mortgage (ARM) program you are considering. Information on other ARM 
programs is available upon request.

            How Your Interest Rate and Payment Are Determined

     Your interest rate will be based on an index rate 
plus a margin.
     Your payment will be based on the interest rate, 
loan balance, and loan term.

--The interest rate will be based on the weekly average yield on United 
States Treasury securities adjusted to a constant maturity of 1 year 
(your index), plus our margin. Ask us for our current interest rate and 
margin.
--Information about the index rate is published weekly in the Wall 
Street Journal.
     Your interest rate will equal the index rate plus 
our margin unless your interest rate ``caps'' limit the amount of change 
in the interest rate.

                    How Your Interest Rate Can Change

     Your interest rate can change yearly.
     Your interest rate cannot increase or decrease 
more than 2 percentage points per year.
     Your interest rate cannot increase or decrease 
more than 5 percentage points over the term of the loan.

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                   How Your Monthly Payment Can Change

     Your monthly payment can increase or decrease 
substantially based on annual changes in the interest rate.
     [For example, on a $10,000, 30-year loan with an 
initial interest rate of 12.41 percent in effect in July 1996, the 
maximum amount that the interest rate can rise under this program is 5 
percentage points, to 17.41 percent, and the monthly payment can rise 
from a first-year payment of $106.03 to a maximum of $145.34 in the 
fourth year. To see what your payment is, divide your mortgage amount by 
$10,000; then multiply the monthly payment by that amount. (For example, 
the monthly payment for a mortgage amount of $60,000 would be: $60,000 / 
$10,000 = 6; 6 x 106.03 = $636.18 per month.)
     You will be notified in writing 25 days before 
the annual payment adjustment may be made. This notice will contain 
information about your interest rates, payment amount and loan balance.]
    Example
    The example below shows how your payments would have changed under 
this ARM program based on actual changes in the index from 1982 to 1996. 
This does not necessarily indicate how your index will change in the 
future. The example is based on the following assumptions:

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    Note: To see what your payments would have been during that period, 
divide your mortgage amount by $10,000; then multiply the monthly 
payment by that amount. (For example, in 1996 the monthly payment for a 
mortgage amount of $60,000 taken out in 1982 would be: $60,000/
$10,000=6; 6x$106.73=$640.38.)
     You will be notified in writing 25 days before 
the annual payment adjustment may be made. This notice will contain 
information about your interest rates, payment amount and loan balance.]

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                  H-17(A) Debt Suspension Model Clause

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

                     H-17(B) Debt Suspension Sample

    Please enroll me in the optional [name of program], and bill my 
account the fee of $200.00. I understand that enrollment is not required 
to obtain credit. I also understand that depending on the event, the 
protection may only temporarily suspend my duty to make minimum 
payments, not reduce the balance I owe. I understand that my balance 
will actually grow during the suspension period as interest continues to 
accumulate.
    To Enroll, Initial Here.
X_______________________________________________________________________

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                 Sec. Appendix I to Part 1026 [Reserved]



 Sec. Appendix J to Part 1026--Annual Percentage Rate Computations for 
                     Closed-End Credit Transactions

                            (a) Introduction

    (1) Section 1026.22(a) of Regulation Z provides that the annual 
percentage rate for other than open-end credit transactions shall be 
determined in accordance with either the actuarial method or the United 
States Rule method. This appendix contains an explanation of the 
actuarial method as well as equations, instructions and examples of how 
this method applies to single advance and multiple advance transactions.
    (2) Under the actuarial method, at the end of each unit-period (or 
fractional unit-period) the unpaid balance of the amount financed is 
increased by the finance charge earned during that period and is 
decreased by the total payment (if any) made at the end of that period. 
The determination of unit-periods and fractional unit-periods shall be 
consistent with the definitions and rules in paragraphs (b)(3), (4) and 
(5) of this section and the general equation in paragraph (b)(8) of this 
section.
    (3) In contrast, under the United States Rule method, at the end of 
each payment period, the unpaid balance of the amount financed is 
increased by the finance charge earned during that payment period and is 
decreased by the payment made at the end of that payment period. If the 
payment is less than the finance charge earned, the adjustment of the 
unpaid balance of the amount financed is postponed until the end of the 
next payment period. If at that time the sum of the two payments is 
still less than the total earned finance charge for the two payment 
periods, the adjustment of the unpaid balance of the amount financed is 
postponed still another payment period, and so forth.

         (B) Instructions and Equations for the Actuarial Method

                            (1) General Rule

    The annual percentage rate shall be the nominal annual percentage 
rate determined by multiplying the unit-period rate by the number of 
unit-periods in a year.

                       (2) Term of the Transaction

    The term of the transaction begins on the date of its consummation, 
except that if the finance charge or any portion of it is earned 
beginning on a later date, the term begins on the later date. The term 
ends on the date the last payment is due, except that if an advance is 
scheduled after that date, the term ends on the later date. For 
computation purposes, the length of the term shall be equal to the time 
interval between any point in time on the beginning date to the same 
point in time on the ending date.

                    (3) Definitions of Time Intervals

    (i) A period is the interval of time between advances or between 
payments and includes the interval of time between the date the finance 
charge begins to be earned and the date of the first advance thereafter 
or the date of the first payment thereafter, as applicable.
    (ii) A common period is any period that occurs more than once in a 
transaction.
    (iii) A standard interval of time is a day, week, semimonth, month, 
or a multiple of a

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week or a month up to, but not exceeding, 1 year.
    (iv) All months shall be considered equal. Full months shall be 
measured from any point in time on a given date of a given month to the 
same point in time on the same date of another month. If a series of 
payments (or advances) is scheduled for the last day of each month, 
months shall be measured from the last day of the given month to the 
last day of another month. If payments (or advances) are scheduled for 
the 29th or 30th of each month, the last day of February shall be used 
when applicable.

                             (4) Unit-Period

    (i) In all transactions other than a single advance, single payment 
transaction, the unit-period shall be that common period, not to exceed 
1 year, that occurs most frequently in the transaction, except that
    (A) If 2 or more common periods occur with equal frequency, the 
smaller of such common periods shall be the unit-period; or
    (B) If there is no common period in the transaction, the unit-period 
shall be that period which is the average of all periods rounded to the 
nearest whole standard interval of time. If the average is equally near 
2 standard intervals of time, the lower shall be the unit-period.
    (ii) In a single advance, single payment transaction, the unit-
period shall be the term of the transaction, but shall not exceed 1 
year.

            (5) Number of Unit-Periods Between 2 Given Dates

    (i) The number of days between 2 dates shall be the number of 24-
hour intervals between any point in time on the first date to the same 
point in time on the second date.
    (ii) If the unit-period is a month, the number of full unit-periods 
between 2 dates shall be the number of months measured back from the 
later date. The remaining fraction of a unit-period shall be the number 
of days measured forward from the earlier date to the beginning of the 
first full unit-period, divided by 30. If the unit-period is a month, 
there are 12 unit-periods per year.
    (iii) If the unit-period is a semimonth or a multiple of a month not 
exceeding 11 months, the number of days between 2 dates shall be 30 
times the number of full months measured back from the later date, plus 
the number of remaining days. The number of full unit-periods and the 
remaining fraction of a unit-period shall be determined by dividing such 
number of days by 15 in the case of a semimonthly unit-period or by the 
appropriate multiple of 30 in the case of a multimonthly unit-period. If 
the unit-period is a semimonth, the number of unit-periods per year 
shall be 24. If the number of unit-periods is a multiple of a month, the 
number of unit-periods per year shall be 12 divided by the number of 
months per unit-period.
    (iv) If the unit-period is a day, a week, or a multiple of a week, 
the number of full unit-periods and the remaining fractions of a unit-
period shall be determined by dividing the number of days between the 2 
given dates by the number of days per unit-period. If the unit-period is 
a day, the number of unit-periods per year shall be 365. If the unit-
period is a week or a multiple of a week, the number of unit-periods per 
year shall be 52 divided by the number of weeks per unit-period.
    (v) If the unit-period is a year, the number of full unit-periods 
between 2 dates shall be the number of full years (each equal to 12 
months) measured back from the later date. The remaining fraction of a 
unit-period shall be
    (A) The remaining number of months divided by 12 if the remaining 
interval is equal to a whole number of months, or
    (B) The remaining number of days divided by 365 if the remaining 
interval is not equal to a whole number of months.
    (vi) In a single advance, single payment transaction in which the 
term is less than a year and is equal to a whole number of months, the 
number of unit-periods in the term shall be 1, and the number of unit-
periods per year shall be 12 divided by the number of months in the term 
or 365 divided by the number of days in the term.
    (vii) In a single advance, single payment transaction in which the 
term is less than a year and is not equal to a whole number of months, 
the number of unit-periods in the term shall be 1, and the number of 
unit-periods per year shall be 365 divided by the number of days in the 
term.

           (6) Percentage Rate for a Fraction of a Unit-Period

    The percentage rate of finance charge for a fraction (less than 1) 
of a unit-period shall be equal to such fraction multiplied by the 
percentage rate of finance charge per unit-period.

[[Page 722]]

[GRAPHIC] [TIFF OMITTED] TR22DE11.062


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[GRAPHIC] [TIFF OMITTED] TR22DE11.071


[[Page 732]]





 Sec. Appendix K to Part 1026--Total Annual Loan Cost Rate Computations 
                    for Reverse Mortgage Transactions

    (a) Introduction. Creditors are required to disclose a series of 
total annual loan cost rates for each reverse mortgage transaction. This 
appendix contains the equations creditors must use in computing the 
total annual loan cost rate for various transactions, as well as 
instructions, explanations, and examples for various transactions. This 
appendix is modeled after Appendix J of this part (Annual Percentage 
Rates Computations for Closed-end Credit Transactions); creditors should 
consult Appendix J of this part for additional guidance in using the 
formulas for reverse mortgages.
    (b) Instructions and equations for the total annual loan cost rate. 
(1) General rule. The total annual loan cost rate shall be the nominal 
total annual loan cost rate determined by multiplying the unit-period 
rate by the number of unit-periods in a year.
    (2) Term of the transaction. For purposes of total annual loan cost 
disclosures, the term of a reverse mortgage transaction is assumed to 
begin on the first of the month in which consummation is expected to 
occur. If a loan cost or any portion of a loan cost is initially 
incurred beginning on a date later than consummation, the term of the 
transaction is assumed to begin on the first of the month in which that 
loan cost is incurred. For purposes of total annual loan cost 
disclosures, the term ends on each of the assumed loan periods specified 
in Sec. 1026.33(c)(6).
    (3) Definitions of time intervals. (i) A period is the interval of 
time between advances.
    (ii) A common period is any period that occurs more than once in a 
transaction.
    (iii) A standard interval of time is a day, week, semimonth, month, 
or a multiple of a week or a month up to, but not exceeding, 1 year.
    (iv) All months shall be considered to have an equal number of days.
    (4) Unit-period. (i) In all transactions other than single-advance, 
single-payment transactions, the unit-period shall be that common 
period, not to exceed one year, that occurs most frequently in the 
transaction, except that:
    (A) If two or more common periods occur with equal frequency, the 
smaller of such common periods shall be the unit-period; or
    (B) If there is no common period in the transaction, the unit-period 
shall be that period which is the average of all periods rounded to the 
nearest whole standard interval of time. If the average is equally near 
two standard intervals of time, the lower shall be the unit-period.
    (ii) In a single-advance, single-payment transaction, the unit-
period shall be the term of the transaction, but shall not exceed one 
year.
    (5) Number of unit-periods between two given dates. (i) The number 
of days between two dates shall be the number of 24-hour intervals 
between any point in time on the first date to the same point in time on 
the second date.
    (ii) If the unit-period is a month, the number of full unit-periods 
between two dates shall be the number of months. If the unit-period is a 
month, the number of unit-periods per year shall be 12.
    (iii) If the unit-period is a semimonth or a multiple of a month not 
exceeding 11 months, the number of days between two dates shall be 30 
times the number of full months. The number of full unit-periods shall 
be determined by dividing the number of days by 15 in the case of a 
semimonthly unit-period or by the appropriate multiple of 30 in the case 
of a multimonthly unit-period. If the unit-period is a semimonth, the 
number of unit-periods per year shall be 24. If the number of unit-
periods is a multiple of a month, the number of unit-periods per year 
shall be 12 divided by the number of months per unit-period.
    (iv) If the unit-period is a day, a week, or a multiple of a week, 
the number of full unit-periods shall be determined by dividing the 
number of days between the two given dates by the number of days per 
unit-period. If the unit-period is a day, the number of unit-periods per 
year shall be 365. If the unit-period is a week or a multiple of a week, 
the number of unit-periods per year shall be 52 divided by the number of 
weeks per unit-period.
    (v) If the unit-period is a year, the number of full unit-periods 
between two dates shall be the number of full years (each equal to 12 
months).
    (6) Symbols. The symbols used to express the terms of a transaction 
in the equation set forth in paragraph (b)(8) of this appendix are 
defined as follows:

Aj = The amount of each periodic or lump-sum advance to the 
          consumer under the reverse mortgage transaction.
i = Percentage rate of the total annual loan cost per unit-period, 
          expressed as a decimal equivalent.
j = The number of unit-periods until the jth advance.
n = The number of unit-periods between consummation and repayment of the 
          debt.
Pn = Min (Baln, Valn). This is the 
          maximum amount that the creditor can be repaid at the 
          specified loan term.
Baln = Loan balance at time of repayment, including all costs 
          and fees incurred by the consumer (including any shared 
          appreciation or shared equity amount) compounded to time n at 
          the creditor's contract rate of interest.

[[Page 733]]

Valn = Val0(1 + [sigma])\y\, where Val0 
          is the property value at consummation, [sigma] is the assumed 
          annual rate of appreciation for the dwelling, and y is the 
          number of years in the assumed term. Valn must be 
          reduced by the amount of any equity reserved for the consumer 
          by agreement between the parties, or by 7 percent (or the 
          amount or percentage specified in the credit agreement), if 
          the amount required to be repaid is limited to the net 
          proceeds of sale.
[sigma] = The summation operator.

    Symbols used in the examples shown in this appendix are defined as 
follows:
[GRAPHIC] [TIFF OMITTED] TR22DE11.072

w = The number of unit-periods per year.
I = wi x 100 = the nominal total annual loan cost rate.

    (7) General equation. The total annual loan cost rate for a reverse 
mortgage transaction must be determined by first solving the following 
formula, which sets forth the relationship between the advances to the 
consumer and the amount owed to the creditor under the terms of the 
reverse mortgage agreement for the loan cost rate per unit-period (the 
loan cost rate per unit-period is then multiplied by the number of unit-
periods per year to obtain the total annual loan cost rate I; that is, I 
= wi):
[GRAPHIC] [TIFF OMITTED] TR22DE11.073

    (8) Solution of general equation by iteration process. (i) The 
general equation in paragraph (b)(7) of this appendix, when applied to a 
simple transaction for a reverse mortgage loan of equal monthly advances 
of $350 each, and with a total amount owed of $14,313.08 at an assumed 
repayment period of two years, takes the special form:
[GRAPHIC] [TIFF OMITTED] TR22DE11.074

Using the iteration procedures found in steps 1 through 4 of (b)(9)(i) 
of Appendix J of this part, the total annual loan cost rate, correct to 
two decimals, is 48.53%.

[[Page 734]]

    (ii) In using these iteration procedures, it is expected that 
calculators or computers will be programmed to carry all available 
decimals throughout the calculation and that enough iterations will be 
performed to make virtually certain that the total annual loan cost rate 
obtained, when rounded to two decimals, is correct. Total annual loan 
cost rates in the examples below were obtained by using a 10-digit 
programmable calculator and the iteration procedure described in 
Appendix J of this part.
    (9) Assumption for discretionary cash advances. If the consumer 
controls the timing of advances made after consummation (such as in a 
credit line arrangement), the creditor must use the general formula in 
paragraph (b)(7) of this appendix. The total annual loan cost rate shall 
be based on the assumption that 50 percent of the principal loan amount 
is advanced at closing, or in the case of an open-end transaction, at 
the time the consumer becomes obligated under the plan. Creditors shall 
assume the advances are made at the interest rate then in effect and 
that no further advances are made to, or repayments made by, the 
consumer during the term of the transaction or plan.
    (10) Assumption for variable-rate reverse mortgage transactions. If 
the interest rate for a reverse mortgage transaction may increase during 
the loan term and the amount or timing is not known at consummation, 
creditors shall base the disclosures on the initial interest rate in 
effect at the time the disclosures are provided.
    (11) Assumption for closing costs. In calculating the total annual 
loan cost rate, creditors shall assume all closing and other consumer 
costs are financed by the creditor.
    (c) Examples of total annual loan cost rate computations. (1) Lump-
sum advance at consummation.
Lump-sum advance to consumer at consummation: $30,000
Total of consumer's loan costs financed at consummation: $4,500
Contract interest rate: 11.60%
Estimated time of repayment (based on life expectancy of a consumer at 
age 78): 10 years
Appraised value of dwelling at consummation: $100,000
Assumed annual dwelling appreciation rate: 4%

P10 = Min (103,385.84, 137,662.72)
[GRAPHIC] [TIFF OMITTED] TR22DE11.075

i = .1317069438
Total annual loan cost rate (100(.1317069438 x 1)) = 13.17%
    (2) Monthly advance beginning at consummation.
Monthly advance to consumer, beginning at consummation: $492.51
Total of consumer's loan costs financed at consummation: $4,500
Contract interest rate: 9.00%
Estimated time of repayment (based on life expectancy of a consumer at 
age 78): 10 years
Appraised value of dwelling at consummation: $100,000
Assumed annual dwelling appreciation rate: 8%
[GRAPHIC] [TIFF OMITTED] TR22DE11.076

Total annual loan cost rate (100(.009061140 x 12)) = 10.87%
    (3) Lump sum advance at consummation and monthly advances 
thereafter.
Lump sum advance to consumer at consummation: $10,000
Monthly advance to consumer, beginning at consummation: $725
Total of consumer's loan costs financed at consummation: $4,500
Contract rate of interest: 8.5%

[[Page 735]]

Estimated time of repayment (based on life expectancy of a consumer at 
age 75): 12 years
Appraised value of dwelling at consummation: $100,000
Assumed annual dwelling appreciation rate: 8%
[GRAPHIC] [TIFF OMITTED] TR22DE11.077

Total annual loan cost rate (100(.007708844 x 12)) = 9.25%
    (d) Reverse mortgage model form and sample form. (1) Model form.

                       Total Annual Loan Cost Rate

                               Loan Terms

    Age of youngest borrower:
    Appraised property value:
    Interest rate:
    Monthly advance:
    Initial draw:
    Line of credit:

                          Initial Loan Charges

    Closing costs:
    Mortgage insurance premium:
    Annuity cost:

                          Monthly Loan Charges

    Servicing fee:

                             Other Charges:

    Mortgage insurance:
    Shared Appreciation:

                            Repayment Limits

----------------------------------------------------------------------------------------------------------------
                                                              Total annual loan cost rate
     Assumed annual appreciation     ---------------------------------------------------------------------------
              (percent)                                    [ ]-year loan      [ ]-year loan      [ ]-year loan
                                       2-year loan term        term]               term               term
----------------------------------------------------------------------------------------------------------------
0...................................  .................                [ ]  .................
4...................................  .................                [ ]  .................
8...................................  .................                [ ]  .................  .................
----------------------------------------------------------------------------------------------------------------

    The cost of any reverse mortgage loan depends on how long you keep 
the loan and how much your house appreciates in value. Generally, the 
longer you keep a reverse mortgage, the lower the total annual loan cost 
rate will be.
    This table shows the estimated cost of your reverse mortgage loan, 
expressed as an annual rate. It illustrates the cost for three [four] 
loan terms: 2 years, [half of life expectancy for someone your age,] 
that life expectancy, and 1.4 times that life expectancy. The table also 
shows the cost of the loan, assuming the value of your home appreciates 
at three different rates: 0%, 4% and 8%.
    The total annual loan cost rates in this table are based on the 
total charges associated with this loan. These charges typically include 
principal, interest, closing costs, mortgage insurance premiums, annuity 
costs, and servicing costs (but not costs when you sell the home).
    The rates in this table are estimates. Your actual cost may differ 
if, for example, the amount of your loan advances varies or the interest 
rate on your mortgage changes.
    Signing an Application or Receiving These Disclosures Does Not 
Require You To Complete This Loan
    (2) Sample Form.

                       Total Annual Loan Cost Rate

                               Loan Terms

    Age of youngest borrower: 75
    Appraised property value: $100,000
    Interest rate: 9%
    Monthly advance: $301.80
    Initial draw: $1,000
    Line of credit: $4,000

                          Initial Loan Charges

    Closing costs: $5,000
    Mortgage insurance premium: None
    Annuity cost: None

                          Monthly Loan Charges

    Servicing fee: None

                              Other Charges

    Mortgage insurance: None

[[Page 736]]

    Shared Appreciation: None

                            Repayment Limits

    Net proceeds estimated at 93% of projected home sale

----------------------------------------------------------------------------------------------------------------
                                                              Total annual loan cost rate
     Assumed annual appreciation     ---------------------------------------------------------------------------
              (percent)                2-year loan term   6-year loan term  12-year loan term  17-year loan term
                                          (percent)          (percent)           (percent)          (percent)
----------------------------------------------------------------------------------------------------------------
0...................................              39.00            [14.94]               9.86               3.87
4...................................              39.00            [14.94]              11.03              10.14
8...................................              39.00            [14.94]              11.03              10.20
----------------------------------------------------------------------------------------------------------------

    The cost of any reverse mortgage loan depends on how long you keep 
the loan and how much your house appreciates in value. Generally, the 
longer you keep a reverse mortgage, the lower the total annual loan cost 
rate will be.
    This table shows the estimated cost of your reverse mortgage loan, 
expressed as an annual rate. It illustrates the cost for three [four] 
loan terms: 2 years, [half of life expectancy for someone your age,] 
that life expectancy, and 1.4 times that life expectancy. The table also 
shows the cost of the loan, assuming the value of your home appreciates 
at three different rates: 0%, 4% and 8%.
    The total annual loan cost rates in this table are based on the 
total charges associated with this loan. These charges typically include 
principal, interest, closing costs, mortgage insurance premiums, annuity 
costs, and servicing costs (but not disposition costs--costs when you 
sell the home).
    The rates in this table are estimates. Your actual cost may differ 
if, for example, the amount of your loan advances varies or the interest 
rate on your mortgage changes.
    Signing an Application or Receiving These Disclosures Does Not 
Require You To Complete This Loan



 Sec. Appendix L to Part 1026--Assumed Loan Periods for Computations of 
                      Total Annual Loan Cost Rates

    (a) Required tables. In calculating the total annual loan cost rates 
in accordance with Appendix K of this part, creditors shall assume three 
loan periods, as determined by the following table.
    (b) Loan periods. (1) Loan Period 1 is a two-year loan period.
    (2) Loan Period 2 is the life expectancy in years of the youngest 
borrower to become obligated on the reverse mortgage loan, as shown in 
the U.S. Decennial Life Tables for 1979-1981 for females, rounded to the 
nearest whole year.
    (3) Loan Period 3 is the life expectancy figure in Loan Period 3, 
multiplied by 1.4 and rounded to the nearest full year (life expectancy 
figures at .5 have been rounded up to 1).
    (4) At the creditor's option, an additional period may be included, 
which is the life expectancy figure in Loan Period 2, multiplied by .5 
and rounded to the nearest full year (life expectancy figures at .5 have 
been rounded up to 1).

----------------------------------------------------------------------------------------------------------------
                                                           [Optional loan     Loan period 2
      Age of youngest  borrower         Loan period 1       period  (in     (life expectancy)    Loan period 3
                                          (in years)          years)]           (in years)         (in years)
----------------------------------------------------------------------------------------------------------------
62..................................                  2               [11]                 21                 29
63..................................                  2               [10]                 20                 28
64..................................                  2               [10]                 19                 27
65..................................                  2                [9]                 18                 25
66..................................                  2                [9]                 18                 25
67..................................                  2                [9]                 17                 24
68..................................                  2                [8]                 16                 22
69..................................                  2                [8]                 16                 22
70..................................                  2                [8]                 15                 21
71..................................                  2                [7]                 14                 20
72..................................                  2                [7]                 13                 18
73..................................                  2                [7]                 13                 18
74..................................                  2                [6]                 12                 17
75..................................                  2                [6]                 12                 17
76..................................                  2                [6]                 11                 15
77..................................                  2                [5]                 10                 14
78..................................                  2                [5]                 10                 14
79..................................                  2                [5]                  9                 13
80..................................                  2                [5]                  9                 13
81..................................                  2                [4]                  8                 11
82..................................                  2                [4]                  8                 11
83..................................                  2                [4]                  7                 10
84..................................                  2                [4]                  7                 10

[[Page 737]]

 
85..................................                  2                [3]                  6                  8
86..................................                  2                [3]                  6                  8
87..................................                  2                [3]                  6                  8
88..................................                  2                [3]                  5                  7
89..................................                  2                [3]                  5                  7
90..................................                  2                [3]                  5                  7
91..................................                  2                [2]                  4                  6
92..................................                  2                [2]                  4                  6
93..................................                  2                [2]                  4                  6
94..................................                  2                [2]                  4                  6
95 and over.........................                  2                [2]                  3                  4
----------------------------------------------------------------------------------------------------------------



          Sec. Appendix M1 to Part 1026--Repayment Disclosures

    (a) Definitions. (1) ``Promotional terms'' means terms of a 
cardholder's account that will expire in a fixed period of time, as set 
forth by the card issuer.
    (2) ``Deferred interest or similar plan'' means a plan where a 
consumer will not be obligated to pay interest that accrues on balances 
or transactions if those balances or transactions are paid in full prior 
to the expiration of a specified period of time.
    (b) Calculating minimum payment repayment estimates. (1) Minimum 
payment formulas. When calculating the minimum payment repayment 
estimate, card issuers must use the minimum payment formula(s) that 
apply to a cardholder's account. If more than one minimum payment 
formula applies to an account, the issuer must apply each minimum 
payment formula to the portion of the balance to which the formula 
applies. In this case, the issuer must disclose the longest repayment 
period calculated. For example, assume that an issuer uses one minimum 
payment formula to calculate the minimum payment amount for a general 
revolving feature, and another minimum payment formula to calculate the 
minimum payment amount for special purchases, such as a ``club plan 
purchase.'' Also, assume that based on a consumer's balances in these 
features and the annual percentage rates that apply to such features, 
the repayment period calculated pursuant to this Appendix for the 
general revolving feature is 5 years, while the repayment period 
calculated for the special purchase feature is 3 years. This issuer must 
disclose 5 years as the repayment period for the entire balance to the 
consumer. If any promotional terms related to payments apply to a 
cardholder's account, such as a deferred billing plan where minimum 
payments are not required for 12 months, card issuers may assume no 
promotional terms apply 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. Alternatively, during the promotional period, an issuer in 
calculating the minimum payment repayment estimate may apply the 
promotional minimum payment until it expires and then apply the minimum 
payment formula that applies after the promotional minimum payment 
expires. In the above example, an issuer could calculate the minimum 
payment repayment estimate during the promotional period by applying the 
$10 promotional minimum payment for the first six months and then 
applying the 2 percent or $20 (whichever is greater) minimum payment 
formula after the promotional minimum payment expires. 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.
    (2) Annual percentage rate. When calculating the minimum payment 
repayment estimate, a card issuer must use the annual percentage rates 
that apply to a cardholder's account, based on the portion of the 
balance to which the rate applies. If any promotional terms related to 
annual percentage rates apply to a cardholder's account, other than 
deferred interest or similar plans, a card issuer in calculating the 
minimum payment repayment estimate during the promotional period must 
apply the promotional annual percentage rate(s) until it expires and 
then must apply the rate that applies after the

[[Page 738]]

promotional rate(s) expires. If the rate that applies after the 
promotional rate(s) expires is a variable rate, a card issuer must 
calculate that rate based on the applicable index or formula. This 
variable rate is accurate if it was in effect within the last 30 days 
before the minimum payment repayment estimate is provided. For deferred 
interest plans or similar plans, if minimum payments under the deferred 
interest or similar plan will repay the balances or transactions in full 
prior to the expiration of the specified period of time, a card issuer 
must assume that the consumer will not be obligated to pay the accrued 
interest. This means, in calculating the minimum payment repayment 
estimate, the card issuer must apply a zero percent annual percentage 
rate to the balance subject to the deferred interest or similar plan. 
If, however, minimum payments under the deferred interest plan or 
similar plan may not repay the balances or transactions in full prior to 
the expiration of the specified period of time, a card issuer must 
assume that a consumer will not repay the balances or transactions in 
full prior to the expiration of the specified period of time and thus 
the consumer will be obligated to pay the accrued interest. This means, 
in calculating the minimum payment repayment estimate, the card issuer 
must apply the annual percentage rate at which interest is accruing to 
the balance subject to the deferred interest or similar plan.
    (3) Beginning balance. When calculating the minimum payment 
repayment estimate, a card issuer must use as the beginning balance the 
outstanding balance on a consumer's account as of the closing date of 
the last billing cycle. When calculating the minimum payment repayment 
estimate, a card issuer may round the beginning balance as described 
above to the nearest whole dollar.
    (4) Assumptions. When calculating the minimum payment repayment 
estimate, a card issuer for each of the terms below, may either make the 
following assumption about that term, or use the account term that 
applies to a consumer's account.
    (i) Only minimum monthly payments are made each month. In addition, 
minimum monthly payments are made each month--for example, a debt 
cancellation or suspension agreement, or skip payment feature does not 
apply to the account.
    (ii) No additional extensions of credit are obtained, such as new 
purchases, transactions, fees, charges or other activity. No refunds or 
rebates are given.
    (iii) The annual percentage rate or rates that apply to a 
cardholder's account will not change, through either the operation of a 
variable rate or the change to a rate, except as provided in paragraph 
(b)(2) of this Appendix. For example, if a penalty annual percentage 
rate currently applies to a consumer's account, a card issuer may assume 
that the penalty annual percentage rate will apply to the consumer's 
account indefinitely, even if the consumer may potentially return to a 
non-penalty annual percentage rate in the future under the account 
agreement.
    (iv) There is no grace period.
    (v) The final payment pays the account in full (i.e., there is no 
residual finance charge after the final month in a series of payments).
    (vi) The average daily balance method is used to calculate the 
balance.
    (vii) All months are the same length and leap year is ignored. A 
monthly or daily periodic rate may be assumed. If a daily periodic rate 
is assumed, the issuer may either assume (1) a year is 365 days long, 
and all months are 30.41667 days long, or (2) a year is 360 days long, 
and all months are 30 days long.
    (viii) Payments are credited either on the last day of the month or 
the last day of the billing cycle.
    (ix) Payments are allocated to lower annual percentage rate balances 
before higher annual percentage rate balances.
    (x) The account is not past due and the account balance does not 
exceed the credit limit.
    (xi) When calculating the minimum payment repayment estimate, the 
assumed payments, current balance and interest charges for each month 
may be rounded to the nearest cent, as shown in Appendix M2 to this 
part.
    (5) Tolerance. A minimum payment repayment estimate shall be 
considered accurate if it is not more than 2 months above or below the 
minimum payment repayment estimate determined in accordance with the 
guidance in this Appendix (prior to rounding described in Sec. 
1026.7(b)(12)(i)(B) and without use of the assumptions listed in 
paragraph (b)(4) of this Appendix to the extent a card issuer chooses 
instead to use the account terms that apply to a consumer's account). 
For example, assume the minimum payment repayment estimate calculated 
using the guidance in this Appendix is 28 months (2 years, 4 months), 
and the minimum payment repayment estimate calculated by the issuer is 
30 months (2 years, 6 months). The minimum payment repayment estimate 
should be disclosed as 2 years, due to the rounding rule set forth in 
Sec. 1026.7(b)(12)(i)(B). Nonetheless, based on the 30-month estimate, 
the issuer disclosed 3 years, based on that rounding rule. The issuer 
would be in compliance with this guidance by disclosing 3 years, instead 
of 2 years, because the issuer's estimate is within the 2 months' 
tolerance, prior to rounding. In addition, even if an issuer's estimate 
is more than 2 months above or below the minimum payment repayment 
estimate calculated using the guidance in this Appendix, so long as the 
issuer discloses the

[[Page 739]]

correct number of years to the consumer based on the rounding rule set 
forth in Sec. 1026.7(b)(12)(i)(B), the issuer would be in compliance 
with this guidance. For example, assume the minimum payment repayment 
estimate calculated using the guidance in this Appendix is 32 months (2 
years, 8 months), and the minimum payment repayment estimate calculated 
by the issuer is 38 months (3 years, 2 months). Under the rounding rule 
set forth in Sec. 1026.7(b)(12)(i)(B), both of these estimates would be 
rounded and disclosed to the consumer as 3 years. Thus, if the issuer 
disclosed 3 years to the consumer, the issuer would be in compliance 
with this guidance even though the minimum payment repayment estimate 
calculated by the issuer is outside the 2 months' tolerance amount.
    (c) Calculating the minimum payment total cost estimate. When 
calculating the minimum payment total cost estimate, a card issuer must 
total the dollar amount of the interest and principal that the consumer 
would pay if he or she made minimum payments for the length of time 
calculated as the minimum payment repayment estimate under paragraph (b) 
of this Appendix. The minimum payment total cost estimate is deemed to 
be accurate if it is based on a minimum payment repayment estimate that 
is within the tolerance guidance set forth in paragraph (b)(5) of this 
Appendix. For example, assume the minimum payment repayment estimate 
calculated using the guidance in this Appendix is 28 months (2 years, 4 
months), and the minimum payment repayment estimate calculated by the 
issuer is 30 months (2 years, 6 months). The minimum payment total cost 
estimate will be deemed accurate even if it is based on the 30 month 
estimate for length of repayment, because the issuer's minimum payment 
repayment estimate is within the 2 months' tolerance, prior to rounding. 
In addition, assume the minimum payment repayment estimate calculated 
under this Appendix is 32 months (2 years, 8 months), and the minimum 
payment repayment estimate calculated by the issuer is 38 months (3 
years, 2 months). Under the rounding rule set forth in Sec. 
1026.7(b)(12)(i)(B), both of these estimates would be rounded and 
disclosed to the consumer as 3 years. If the issuer based the minimum 
payment total cost estimate on 38 months (or any other minimum payment 
repayment estimate that would be rounded to 3 years), the minimum 
payment total cost estimate would be deemed to be accurate.
    (d) Calculating the estimated monthly payment for repayment in 36 
months. (1) In general. When calculating the estimated monthly payment 
for repayment in 36 months, a card issuer must calculate the estimated 
monthly payment amount that would be required to pay off the outstanding 
balance shown on the statement within 36 months, assuming the consumer 
paid the same amount each month for 36 months.
    (2) Weighted annual percentage rate. In calculating the estimated 
monthly payment for repayment in 36 months, an issuer may use a weighted 
annual percentage rate that is based on the annual percentage rates that 
apply to a cardholder's account and the portion of the balance to which 
the rate applies, as shown in Appendix M2 to this part. If a card issuer 
uses a weighted annual percentage rate and any promotional terms related 
to annual percentage rates apply to a cardholder's account, other than 
deferred interest plans or similar plans, in calculating the weighted 
annual percentage rate, the issuer must calculate a weighted average of 
the promotional rate and the rate that will apply after the promotional 
rate expires based on the percentage of 36 months each rate will apply, 
as shown in Appendix M2 to this part. For deferred interest plans or 
similar plans, if minimum payments under the deferred interest or 
similar plan will repay the balances or transactions in full prior to 
the expiration of the specified period of time, if a card issuer uses a 
weighted annual percentage rate, the card issuer must assume that the 
consumer will not be obligated to pay the accrued interest. This means, 
in calculating the weighted annual percentage rate, the card issuer must 
apply a zero percent annual percentage rate to the balance subject to 
the deferred interest or similar plan. If, however, minimum payments 
under the deferred interest plan or similar plan may not repay the 
balances or transactions in full prior to the expiration of the 
specified period of time, a card issuer in calculating the weighted 
annual percentage rate must assume that a consumer will not repay the 
balances or transactions in full prior to the expiration of the 
specified period of time and thus the consumer will be obligated to pay 
the accrued interest. This means, in calculating the weighted annual 
percentage rate, the card issuer must apply the annual percentage rate 
at which interest is accruing to the balance subject to the deferred 
interest or similar plan. A card issuer may use a method of calculating 
the estimated monthly payment for repayment in 36 months other than a 
weighted annual percentage rate, 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.
    (3) Assumptions. In calculating the estimated monthly payment for 
repayment in 36 months, a card issuer must use the same terms described 
in paragraph (b) of this Appendix, as appropriate.
    (4) Tolerance. An estimated monthly payment for repayment in 36 
months shall 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

[[Page 740]]

this Appendix (after rounding described in Sec. 
1026.7(b)(12)(i)(F)(1)(i)).
    (e) Calculating the total cost estimate for repayment in 36 months. 
When calculating the total cost estimate for repayment in 36 months, a 
card issuer must total the dollar amount of the interest and principal 
that the consumer would pay if he or she made the estimated monthly 
payment calculated under paragraph (d) of this appendix each month for 
36 months. The total cost estimate for repayment in 36 months shall be 
considered accurate if it is based on the estimated monthly payment for 
repayment in 36 months that is calculated in accordance with paragraph 
(d) of this appendix.
    (f) Calculating the savings estimate for repayment in 36 months. 
When calculating the savings estimate for repayment in 36 months, if a 
card issuer chooses under Sec. 1026.7(b)(12)(i) to round the 
disclosures to the nearest whole dollar when disclosing them on the 
periodic statement, the card issuer must calculate the savings estimate 
for repayment in 36 months by subtracting the total cost estimate for 
repayment in 36 months calculated under paragraph (e) of this appendix 
(rounded to the nearest whole dollar) from the minimum payment total 
cost estimate calculated under paragraph (c) of this appendix (rounded 
to the nearest whole dollar). If a card issuer chooses under Sec. 
1026.7(b)(12)(i), however, to round the disclosures to the nearest cent 
when disclosing them on the periodic statement, the card issuer must 
calculate the savings estimate for repayment in 36 months by subtracting 
the total cost estimate for repayment in 36 months calculated under 
paragraph (e) of this appendix (rounded to the nearest cent) from the 
minimum payment total cost estimate calculated under paragraph (c) of 
this appendix (rounded to the nearest cent). The savings estimate for 
repayment in 36 months shall be considered accurate if it is based on 
the total cost estimate for repayment in 36 months that is calculated in 
accordance with paragraph (e) of this appendix and the minimum payment 
total cost estimate calculated under paragraph (c) of this appendix.



    Sec. Appendix M2 to Part 1026--Sample Calculations of Repayment 
                               Disclosures

    The following is an example of how to calculate the minimum payment 
repayment estimate, the minimum payment total cost estimate, the 
estimated monthly payment for repayment in 36 months, the total cost 
estimate for repayment in 36 months, and the savings estimate for 
repayment in 36 months using the guidance in Appendix M1 to this part 
where three annual percentage rates apply (where one of the rates is a 
promotional APR), the total outstanding balance is $1000, and the 
minimum payment formula is 2 percent of the outstanding balance or $20, 
whichever is greater. The following calculation is written in SAS code.
    data one;
/*
Note:
pmt01 = estimated monthly payment to repay balance in 36 months 
          sumpmts36 = sum of payments for repayment in 36 months
month = number of months to repay total balance if making only minimum 
          payments
pmt = minimum monthly payment
fc = monthly finance charge
sumpmts = sum of payments for minimum payments
*/
* inputs;
* annual percentage rates; apr1 = 0.0; apr2 = 0.17; apr3 = 0.21; * 
          insert in ascending order;
* outstanding balances; cbal1 = 500; cbal2 = 250; cbal3 = 250;
* dollar minimum payment; dmin = 20;
* percent minimum payment; pmin = 0.02; * (0.02 + perrate);
* promotional rate information;
* last month for promotional rate; expm = 6; * = 0 if no promotional 
          rate;
* regular rate; rrate = .17; * = 0 if no promotional rate;
array apr(3); array perrate(3);
days = 365/12; * calculate days in month;
* calculate estimated monthly payment to pay off balances in 36 months, 
          and total cost of repaying balance in 36 months;
array xperrate(3);
do I = 1 to 3;
xperrate(I) = (apr(I)/365) * days; * calculate periodic rate;
end;
if expmgt 0 then xperrate1a = (expm/36) * xperrate1 + (1-(expm/36)) * 
          (rrate/365) * days; else xperrate1a = xperrate1;
tbal = cbal1 + cbal2 + cbal3;
perrate36 = (cbal1 * xperrate1a + cbal2 * xperrate2 + cbal3 * 
          xperrate3)/(cbal1 + cbal2 + cbal3);
* months to repay; dmonths = 36;
* initialize counters for sum of payments for repayment in 36 months; 
          Sumpmts36 = 0;
    pvaf = (1-(1 + perrate36) ** -dmonths)/perrate36; * calculate 
present value of annuity factor;
pmt01 = round(tbal/pvaf,0.01); * calculate monthly payment for 
          designated number of months;
sumpmts36 = pmt01 * 36;
* calculate time to repay and total cost of making minimum payments each 
          month;
* initialize counter for months, and sum of payments;
month = 0;
sumpmts = 0;
do I = 1 to 3;

[[Page 741]]

perrate(I) = (apr(I)/365) * days; * calculate periodic rate;
end;
put perrate1 = perrate2 = perrate3 =;
eins:
month = month + 1; * increment month counter;
pmt = round(pmin * tbal,0.01); * calculate payment as percentage of 
          balance;
if month geexpm and expm ne 0 then perrate1 = (rrate/365) * days;
if pmtltdmin then pmt = dmin; * set dollar minimum payment;
array xxxbal(3); array cbal(3);
do I = 1 to 3;
xxxbal(I) = round(cbal(I) * (1 + perrate(I)),0.01);
end;
fc = xxxbal1 + xxxbal2 + xxxbal3 - tbal;
if pmtgt (tbal + fc) then do;
do I = 1 to 3;
if cbal(I) gt 0 then pmt = round(cbal(I) * (1 + perrate(I)),0.01); * set 
          final payment amount;
end;
end;
if pmt le xxxbal1 then do;
cbal1 = xxxbal1 - pmt;
cbal2 = xxxbal2;
cbal3 = xxxbal3;
end;
if pmtgt xxxbal1 and xxxbal2 gt 0 and pmt le (xxxbal1 + xxxbal2) then 
          do;
cbal2 = xxxbal2 - (pmt - xxxbal1);
cbal1 = 0;
cbal3 = xxxbal3;
end;
if pmtgt xxxbal2 and xxxbal3 gt 0 then do;
cbal3 = xxxbal3 - (pmt - xxxbal1 - xxxbal2);
cbal2 = 0;
end;
sumpmts = sumpmts + pmt; * increment sum of payments;
tbal = cbal1 + cbal2 + cbal3; * calculate new total balance;
* print month, balance, payment amount, and finance charge;
put month = tbal = cbal1 = cbal2 = cbal3 = pmt = fc =;
if tbalgt 0 then go to eins; * go to next month if balance is greater 
          than zero;
* initialize total cost savings;
savtot = 0;
savtot = round(sumpmts,1)--round (sumpmts36,1);
* print number of months to repay debt if minimum payments made, final 
          balance (zero), total cost if minimum payments made, estimated 
          monthly payment for repayment in 36 months, total cost for 
          repayment in 36 months, and total savings if repaid in 36 
          months;
put title = ` ';
put title = `number of months to repay debt if minimum payment made, 
          final balance, total cost if minimum payments made, estimated 
          monthly payment for repayment in 36 months, total cost for 
          repayment in 36 months, and total savings if repaid in 36 
          months';
put month = tbal = sumpmts = pmt01 = sumpmts36 = savtot =;
put title = ` ';
run;



        Sec. Supplement I to Part 1026--Official Interpretations

                              Introduction

    1. Official status. This commentary is the vehicle by which the 
Bureau of Consumer Financial Protection issues official interpretations 
of Regulation Z. Good faith compliance with this commentary affords 
protection from liability under section 130(f) of the Truth in Lending 
Act. Section 130(f) (15 U.S.C. 1640) protects creditors from civil 
liability for any act done or omitted in good faith in conformity with 
any interpretation issued by a duly authorized official or employee of 
the Bureau of Consumer Financial Protection.
    2. Procedure for requesting interpretations. Under Appendix C of the 
regulation, anyone may request an official interpretation. 
Interpretations that are adopted will be incorporated in this commentary 
following publication in the Federal Register. No official 
interpretations are expected to be issued other than by means of this 
commentary.
    3. Rules of construction. (a) Lists that appear in the commentary 
may be exhaustive or illustrative; the appropriate construction should 
be clear from the context. In most cases, illustrative lists are 
introduced by phrases such as ``including, but not limited to,'' ``among 
other things,'' ``for example,'' or ``such as.''
    (b) Throughout the commentary, reference to ``this section'' or 
``this paragraph'' means the section or paragraph in the regulation that 
is the subject of the comment.
    4. Comment designations. Each comment in the commentary is 
identified by a number and the regulatory section or paragraph which it 
interprets. The comments are designated with as much specificity as 
possible according to the particular regulatory provision addressed. For 
example, some of the comments to Sec. 1026.18(b) are further divided by 
subparagraph, such as comment 18(b)(1)-1 and comment 18(b)(2)-1. In 
other cases, comments have more general application and are designated, 
for example, as comment 18-1 or comment 18(b)-1. This introduction may 
be cited as comments I-1 through I-4. Comments to the appendices may be 
cited, for example, as comment app. A-1.

[[Page 742]]

                           Subpart A--General

Section 1026.1--Authority, Purpose, Coverage, Organization, Enforcement 
                              and Liability

                              1(c) Coverage

    1. Foreign applicability. Regulation Z applies to all persons 
(including branches of foreign banks and sellers located in the United 
States) that extend consumer credit to residents (including resident 
aliens) of any state as defined in Sec. 1026.2. If an account is 
located in the United States and credit is extended to a U.S. resident, 
the transaction is subject to the regulation. This will be the case 
whether or not a particular advance or purchase on the account takes 
place in the United States and whether or not the extender of credit is 
chartered or based in the United States or a foreign country. For 
example, if a U.S. resident has a credit card account located in the 
consumer's state issued by a bank (whether U.S. or foreign-based), the 
account is covered by the regulation, including extensions of credit 
under the account that occur outside the United States. In contrast, if 
a U.S. resident residing or visiting abroad, or a foreign national 
abroad, opens a credit card account issued by a foreign branch of a U.S. 
bank, the account is not covered by the regulation.

          Section 1026.2--Definitions and Rules of Construction

                          2(a)(2) Advertisement

    1. Coverage. Only commercial messages that promote consumer credit 
transactions requiring disclosures are advertisements. Messages 
inviting, offering, or otherwise announcing generally to prospective 
customers the availability of credit transactions, whether in visual, 
oral, or print media, are covered by Regulation Z (12 CFR part 1026).
    i. Examples include:
    A. Messages in a newspaper, magazine, leaflet, promotional flyer, or 
catalog.
    B. Announcements on radio, television, or public address system.
    C. Electronic advertisements, such as on the Internet.
    D. Direct mail literature or other printed material on any exterior 
or interior sign.
    E. Point of sale displays.
    F. Telephone solicitations.
    G. Price tags that contain credit information.
    H. Letters sent to customers or potential customers as part of an 
organized solicitation of business.
    I. Messages on checking account statements offering auto loans at a 
stated annual percentage rate.
    J. Communications promoting a new open-end plan or closed-end 
transaction.
    ii. The term does not include:
    A. Direct personal contacts, such as follow-up letters, cost 
estimates for individual consumers, or oral or written communication 
relating to the negotiation of a specific transaction.
    B. Informational material, for example, interest-rate and loan-term 
memos, distributed only to business entities.
    C. Notices required by Federal or state law, if the law mandates 
that specific information be displayed and only the information so 
mandated is included in the notice.
    D. News articles the use of which is controlled by the news medium.
    E. Market-research or educational materials that do not solicit 
business.
    F. Communications about an existing credit account (for example, a 
promotion encouraging additional or different uses of an existing credit 
card account).
    2. Persons covered. All persons must comply with the advertising 
provisions in Sec. Sec. 1026.16 and 1026.24, not just those that meet 
the definition of creditor in Sec. 1026.2(a)(17). Thus, home builders, 
merchants, and others who are not themselves creditors must comply with 
the advertising provisions of the regulation if they advertise consumer 
credit transactions. However, under section 145 of the Act, the owner 
and the personnel of the medium in which an advertisement appears, or 
through which it is disseminated, are not subject to civil liability for 
violations.

                     2(a)(4) Billing Cycle or Cycle

    1. Intervals. In open-end credit plans, the billing cycle determines 
the intervals for which periodic disclosure statements are required; 
these intervals are also used as measuring points for other duties of 
the creditor. Typically, billing cycles are monthly, but they may be 
more frequent or less frequent (but not less frequent than quarterly).
    2. Creditors that do not bill. The term cycle is interchangeable 
with billing cycle for definitional purposes, since some creditors' 
cycles do not involve the sending of bills in the traditional sense but 
only statements of account activity. This is commonly the case with 
financial institutions when periodic payments are made through payroll 
deduction or through automatic debit of the consumer's asset account.
    3. Equal cycles. Although cycles must be equal, there is a 
permissible variance to account for weekends, holidays, and differences 
in the number of days in months. If the actual date of each statement 
does not vary by more than four days from a fixed ``day'' (for example, 
the third Thursday of each month) or ``date'' (for example, the 15th of 
each month) that the creditor regularly uses, the intervals between 
statements are considered equal. The requirement that cycles be equal 
applies even if the creditor applies a daily periodic rate to determine 
the finance charge. The requirement that intervals be

[[Page 743]]

equal does not apply to the first billing cycle on an open-end account 
(i.e., the time period between account opening and the generation of the 
first periodic statement) or to a transitional billing cycle that can 
occur if the creditor occasionally changes its billing cycles so as to 
establish a new statement day or date. (See comments 9(c)(1)-3 and 
9(c)(2)-3.)
    4. Payment reminder. The sending of a regular payment reminder 
(rather than a late payment notice) establishes a cycle for which the 
creditor must send periodic statements.

                          2(a)(6) Business Day

    1. Business function test. Activities that indicate that the 
creditor is open for substantially all of its business functions include 
the availability of personnel to make loan disbursements, to open new 
accounts, and to handle credit transaction inquiries. Activities that 
indicate that the creditor is not open for substantially all of its 
business functions include a retailer's merely accepting credit cards 
for purchases or a bank's having its customer-service windows open only 
for limited purposes such as deposits and withdrawals, bill paying, and 
related services.
    2. Rule for rescission, disclosures for certain mortgage 
transactions, and private education loans. A more precise rule for what 
is a business day (all calendar days except Sundays and the Federal 
legal holidays specified in 5 U.S.C. 6103(a)) applies when the right of 
rescission, the receipt of disclosures for certain dwelling-secured 
mortgage transactions under Sec. Sec. 1026.19(a)(1)(ii), 1026.19(a)(2), 
1026.31(c), or the receipt of disclosures for private education loans 
under Sec. 1026.46(d)(4) is involved. Four Federal legal holidays are 
identified in 5 U.S.C. 6103(a) by a specific date: New Year's Day, 
January 1; Independence Day, July 4; Veterans Day, November 11; and 
Christmas Day, December 25. When one of these holidays (July 4, for 
example) falls on a Saturday, Federal offices and other entities might 
observe the holiday on the preceding Friday (July 3). In cases where the 
more precise rule applies, the observed holiday (in the example, July 3) 
is a business day.

                           2(a)(7) Card Issuer

    1. Agent. An agent of a card issuer is considered a card issuer. 
Because agency relationships are traditionally defined by contract and 
by state or other applicable law, the regulation does not define agent. 
Merely providing services relating to the production of credit cards or 
data processing for others, however, does not make one the agent of the 
card issuer. In contrast, a financial institution may become the agent 
of the card issuer if an agreement between the institution and the card 
issuer provides that the cardholder may use a line of credit with the 
financial institution to pay obligations incurred by use of the credit 
card.

                           2(a)(8) Cardholder

    1. General rule. A cardholder is a natural person at whose request a 
card is issued for consumer credit purposes or who is a co-obligor or 
guarantor for such a card issued to another. The second category does 
not include an employee who is a co-obligor or guarantor on a card 
issued to the employer for business purposes, nor does it include a 
person who is merely the authorized user of a card issued to another.
    2. Limited application of regulation. For the limited purposes of 
the rules on issuance of credit cards and liability for unauthorized 
use, a cardholder includes any person, including an organization, to 
whom a card is issued for any purpose--including a business, 
agricultural, or commercial purpose.
    3. Issuance. See the commentary to Sec. 1026.12(a).
    4. Dual-purpose cards and dual-card systems. Some card issuers offer 
dual-purpose cards that are for business as well as consumer purposes. 
If a card is issued to an individual for consumer purposes, the fact 
that an organization has guaranteed to pay the debt does not make it 
business credit. On the other hand, if a card is issued for business 
purposes, the fact that an individual sometimes uses it for consumer 
purchases does not subject the card issuer to the provisions on periodic 
statements, billing-error resolution, and other protections afforded to 
consumer credit. Some card issuers offer dual-card systems--that is, 
they issue two cards to the same individual, one intended for business 
use, the other for consumer or personal use. With such a system, the 
same person may be a cardholder for general purposes when using the card 
issued for consumer use, and a cardholder only for the limited purposes 
of the restrictions on issuance and liability when using the card issued 
for business purposes.

                           2(a)(9) Cash Price

    1. Components. This amount is a starting point in computing the 
amount financed and the total sale price under Sec. 1026.18 for credit 
sales. Any charges imposed equally in cash and credit transactions may 
be included in the cash price, or they may be treated as other amounts 
financed under Sec. 1026.18(b)(2).
    2. Service contracts. Service contracts include contracts for the 
repair or the servicing of goods, such as mechanical breakdown coverage, 
even if such a contract is characterized as insurance under state law.
    3. Rebates. The creditor has complete flexibility in the way it 
treats rebates for purposes of disclosure and calculation. (See the 
commentary to Sec. 1026.18(b).)

[[Page 744]]

                       2(a)(10) Closed-End Credit

    1. General. The coverage of this term is defined by exclusion. That 
is, it includes any credit arrangement that does not fall within the 
definition of open-end credit. Subpart C contains the disclosure rules 
for closed-end credit when the obligation is subject to a finance charge 
or is payable by written agreement in more than four installments.

                            2(a)(11) Consumer

    1. Scope. Guarantors, endorsers, and sureties are not generally 
consumers for purposes of the regulation, but they may be entitled to 
rescind under certain circumstances and they may have certain rights if 
they are obligated on credit card plans.
    2. Rescission rules. For purposes of rescission under Sec. Sec. 
1026.15 and 1026.23, a consumer includes any natural person whose 
ownership interest in his or her principal dwelling is subject to the 
risk of loss. Thus, if a security interest is taken in A's ownership 
interest in a house and that house is A's principal dwelling, A is a 
consumer for purposes of rescission, even if A is not liable, either 
primarily or secondarily, on the underlying consumer credit transaction. 
An ownership interest does not include, for example, leaseholds or 
inchoate rights, such as dower.
    3. Land trusts. Credit extended to land trusts, as described in the 
commentary to Sec. 1026.3(a), is considered to be extended to a natural 
person for purposes of the definition of consumer.

                        2(a)(12) Consumer Credit

    1. Primary purpose. There is no precise test for what constitutes 
credit offered or extended for personal, family, or household purposes, 
nor for what constitutes the primary purpose. (See, however, the 
discussion of business purposes in the commentary to Sec. 1026.3(a).)

                          2(a)(13) Consummation

    1. State law governs. When a contractual obligation on the 
consumer's part is created is a matter to be determined under applicable 
law; Regulation Z does not make this determination. A contractual 
commitment agreement, for example, that under applicable law binds the 
consumer to the credit terms would be consummation. Consummation, 
however, does not occur merely because the consumer has made some 
financial investment in the transaction (for example, by paying a 
nonrefundable fee) unless, of course, applicable law holds otherwise.
    2. Credit v. sale. Consummation does not occur when the consumer 
becomes contractually committed to a sale transaction, unless the 
consumer also becomes legally obligated to accept a particular credit 
arrangement. For example, when a consumer pays a nonrefundable deposit 
to purchase an automobile, a purchase contract may be created, but 
consummation for purposes of the regulation does not occur unless the 
consumer also contracts for financing at that time.

                             2(a)(14) Credit

    1. Exclusions. The following situations are not considered credit 
for purposes of the regulation:
    i. Layaway plans, unless the consumer is contractually obligated to 
continue making payments. Whether the consumer is so obligated is a 
matter to be determined under applicable law. The fact that the consumer 
is not entitled to a refund of any amounts paid towards the cash price 
of the merchandise does not bring layaways within the definition of 
credit.
    ii. Tax liens, tax assessments, court judgments, and court approvals 
of reaffirmation of debts in bankruptcy. However, third-party financing 
of such obligations (for example, a bank loan obtained to pay off a tax 
lien) is credit for purposes of the regulation.
    iii. Insurance premium plans that involve payment in installments 
with each installment representing the payment for insurance coverage 
for a certain future period of time, unless the consumer is 
contractually obligated to continue making payments.
    iv. Home improvement transactions that involve progress payments, if 
the consumer pays, as the work progresses, only for work completed and 
has no contractual obligation to continue making payments.
    v. Borrowing against the accrued cash value of an insurance policy 
or a pension account, if there is no independent obligation to repay.
    vi. Letters of credit.
    vii. The execution of option contracts. However, there may be an 
extension of credit when the option is exercised, if there is an 
agreement at that time to defer payment of a debt.
    viii. Investment plans in which the party extending capital to the 
consumer risks the loss of the capital advanced. This includes, for 
example, an arrangement with a home purchaser in which the investor pays 
a portion of the downpayment and of the periodic mortgage payments in 
return for an ownership interest in the property, and shares in any gain 
or loss of property value.
    ix. Mortgage assistance plans administered by a government agency in 
which a portion of the consumer's monthly payment amount is paid by the 
agency. No finance charge is imposed on the subsidy amount, and that 
amount is due in a lump-sum payment on a set date or upon the occurrence 
of certain events. (If payment is not made when due, a new note imposing 
a finance charge may be written, which may then be subject to the 
regulation.)

[[Page 745]]

    2. Payday loans; deferred presentment. Credit includes a transaction 
in which a cash advance is made to a consumer in exchange for the 
consumer's personal check, or in exchange for the consumer's 
authorization to debit the consumer's deposit account, and where the 
parties agree either that the check will not be cashed or deposited, or 
that the consumer's deposit account will not be debited, until a 
designated future date. This type of transaction is often referred to as 
a ``payday loan'' or ``payday advance'' or ``deferred-presentment 
loan.'' A fee charged in connection with such a transaction may be a 
finance charge for purposes of Sec. 1026.4, regardless of how the fee 
is characterized under state law. Where the fee charged constitutes a 
finance charge under Sec. 1026.4 and the person advancing funds 
regularly extends consumer credit, that person is a creditor and is 
required to provide disclosures consistent with the requirements of 
Regulation Z. (See Sec. 1026.2(a)(17).)

                           Paragraph 2(a)(15)

    1. Usable from time to time. A credit card must be usable from time 
to time. Since this involves the possibility of repeated use of a single 
device, checks and similar instruments that can be used only once to 
obtain a single credit extension are not credit cards.
    2. Examples. i. Examples of credit cards include:
    A. A card that guarantees checks or similar instruments, if the 
asset account is also tied to an overdraft line or if the instrument 
directly accesses a line of credit.
    B. A card that accesses both a credit and an asset account (that is, 
a debit-credit card).
    C. An identification card that permits the consumer to defer payment 
on a purchase.
    D. An identification card indicating loan approval that is presented 
to a merchant or to a lender, whether or not the consumer signs a 
separate promissory note for each credit extension.
    E. A card or device that can be activated upon receipt to access 
credit, even if the card has a substantive use other than credit, such 
as a purchase-price discount card. Such a card or device is a credit 
card notwithstanding the fact that the recipient must first contact the 
card issuer to access or activate the credit feature.
    ii. In contrast, credit card does not include, for example:
    A. A check-guarantee or debit card with no credit feature or 
agreement, even if the creditor occasionally honors an inadvertent 
overdraft.
    B. Any card, key, plate, or other device that is used in order to 
obtain petroleum products for business purposes from a wholesale 
distribution facility or to gain access to that facility, and that is 
required to be used without regard to payment terms.
    C. An account number that accesses a credit account, unless the 
account number can access an open-end line of credit to purchase goods 
or services. For example, if a creditor provides a consumer with an 
open-end line of credit that can be accessed by an account number in 
order to transfer funds into another account (such as an asset account 
with the same creditor), the account number is not a credit card for 
purposes of Sec. 1026.2(a)(15)(i). However, if the account number can 
also access the line of credit to purchase goods or services (such as an 
account number that can be used to purchase goods or services on the 
Internet), the account number is a credit card for purposes of Sec. 
1026.2(a)(15)(i), regardless of whether the creditor treats such 
transactions as purchases, cash advances, or some other type of 
transaction. Furthermore, if the line of credit can also be accessed by 
a card (such as a debit card), that card is a credit card for purposes 
of Sec. 1026.2(a)(15)(i).
    3. Charge card. Generally, charge cards are cards used in connection 
with an account on which outstanding balances cannot be carried from one 
billing cycle to another and are payable when a periodic statement is 
received. Under the regulation, a reference to credit cards generally 
includes charge cards. In particular, references to credit card accounts 
under an open-end (not home-secured) consumer credit plan in Subparts B 
and G generally include charge cards. The term charge card is, however, 
distinguished from credit card or credit card account under an open-end 
(not home-secured) consumer credit plan in Sec. Sec. 1026.60, 
1026.6(b)(2)(xiv), 1026.7(b)(11), 1026.7(b)(12), 1026.9(e), 1026.9(f), 
1026.28(d), 1026.52(b)(1)(ii)(C), and Appendices G-10 through G-13.
    4. Credit card account under an open-end (not home-secured) consumer 
credit plan. An open-end consumer credit account is a credit card 
account under an open-end (not home-secured) consumer credit plan for 
purposes of Sec. 1026.2(a)(15)(ii) if:
    i. The account is accessed by a credit card, as defined in Sec. 
1026.2(a)(15)(i); and
    ii. The account is not excluded under Sec. 1026.2(a)(15)(ii)(A) or 
(a)(15)(ii)(B).

                          2(a)(16) Credit Sale

    1. Special disclosure. If the seller is a creditor in the 
transaction, the transaction is a credit sale and the special credit 
sale disclosures (that is, the disclosures under Sec. 1026.18(j)) must 
be given. This applies even if there is more than one creditor in the 
transaction and the creditor making the disclosures is not the seller. 
(See the commentary to Sec. 1026.17(d).)
    2. Sellers who arrange credit. If the seller of the property or 
services involved arranged for financing but is not a creditor as to 
that sale, the transaction is not a credit sale.

[[Page 746]]

Thus, if a seller assists the consumer in obtaining a direct loan from a 
financial institution and the consumer's note is payable to the 
financial institution, the transaction is a loan and only the financial 
institution is a creditor.
    3. Refinancings. Generally, when a credit sale is refinanced within 
the meaning of Sec. 1026.20(a), loan disclosures should be made. 
However, if a new sale of goods or services is also involved, the 
transaction is a credit sale.
    4. Incidental sales. Some lenders sell a product or service--such as 
credit, property, or health insurance--as part of a loan transaction. 
Section 1026.4 contains the rules on whether the cost of credit life, 
disability or property insurance is part of the finance charge. If the 
insurance is financed, it may be disclosed as a separate credit-sale 
transaction or disclosed as part of the primary transaction; if the 
latter approach is taken, either loan or credit-sale disclosures may be 
made. (See the commentary to Sec. 1026.17(c)(1) for further discussion 
of this point.)
    5. Credit extensions for educational purposes. A credit extension 
for educational purposes in which an educational institution is the 
creditor may be treated as either a credit sale or a loan, regardless of 
whether the funds are given directly to the student, credited to the 
student's account, or disbursed to other persons on the student's 
behalf. The disclosure of the total sale price need not be given if the 
transaction is treated as a loan.

                            2(a)(17) Creditor

    1. General. The definition contains four independent tests. If any 
one of the tests is met, the person is a creditor for purposes of that 
particular test.

                          Paragraph 2(a)(17)(i)

    1. Prerequisites. This test is composed of two requirements, both of 
which must be met in order for a particular credit extension to be 
subject to the regulation and for the credit extension to count towards 
satisfaction of the numerical tests mentioned in Sec. 1026.2(a)(17)(v).
    i. First, there must be either or both of the following:
    A. A written (rather than oral) agreement to pay in more than four 
installments. A letter that merely confirms an oral agreement does not 
constitute a written agreement for purposes of the definition.
    B. A finance charge imposed for the credit. The obligation to pay 
the finance charge need not be in writing.
    ii. Second, the obligation must be payable to the person in order 
for that person to be considered a creditor. If an obligation is made 
payable to bearer, the creditor is the one who initially accepts the 
obligation.
    2. Assignees. If an obligation is initially payable to one person, 
that person is the creditor even if the obligation by its terms is 
simultaneously assigned to another person. For example:
    i. An auto dealer and a bank have a business relationship in which 
the bank supplies the dealer with credit sale contracts that are 
initially made payable to the dealer and provide for the immediate 
assignment of the obligation to the bank. The dealer and purchaser 
execute the contract only after the bank approves the creditworthiness 
of the purchaser. Because the obligation is initially payable on its 
face to the dealer, the dealer is the only creditor in the transaction.
    3. Numerical tests. The examples below illustrate how the numerical 
tests of Sec. 1026.2(a)(17)(v) are applied. The examples assume that 
consumer credit with a finance charge or written agreement for more than 
4 installments was extended in the years in question and that the person 
did not extend such credit in 2006.
    4. Counting transactions. For purposes of closed-end credit, the 
creditor counts each credit transaction. For open-end credit, 
transactions means accounts, so that outstanding accounts are counted 
instead of individual credit extensions. Normally the number of 
transactions is measured by the preceding calendar year; if the 
requisite number is met, then the person is a creditor for all 
transactions in the current year. However, if the person did not meet 
the test in the preceding year, the number of transactions is measured 
by the current calendar year. For example, if the person extends 
consumer credit 26 times in 2007, it is a creditor for purposes of the 
regulation for the last extension of credit in 2007 and for all 
extensions of consumer credit in 2008. On the other hand, if a business 
begins in 2007 and extends consumer credit 20 times, it is not a 
creditor for purposes of the regulation in 2007. If it extends consumer 
credit 75 times in 2008, however, it becomes a creditor for purposes of 
the regulation (and must begin making disclosures) after the 25th 
extension of credit in that year and is a creditor for all extensions of 
consumer credit in 2009.
    5. Relationship between consumer credit in general and credit 
secured by a dwelling. Extensions of credit secured by a dwelling are 
counted towards the 25-extensions test. For example, if in 2007 a person 
extends unsecured consumer credit 23 times and consumer credit secured 
by a dwelling twice, it becomes a creditor for the succeeding extensions 
of credit, whether or not they are secured by a dwelling. On the other 
hand, extensions of consumer credit not secured by a dwelling are not 
counted towards the number of credit extensions secured by a dwelling.

[[Page 747]]

For example, if in 2007 a person extends credit not secured by a 
dwelling 8 times and credit secured by a dwelling 3 times, it is not a 
creditor.
    6. Effect of satisfying one test. Once one of the numerical tests is 
satisfied, the person is also a creditor for the other type of credit. 
For example, in 2007 a person extends consumer credit secured by a 
dwelling 5 times. That person is a creditor for all succeeding credit 
extensions, whether they involve credit secured by a dwelling or not.
    7. Trusts. In the case of credit extended by trusts, each individual 
trust is considered a separate entity for purposes of applying the 
criteria. For example:
    i. A bank is the trustee for three trusts. Trust A makes 15 
extensions of consumer credit annually; Trust B makes 10 extensions of 
consumer credit annually; and Trust C makes 30 extensions of consumer 
credit annually. Only Trust C is a creditor for purposes of the 
regulation.

                    Paragraph 2(a)(17)(ii) [Reserved]

                         Paragraph 2(a)(17)(iii)

    1. Card issuers subject to Subpart B. Section 1026.2(a)(17)(iii) 
makes certain card issuers creditors for purposes of the open-end credit 
provisions of the regulation. This includes, for example, the issuers of 
so-called travel and entertainment cards that expect repayment at the 
first billing and do not impose a finance charge. Since all disclosures 
are to be made only as applicable, such card issuers would omit finance 
charge disclosures. Other provisions of the regulation regarding such 
areas as scope, definitions, determination of which charges are finance 
charges, Spanish language disclosures, record retention, and use of 
model forms, also apply to such card issuers.

                         Paragraph 2(a)(17)(iv)

    1. Card issuers subject to Subparts B and C. Section 
1026.2(a)(17)(iv) includes as creditors card issuers extending closed-
end credit in which there is a finance charge or an agreement to pay in 
more than four installments. These card issuers are subject to the 
appropriate provisions of Subparts B and C, as well as to the general 
provisions.

                          2(a)(18) Downpayment

    1. Allocation. If a consumer makes a lump-sum payment, partially to 
reduce the cash price and partially to pay prepaid finance charges, only 
the portion attributable to reducing the cash price is part of the 
downpayment. (See the commentary to Sec. 1026.2(a)(23).)
    2. Pick-up payments. i. Creditors may treat the deferred portion of 
the downpayment, often referred to as pick-up payments, in a number of 
ways. If the pick-up payment is treated as part of the downpayment:
    A. It is subtracted in arriving at the amount financed under Sec. 
1026.18(b).
    B. It may, but need not, be reflected in the payment schedule under 
Sec. 1026.18(g).
    ii. If the pick-up payment does not meet the definition (for 
example, if it is payable after the second regularly scheduled payment) 
or if the creditor chooses not to treat it as part of the downpayment:
    A. It must be included in the amount financed.
    B. It must be shown in the payment schedule.
    iii. Whichever way the pick-up payment is treated, the total of 
payments under Sec. 1026.18(h) must equal the sum of the payments 
disclosed under Sec. 1026.18(g).
    3. Effect of existing liens. i. No cash payment. In a credit sale, 
the ``downpayment'' may only be used to reduce the cash price. For 
example, when a trade-in is used as the downpayment and the existing 
lien on an automobile to be traded in exceeds the value of the 
automobile, creditors must disclose a zero on the downpayment line 
rather than a negative number. To illustrate, assume a consumer owes 
$10,000 on an existing automobile loan and that the trade-in value of 
the automobile is only $8,000, leaving a $2,000 deficit. The creditor 
should disclose a downpayment of $0, not -$2,000.
    ii. Cash payment. If the consumer makes a cash payment, creditors 
may, at their option, disclose the entire cash payment as the 
downpayment, or apply the cash payment first to any excess lien amount 
and disclose any remaining cash as the downpayment. In the above 
example:
    A. If the downpayment disclosed is equal to the cash payment, the 
$2,000 deficit must be reflected as an additional amount financed under 
Sec. 1026.18(b)(2).
    B. If the consumer provides $1,500 in cash (which does not 
extinguish the $2,000 deficit), the creditor may disclose a downpayment 
of $1,500 or of $0.
    C. If the consumer provides $3,000 in cash, the creditor may 
disclose a downpayment of $3,000 or of $1,000.

                            2(a)(19) Dwelling

    1. Scope. A dwelling need not be the consumer's principal residence 
to fit the definition, and thus a vacation or second home could be a 
dwelling. However, for purposes of the definition of residential 
mortgage transaction and the right to rescind, a dwelling must be the 
principal residence of the consumer. (See the commentary to Sec. Sec. 
1026.2(a)(24), 1026.15, and 1026.23.)
    2. Use as a residence. Mobile homes, boats, and trailers are 
dwellings if they are in fact used as residences, just as are 
condominium and cooperative units. Recreational vehicles, campers, and 
the like not used as residences are not dwellings.

[[Page 748]]

    3. Relation to exemptions. Any transaction involving a security 
interest in a consumer's principal dwelling (as well as in any real 
property) remains subject to the regulation despite the general 
exemption in Sec. 1026.3(b).

                        2(a)(20) Open-End Credit

    1. General. This definition describes the characteristics of open-
end credit (for which the applicable disclosure and other rules are 
contained in Subpart B), as distinct from closed-end credit. Open-end 
credit is consumer credit that is extended under a plan and meets all 3 
criteria set forth in the definition.
    2. Existence of a plan. The definition requires that there be a 
plan, which connotes a contractual arrangement between the creditor and 
the consumer. Some creditors offer programs containing a number of 
different credit features. The consumer has a single account with the 
institution that can be accessed repeatedly via a number of sub-accounts 
established for the different program features and rate structures. Some 
features of the program might be used repeatedly (for example, an 
overdraft line) while others might be used infrequently (such as the 
part of the credit line available for secured credit). If the program as 
a whole is subject to prescribed terms and otherwise meets the 
definition of open-end credit, such a program would be considered a 
single, multifeatured plan.
    3. Repeated transactions. Under this criterion, the creditor must 
reasonably contemplate repeated transactions. This means that the credit 
plan must be usable from time to time and the creditor must legitimately 
expect that there will be repeat business rather than a one-time credit 
extension. The creditor must expect repeated dealings with consumers 
under the credit plan as a whole and need not believe a consumer will 
reuse a particular feature of the plan. The determination of whether a 
creditor can reasonably contemplate repeated transactions requires an 
objective analysis. Information that much of the creditor's customer 
base with accounts under the plan make repeated transactions over some 
period of time is relevant to the determination, particularly when the 
plan is opened primarily for the financing of infrequently purchased 
products or services. A standard based on reasonable belief by a 
creditor necessarily includes some margin for judgmental error. The fact 
that particular consumers do not return for further credit extensions 
does not prevent a plan from having been properly characterized as open-
end. For example, if much of the customer base of a clothing store makes 
repeat purchases, the fact that some consumers use the plan only once 
would not affect the characterization of the store's plan as open-end 
credit. The criterion regarding repeated transactions is a question of 
fact to be decided in the context of the creditor's type of business and 
the creditor's relationship with its customers. For example, it would be 
more reasonable for a bank or depository institution to contemplate 
repeated transactions with a customer than for a seller of aluminum 
siding to make the same assumption about its customers.
    4. Finance charge on an outstanding balance. The requirement that a 
finance charge may be computed and imposed from time to time on the 
outstanding balance means that there is no specific amount financed for 
the plan for which the finance charge, total of payments, and payment 
schedule can be calculated. A plan may meet the definition of open-end 
credit even though a finance charge is not normally imposed, provided 
the creditor has the right, under the plan, to impose a finance charge 
from time to time on the outstanding balance. For example, in some 
plans, a finance charge is not imposed if the consumer pays all or a 
specified portion of the outstanding balance within a given time period. 
Such a plan could meet the finance charge criterion, if the creditor has 
the right to impose a finance charge, even though the consumer actually 
pays no finance charges during the existence of the plan because the 
consumer takes advantage of the option to pay the balance (either in 
full or in installments) within the time necessary to avoid finance 
charges.
    5. Reusable line. The total amount of credit that may be extended 
during the existence of an open-end plan is unlimited because available 
credit is generally replenished as earlier advances are repaid. A line 
of credit is self-replenishing even though the plan itself has a fixed 
expiration date, as long as during the plan's existence the consumer may 
use the line, repay, and reuse the credit. The creditor may occasionally 
or routinely verify credit information such as the consumer's continued 
income and employment status or information for security purposes but, 
to meet the definition of open-end credit, such verification of credit 
information may not be done as a condition of granting a consumer's 
request for a particular advance under the plan. In general, a credit 
line is self-replenishing if the consumer can take further advances as 
outstanding balances are repaid without being required to separately 
apply for those additional advances. A credit card account where the 
plan as a whole replenishes meets the self-replenishing criterion, 
notwithstanding the fact that a credit card issuer may verify credit 
information from time to time in connection with specific transactions. 
This criterion of unlimited credit distinguishes open-end credit from a 
series of advances made pursuant to a closed-end credit loan commitment. 
For example:
    i. Under a closed-end commitment, the creditor might agree to lend a 
total of $10,000

[[Page 749]]

in a series of advances as needed by the consumer. When a consumer has 
borrowed the full $10,000, no more is advanced under that particular 
agreement, even if there has been repayment of a portion of the debt. 
(See Sec. 1026.2(a)(17)(iv) for disclosure requirements when a credit 
card is used to obtain the advances.)
    ii. This criterion does not mean that the creditor must establish a 
specific credit limit for the line of credit or that the line of credit 
must always be replenished to its original amount. The creditor may 
reduce a credit limit or refuse to extend new credit in a particular 
case due to changes in the creditor's financial condition or the 
consumer's creditworthiness. (The rules in Sec. 1026.40(f), however, 
limit the ability of a creditor to suspend credit advances for home 
equity plans.) While consumers should have a reasonable expectation of 
obtaining credit as long as they remain current and within any preset 
credit limits, further extensions of credit need not be an absolute 
right in order for the plan to meet the self-replenishing criterion.
    6. Verifications of collateral value. Creditors that otherwise meet 
the requirements of Sec. 1026.2(a)(20) extend open-end credit 
notwithstanding the fact that the creditor must verify collateral values 
to comply with Federal, state, or other applicable law or verifies the 
value of collateral in connection with a particular advance under the 
plan.
    7. Open-end real estate mortgages. Some credit plans call for 
negotiated advances under so-called open-end real estate mortgages. Each 
such plan must be independently measured against the definition of open-
end credit, regardless of the terminology used in the industry to 
describe the plan. The fact that a particular plan is called an open-end 
real estate mortgage, for example, does not, by itself, mean that it is 
open-end credit under the regulation.

                         2(a)(21) Periodic Rate

    1. Basis. The periodic rate may be stated as a percentage (for 
example, 1 and \1/2\% per month) or as a decimal equivalent (for 
example, .015 monthly). It may be based on any portion of a year the 
creditor chooses. Some creditors use 1/360 of an annual rate as their 
periodic rate. These creditors:
    i. May disclose a 1/360 rate as a daily periodic rate, without 
further explanation, if it is in fact only applied 360 days per year. 
But if the creditor applies that rate for 365 days, the creditor must 
note that fact and, of course, disclose the true annual percentage rate.
    ii. Would have to apply the rate to the balance to disclose the 
annual percentage rate with the degree of accuracy required in the 
regulation (that is, within \1/8\th of 1 percentage point of the rate 
based on the actual 365 days in the year).
    2. Transaction charges. Periodic rate does not include initial one-
time transaction charges, even if the charge is computed as a percentage 
of the transaction amount.

                             2(a)(22) Person

    1. Joint ventures. A joint venture is an organization and is 
therefore a person.
    2. Attorneys. An attorney and his or her client are considered to be 
the same person for purposes of this part when the attorney is acting 
within the scope of the attorney-client relationship with regard to a 
particular transaction.
    3. Trusts. A trust and its trustee are considered to be the same 
person for purposes of this part.

                     2(a)(23) Prepaid Finance Charge

    1. General. Prepaid finance charges must be taken into account under 
Sec. 1026.18(b) in computing the disclosed amount financed, and must be 
disclosed if the creditor provides an itemization of the amount financed 
under Sec. 1026.18(c).
    2. Examples. i. Common examples of prepaid finance charges include:
    A. Buyer's points.
    B. Service fees.
    C. Loan fees.
    D. Finder's fees.
    E. Loan-guarantee insurance.
    F. Credit-investigation fees.
    ii. However, in order for these or any other finance charges to be 
considered prepaid, they must be either paid separately in cash or check 
or withheld from the proceeds. Prepaid finance charges include any 
portion of the finance charge paid prior to or at closing or settlement.
    3. Exclusions. Add-on and discount finance charges are not prepaid 
finance charges for purposes of this part. Finance charges are not 
prepaid merely because they are precomputed, whether or not a portion of 
the charge will be rebated to the consumer upon prepayment. (See the 
commentary to Sec. 1026.18(b).)
    4. Allocation of lump-sum payments. In a credit sale transaction 
involving a lump-sum payment by the consumer and a discount or other 
item that is a finance charge under Sec. 1026.4, the discount or other 
item is a prepaid finance charge to the extent the lump-sum payment is 
not applied to the cash price. For example, a seller sells property to a 
consumer for $10,000, requires the consumer to pay $3,000 at the time of 
the purchase, and finances the remainder as a closed-end credit 
transaction. The cash price of the property is $9,000. The seller is the 
creditor in the transaction and therefore the $1,000 difference between 
the credit and cash prices (the discount) is a finance charge. (See the 
commentary to Sec. 1026.4(b)(9) and (c)(5).) If the creditor applies 
the entire $3,000 to the cash

[[Page 750]]

price and adds the $1,000 finance charge to the interest on the $6,000 
to arrive at the total finance charge, all of the $3,000 lump-sum 
payment is a downpayment and the discount is not a prepaid finance 
charge. However, if the creditor only applies $2,000 of the lump-sum 
payment to the cash price, then $2,000 of the $3,000 is a downpayment 
and the $1,000 discount is a prepaid finance charge.

                2(a)(24) Residential Mortgage Transaction

    1. Relation to other sections. This term is important in five 
provisions in the regulation:
    i. Section 1026.4(c)(7)--exclusions from the finance charge.
    ii. Section 1026.15(f)--exemption from the right of rescission.
    iii. Section 1026.18(q)--whether or not the obligation is assumable.
    iv. Section 1026.20(b)--disclosure requirements for assumptions.
    v. Section 1026.23(f)--exemption from the right of rescission.
    2. Lien status. The definition is not limited to first lien 
transactions. For example, a consumer might assume a paid-down first 
mortgage (or borrow part of the purchase price) and borrow the balance 
of the purchase price from a creditor who takes a second mortgage. The 
second mortgage transaction is a residential mortgage transaction if the 
dwelling purchased is the consumer's principal residence.
    3. Principal dwelling. A consumer can have only one principal 
dwelling at a time. Thus, a vacation or other second home would not be a 
principal dwelling. However, if a consumer buys or builds a new dwelling 
that will become the consumer's principal dwelling within a year or upon 
the completion of construction, the new dwelling is considered the 
principal dwelling for purposes of applying this definition to a 
particular transaction. (See the commentary to Sec. Sec. 1026.15(a) and 
1026.23(a).)
    4. Construction financing. If a transaction meets the definition of 
a residential mortgage transaction and the creditor chooses to disclose 
it as several transactions under Sec. 1026.17(c)(6), each one is 
considered to be a residential mortgage transaction, even if different 
creditors are involved. For example:
    i. The creditor makes a construction loan to finance the initial 
construction of the consumer's principal dwelling, and the loan will be 
disbursed in five advances. The creditor gives six sets of disclosures 
(five for the construction phase and one for the permanent phase). Each 
one is a residential mortgage transaction.
    ii. One creditor finances the initial construction of the consumer's 
principal dwelling and another creditor makes a loan to satisfy the 
construction loan and provide permanent financing. Both transactions are 
residential mortgage transactions.
    5. Acquisition. i. A residential mortgage transaction finances the 
acquisition of a consumer's principal dwelling. The term does not 
include a transaction involving a consumer's principal dwelling if the 
consumer had previously purchased and acquired some interest to the 
dwelling, even though the consumer had not acquired full legal title.
    ii. Examples of new transactions involving a previously acquired 
dwelling include the financing of a balloon payment due under a land 
sale contract and an extension of credit made to a joint owner of 
property to buy out the other joint owner's interest. In these 
instances, disclosures are not required under Sec. 1026.18(q) 
(assumability policies). However, the rescission rules of Sec. Sec. 
1026.15 and 1026.23 do apply to these new transactions.
    iii. In other cases, the disclosure and rescission rules do not 
apply. For example, where a buyer enters into a written agreement with 
the creditor holding the seller's mortgage, allowing the buyer to assume 
the mortgage, if the buyer had previously purchased the property and 
agreed with the seller to make the mortgage payments, Sec. 1026.20(b) 
does not apply (assumptions involving residential mortgages).
    6. Multiple purpose transactions. A transaction meets the definition 
of this section if any part of the loan proceeds will be used to finance 
the acquisition or initial construction of the consumer's principal 
dwelling. For example, a transaction to finance the initial construction 
of the consumer's principal dwelling is a residential mortgage 
transaction even if a portion of the funds will be disbursed directly to 
the consumer or used to satisfy a loan for the purchase of the land on 
which the dwelling will be built.
    7. Construction on previously acquired vacant land. A residential 
mortgage transaction includes a loan to finance the construction of a 
consumer's principal dwelling on a vacant lot previously acquired by the 
consumer.

                       2(a)(25) Security Interest

    1. Threshold test. The threshold test is whether a particular 
interest in property is recognized as a security interest under 
applicable law. The regulation does not determine whether a particular 
interest is a security interest under applicable law. If the creditor is 
unsure whether a particular interest is a security interest under 
applicable law (for example, if statutes and case law are either silent 
or inconclusive on the issue), the creditor may at its option consider 
such interests as security interests for Truth in Lending purposes. 
However, the regulation and the commentary do exclude specific 
interests, such as after-acquired property and accessories, from the 
scope of the definition regardless of their categorization under 
applicable law, and these named exclusions may not be disclosed as 
security interests under

[[Page 751]]

the regulation. (But see the discussion of exclusions elsewhere in the 
commentary to Sec. 1026.2(a)(25).)
    2. Exclusions. The general definition of security interest excludes 
three groups of interests: incidental interests, interests in after-
acquired property, and interests that arise solely by operation of law. 
These interests may not be disclosed with the disclosures required under 
Sec. 1026.18, but the creditor is not precluded from preserving these 
rights elsewhere in the contract documents, or invoking and enforcing 
such rights, if it is otherwise lawful to do so. If the creditor is 
unsure whether a particular interest is one of the excluded interests, 
the creditor may, at its option, consider such interests as security 
interests for Truth in Lending purposes.
    3. Incidental interests. i. Incidental interests in property that 
are not security interests include, among other things:
    A. Assignment of rents.
    B. Right to condemnation proceeds.
    C. Interests in accessories and replacements.
    D. Interests in escrow accounts, such as for taxes and insurance.
    E. Waiver of homestead or personal property rights.
    ii. The notion of an incidental interest does not encompass an 
explicit security interest in an insurance policy if that policy is the 
primary collateral for the transaction--for example, in an insurance 
premium financing transaction.
    4. Operation of law. Interests that arise solely by operation of law 
are excluded from the general definition. Also excluded are interests 
arising by operation of law that are merely repeated or referred to in 
the contract. However, if the creditor has an interest that arises by 
operation of law, such as a vendor's lien, and takes an independent 
security interest in the same property, such as a UCC security interest, 
the latter interest is a disclosable security interest unless otherwise 
provided.
    5. Rescission rules. Security interests that arise solely by 
operation of law are security interests for purposes of rescission. 
Examples of such interests are mechanics' and materialmen's liens.
    6. Specificity of disclosure. A creditor need not separately 
disclose multiple security interests that it may hold in the same 
collateral. The creditor need only disclose that the transaction is 
secured by the collateral, even when security interests from prior 
transactions remain of record and a new security interest is taken in 
connection with the transaction. In disclosing the fact that the 
transaction is secured by the collateral, the creditor also need not 
disclose how the security interest arose. For example, in a closed-end 
credit transaction, a rescission notice need not specifically state that 
a new security interest is ``acquired'' or an existing security interest 
is ``retained'' in the transaction. The acquisition or retention of a 
security interest in the consumer's principal dwelling instead may be 
disclosed in a rescission notice with a general statement such as the 
following: ``Your home is the security for the new transaction.''

                       2(b) Rules of Construction

    1. [Reserved]
    2. Amount. The numerical amount must be a dollar amount unless 
otherwise indicated. For example, in a closed-end transaction (Subpart 
C), the amount financed and the amount of any payment must be expressed 
as a dollar amount. In some cases, an amount should be expressed as a 
percentage. For example, in disclosures provided before the first 
transaction under an open-end plan (Subpart B), creditors are permitted 
to explain how the amount of any finance charge will be determined; 
where a cash-advance fee (which is a finance charge) is a percentage of 
each cash advance, the amount of the finance charge for that fee is 
expressed as a percentage.

                   Section 1026.3--Exempt Transactions

    1. Relationship to Sec. 1026.12. The provisions in Sec. 1026.12(a) 
and (b) governing the issuance of credit cards and the limitations on 
liability for their unauthorized use apply to all credit cards, even if 
the credit cards are issued for use in connection with extensions of 
credit that otherwise are exempt under this section.

    3(a) Business, Commercial, Agricultural, or Organizational Credit

    1. Primary purposes. A creditor must determine in each case if the 
transaction is primarily for an exempt purpose. If some question exists 
as to the primary purpose for a credit extension, the creditor is, of 
course, free to make the disclosures, and the fact that disclosures are 
made under such circumstances is not controlling on the question of 
whether the transaction was exempt. (See comment 3(a)-2, however, with 
respect to credit cards.)
    2. Business purpose purchases. i. Business-purpose credit cards--
extensions of credit for consumer purposes. If a business-purpose credit 
card is issued to a person, the provisions of the regulation do not 
apply, other than as provided in Sec. Sec. 1026.12(a) and 1026.12(b), 
even if extensions of credit for consumer purposes are occasionally made 
using that business-purpose credit card. For example, the billing error 
provisions set forth in Sec. 1026.13 do not apply to consumer-purpose 
extensions of credit using a business-purpose credit card.
    ii. Consumer-purpose credit cards--extensions of credit for business 
purposes. If a consumer-purpose credit card is issued to a person, the 
provisions of the regulation apply, even to

[[Page 752]]

occasional extensions of credit for business purposes made using that 
consumer-purpose credit card. For example, a consumer may assert a 
billing error with respect to any extension of credit using a consumer-
purpose credit card, even if the specific extension of credit on such 
credit card or open-end credit plan that is the subject of the dispute 
was made for business purposes.
    3. Factors. In determining whether credit to finance an 
acquisition--such as securities, antiques, or art--is primarily for 
business or commercial purposes (as opposed to a consumer purpose), the 
following factors should be considered:
    i. General. A. The relationship of the borrower's primary occupation 
to the acquisition. The more closely related, the more likely it is to 
be business purpose.
    B. The degree to which the borrower will personally manage the 
acquisition. The more personal involvement there is, the more likely it 
is to be business purpose.
    C. The ratio of income from the acquisition to the total income of 
the borrower. The higher the ratio, the more likely it is to be business 
purpose.
    D. The size of the transaction. The larger the transaction, the more 
likely it is to be business purpose.
    E. The borrower's statement of purpose for the loan.
    ii. Business-purpose examples. Examples of business-purpose credit 
include:
    A. A loan to expand a business, even if it is secured by the 
borrower's residence or personal property.
    B. A loan to improve a principal residence by putting in a business 
office.
    C. A business account used occasionally for consumer purposes.
    iii. Consumer-purpose examples. Examples of consumer-purpose credit 
include:
    A. Credit extensions by a company to its employees or agents if the 
loans are used for personal purposes.
    B. A loan secured by a mechanic's tools to pay a child's tuition.
    C. A personal account used occasionally for business purposes.
    4. Non-owner-occupied rental property. Credit extended to acquire, 
improve, or maintain rental property (regardless of the number of 
housing units) that is not owner-occupied is deemed to be for business 
purposes. This includes, for example, the acquisition of a warehouse 
that will be leased or a single-family house that will be rented to 
another person to live in. If the owner expects to occupy the property 
for more than 14 days during the coming year, the property cannot be 
considered non-owner-occupied and this special rule will not apply. For 
example, a beach house that the owner will occupy for a month in the 
coming summer and rent out the rest of the year is owner occupied and is 
not governed by this special rule. (See comment 3(a)-5, however, for 
rules relating to owner-occupied rental property.)
    5. Owner-occupied rental property. If credit is extended to acquire, 
improve, or maintain rental property that is or will be owner-occupied 
within the coming year, different rules apply:
    i. Credit extended to acquire the rental property is deemed to be 
for business purposes if it contains more than 2 housing units.
    ii. Credit extended to improve or maintain the rental property is 
deemed to be for business purposes if it contains more than 4 housing 
units. Since the amended statute defines dwelling to include 1 to 4 
housing units, this rule preserves the right of rescission for credit 
extended for purposes other than acquisition. Neither of these rules 
means that an extension of credit for property containing fewer than the 
requisite number of units is necessarily consumer credit. In such cases, 
the determination of whether it is business or consumer credit should be 
made by considering the factors listed in comment 3(a)-3.
    6. Business credit later refinanced. Business-purpose credit that is 
exempt from the regulation may later be rewritten for consumer purposes. 
Such a transaction is consumer credit requiring disclosures only if the 
existing obligation is satisfied and replaced by a new obligation made 
for consumer purposes undertaken by the same obligor.
    7. Credit card renewal. A consumer-purpose credit card that is 
subject to the regulation may be converted into a business-purpose 
credit card at the time of its renewal, and the resulting business-
purpose credit card would be exempt from the regulation. Conversely, a 
business-purpose credit card that is exempt from the regulation may be 
converted into a consumer-purpose credit card at the time of its 
renewal, and the resulting consumer-purpose credit card would be subject 
to the regulation.
    8. Agricultural purpose. An agricultural purpose includes the 
planting, propagating, nurturing, harvesting, catching, storing, 
exhibiting, marketing, transporting, processing, or manufacturing of 
food, beverages (including alcoholic beverages), flowers, trees, 
livestock, poultry, bees, wildlife, fish, or shellfish by a natural 
person engaged in farming, fishing, or growing crops, flowers, trees, 
livestock, poultry, bees, or wildlife. The exemption also applies to a 
transaction involving real property that includes a dwelling (for 
example, the purchase of a farm with a homestead) if the transaction is 
primarily for agricultural purposes.
    9. Organizational credit. The exemption for transactions in which 
the borrower is not a natural person applies, for example, to loans to 
corporations, partnerships, associations, churches, unions, and 
fraternal organizations. The exemption applies regardless of

[[Page 753]]

the purpose of the credit extension and regardless of the fact that a 
natural person may guarantee or provide security for the credit.
    10. Land trusts. Credit extended for consumer purposes to a land 
trust is considered to be credit extended to a natural person rather 
than credit extended to an organization. In some jurisdictions, a 
financial institution financing a residential real estate transaction 
for an individual uses a land trust mechanism. Title to the property is 
conveyed to the land trust for which the financial institution itself is 
trustee. The underlying installment note is executed by the financial 
institution in its capacity as trustee and payment is secured by a trust 
deed, reflecting title in the financial institution as trustee. In some 
instances, the consumer executes a personal guaranty of the 
indebtedness. The note provides that it is payable only out of the 
property specifically described in the trust deed and that the trustee 
has no personal liability on the note. Assuming the transactions are for 
personal, family, or household purposes, these transactions are subject 
to the regulation since in substance (if not form) consumer credit is 
being extended.

              3(b) Credit Over Applicable Threshold Amount

    1. Threshold amount. For purposes of Sec. 1026.3(b), the threshold 
amount in effect during a particular period is the amount stated below 
for that period. The threshold amount is adjusted effective January 1 of 
each year by any annual percentage increase in the Consumer Price Index 
for Urban Wage Earners and Clerical Workers (CPI-W) that was in effect 
on the preceding June 1. This comment will be amended to provide the 
threshold amount for the upcoming year after the annual percentage 
change in the CPI-W that was in effect on June 1 becomes available. Any 
increase in the threshold amount will be rounded to the nearest $100 
increment. For example, if the annual percentage increase in the CPI-W 
would result in a $950 increase in the threshold amount, the threshold 
amount will be increased by $1,000. However, if the annual percentage 
increase in the CPI-W would result in a $949 increase in the threshold 
amount, the threshold amount will be increased by $900.
    i. Prior to July 21, 2011, the threshold amount is $25,000.
    ii. From July 21, 2011 through December 31, 2011, the threshold 
amount is $50,000.
    iii. From January 1, 2012 through December 31, 2012, the threshold 
amount is $51,800.
    2. Open-end credit. i. Qualifying for exemption. An open-end account 
is exempt under Sec. 1026.3(b) (unless secured by any real property, or 
by personal property used or expected to be used as the consumer's 
principal dwelling) if either of the following conditions is met:
    A. The creditor makes an initial extension of credit at or after 
account opening that exceeds the threshold amount in effect at the time 
the initial extension is made. If a creditor makes an initial extension 
of credit after account opening that does not exceed the threshold 
amount in effect at the time the extension is made, the creditor must 
have satisfied all of the applicable requirements of this Part from the 
date the account was opened (or earlier, if applicable), including but 
not limited to the requirements of Sec. 1026.6 (account-opening 
disclosures), Sec. 1026.7 (periodic statements), Sec. 1026.52 
(limitations on fees), and Sec. 1026.55 (limitations on increasing 
annual percentages rates, fees, and charges). For example:
    1. Assume that the threshold amount in effect on January 1 is 
$50,000. On February 1, an account is opened but the creditor does not 
make an initial extension of credit at that time. On July 1, the 
creditor makes an initial extension of credit of $60,000. In this 
circumstance, no requirements of this Part apply to the account.
    2. Assume that the threshold amount in effect on January 1 is 
$50,000. On February 1, an account is opened but the creditor does not 
make an initial extension of credit at that time. On July 1, the 
creditor makes an initial extension of credit of $50,000 or less. In 
this circumstance, the account is not exempt and the creditor must have 
satisfied all of the applicable requirements of this Part from the date 
the account was opened (or earlier, if applicable).
    B. The creditor makes a firm written commitment at account opening 
to extend a total amount of credit in excess of the threshold amount in 
effect at the time the account is opened with no requirement of 
additional credit information for any advances on the account (except as 
permitted from time to time with respect to open-end accounts pursuant 
to Sec. 1026.2(a)(20)).
    ii. Subsequent changes generally. Subsequent changes to an open-end 
account or the threshold amount may result in the account no longer 
qualifying for the exemption in Sec. 1026.3(b). In these circumstances, 
the creditor must begin to comply with all of the applicable 
requirements of this Part within a reasonable period of time after the 
account ceases to be exempt. Once an account ceases to be exempt, the 
requirements of this Part apply to any balances on the account. The 
creditor, however, is not required to comply with the requirements of 
this Part with respect to the period of time during which the account 
was exempt. For example, if an open-end credit account ceases to be 
exempt, the creditor must within a reasonable period of time provide the 
disclosures required by

[[Page 754]]

Sec. 1026.6 reflecting the current terms of the account and begin to 
provide periodic statements consistent with Sec. 1026.7. However, the 
creditor is not required to disclose fees or charges imposed while the 
account was exempt. Furthermore, if the creditor provided disclosures 
consistent with the requirements of this Part while the account was 
exempt, it is not required to provide disclosures required by Sec. 
1026.6 reflecting the current terms of the account. See also comment 
3(b)-4.
    iii. Subsequent changes when exemption is based on initial extension 
of credit. If a creditor makes an initial extension of credit that 
exceeds the threshold amount in effect at that time, the open-end 
account remains exempt under Sec. 1026.3(b) regardless of a subsequent 
increase in the threshold amount, including an increase pursuant to 
Sec. 1026.3(b)(1)(ii) as a result of an increase in the CPI-W. 
Furthermore, in these circumstances, the account remains exempt even if 
there are no further extensions of credit, subsequent extensions of 
credit do not exceed the threshold amount, the account balance is 
subsequently reduced below the threshold amount (such as through 
repayment of the extension), or the credit limit for the account is 
subsequently reduced below the threshold amount. However, if the initial 
extension of credit on an account does not exceed the threshold amount 
in effect at the time of the extension, the account is not exempt under 
Sec. 1026.3(b) even if a subsequent extension exceeds the threshold 
amount or if the account balance later exceeds the threshold amount (for 
example, due to the subsequent accrual of interest).
    iv. Subsequent changes when exemption is based on firm commitment. 
A. General. If a creditor makes a firm written commitment at account 
opening to extend a total amount of credit that exceeds the threshold 
amount in effect at that time, the open-end account remains exempt under 
Sec. 1026.3(b) regardless of a subsequent increase in the threshold 
amount pursuant to Sec. 1026.3(b)(1)(ii) as a result of an increase in 
the CPI-W. However, see comment 3(b)-6 with respect to the increase in 
the threshold amount from $25,000 to $50,000. If an open-end account is 
exempt under Sec. 1026.3(b) based on a firm commitment to extend 
credit, the account remains exempt even if the amount of credit actually 
extended does not exceed the threshold amount. In contrast, if the firm 
commitment does not exceed the threshold amount at account opening, the 
account is not exempt under Sec. 1026.3(b) even if the account balance 
later exceeds the threshold amount. In addition, if a creditor reduces a 
firm commitment, the account ceases to be exempt unless the reduced firm 
commitment exceeds the threshold amount in effect at the time of the 
reduction. For example:
    1. Assume that, at account opening in year one, the threshold amount 
in effect is $50,000 and the account is exempt under Sec. 1026.3(b) 
based on the creditor's firm commitment to extend $55,000 in credit. If 
during year one the creditor reduces its firm commitment to $53,000, the 
account remains exempt under Sec. 1026.3(b). However, if during year 
one the creditor reduces its firm commitment to $40,000, the account is 
no longer exempt under Sec. 1026.3(b).
    2. Assume that, at account opening in year one, the threshold amount 
in effect is $50,000 and the account is exempt under Sec. 1026.3(b) 
based on the creditor's firm commitment to extend $55,000 in credit. If 
the threshold amount is $56,000 on January 1 of year six as a result of 
increases in the CPI-W, the account remains exempt. However, if the 
creditor reduces its firm commitment to $54,000 on July 1 of year six, 
the account ceases to be exempt under Sec. 1026.3(b).
    B. Initial extension of credit. If an open-end account qualifies for 
a Sec. 1026.3(b) exemption at account opening based on a firm 
commitment, that account may also subsequently qualify for a Sec. 
1026.3(b) exemption based on an initial extension of credit. However, 
that initial extension must be a single advance in excess of the 
threshold amount in effect at the time the extension is made. In 
addition, the account must continue to qualify for an exemption based on 
the firm commitment until the initial extension of credit is made. For 
example:
    1. Assume that, at account opening in year one, the threshold amount 
in effect is $50,000 and the account is exempt under Sec. 1026.3(b) 
based on the creditor's firm commitment to extend $55,000 in credit. The 
account is not used for an extension of credit during year one. On 
January 1 of year two, the threshold amount is increased to $51,000 
pursuant to Sec. 1026.3(b)(1)(ii) as a result of an increase in the 
CPI-W. On July 1 of year two, the consumer uses the account for an 
initial extension of $52,000. As a result of this extension of credit, 
the account remains exempt under Sec. 1026.3(b) even if, after July 1 
of year two, the creditor reduces the firm commitment to $51,000 or 
less.
    2. Same facts as in paragraph iv.B.1 above except that the consumer 
uses the account for an initial extension of $30,000 on July 1 of year 
two and for an extension of $22,000 on July 15 of year two. In these 
circumstances, the account is not exempt under Sec. 1026.3(b) based on 
the $30,000 initial extension of credit because that extension did not 
exceed the applicable threshold amount ($51,000), although the account 
remains exempt based on the firm commitment to extend $55,000 in credit.
    3. Same facts as in paragraph iv.B.1 above except that, on April 1 
of year two, the creditor reduces the firm commitment to $50,000, which 
is below the $51,000 threshold then in effect. Because the account 
ceases to qualify for a Sec. 1026.3(b) exemption on April 1 of year

[[Page 755]]

two, the account does not qualify for a Sec. 1026.3(b) exemption based 
on a $52,000 initial extension of credit on July 1 of year two.
    3. Closed-end credit. i. Qualifying for exemption. A closed-end loan 
is exempt under Sec. 1026.3(b) (unless the extension of credit is 
secured by any real property, or by personal property used or expected 
to be used as the consumer's principal dwelling; or is a private 
education loan as defined in Sec. 1026.46(b)(5)), if either of the 
following conditions is met:
    A. The creditor makes an extension of credit at consummation that 
exceeds the threshold amount in effect at the time of consummation. In 
these circumstances, the loan remains exempt under Sec. 1026.3(b) even 
if the amount owed is subsequently reduced below the threshold amount 
(such as through repayment of the loan).
    B. The creditor makes a commitment at consummation to extend a total 
amount of credit in excess of the threshold amount in effect at the time 
of consummation. In these circumstances, the loan remains exempt under 
Sec. 1026.3(b) even if the total amount of credit extended does not 
exceed the threshold amount.
    ii. Subsequent changes. If a creditor makes a closed-end extension 
of credit or commitment to extend closed-end credit that exceeds the 
threshold amount in effect at the time of consummation, the closed-end 
loan remains exempt under Sec. 1026.3(b) regardless of a subsequent 
increase in the threshold amount. However, a closed-end loan is not 
exempt under Sec. 1026.3(b) merely because it is used to satisfy and 
replace an existing exempt loan, unless the new extension of credit is 
itself exempt under the applicable threshold amount. For example, assume 
a closed-end loan that qualified for a Sec. 1026.3(b) exemption at 
consummation in year one is refinanced in year ten and that the new loan 
amount is less than the threshold amount in effect in year ten. In these 
circumstances, the creditor must comply with all of the applicable 
requirements of this Part with respect to the year ten transaction if 
the original loan is satisfied and replaced by the new loan, which is 
not exempt under Sec. 1026.3(b). See also comment 3(b)-4.
    4. Addition of a security interest in real property or a dwelling 
after account opening or consummation. i. Open-end credit. For open-end 
accounts, if, after account opening, a security interest is taken in any 
real property, or in personal property used or expected to be used as 
the consumer's principal dwelling, a previously exempt account ceases to 
be exempt under Sec. 1026.3(b) and the creditor must begin to comply 
with all of the applicable requirements of this Part within a reasonable 
period of time. See comment 3(b)-2.ii. If a security interest is taken 
in the consumer's principal dwelling, the creditor must also give the 
consumer the right to rescind the security interest consistent with 
Sec. 1026.15.
    ii. Closed-end credit. For closed-end loans, if, after consummation, 
a security interest is taken in any real property, or in personal 
property used or expected to be used as the consumer's principal 
dwelling, an exempt loan remains exempt under Sec. 1026.3(b). However, 
the addition of a security interest in the consumer's principal dwelling 
is a transaction for purposes of Sec. 1026.23 and the creditor must 
give the consumer the right to rescind the security interest consistent 
with that section. See Sec. 1026.23(a)(1) and the accompanying 
commentary. In contrast, if a closed-end loan that is exempt under Sec. 
1026.3(b) is satisfied and replaced by a loan that is secured by any 
real property, or by personal property used or expected to be used as 
the consumer's principal dwelling, the new loan is not exempt under 
Sec. 1026.3(b) and the creditor must comply with all of the applicable 
requirements of this Part. See comment 3(b)-3.
    5. Application to extensions secured by mobile homes. Because a 
mobile home can be a dwelling under Sec. 1026.2(a)(19), the exemption 
in Sec. 1026.3(b) does not apply to a credit extension secured by a 
mobile home that is used or expected to be used as the principal 
dwelling of the consumer. See comment 3(b)-4.
    6. Transition rule for open-end accounts exempt prior to July 21, 
2011. Section 1026.3(b)(2) applies only to open-end accounts opened 
prior to July 21, 2011. Section 1026.3(b)(2) does not apply if a 
security interest is taken by the creditor in any real property, or in 
personal property used or expected to be used as the consumer's 
principal dwelling. If, on July 20, 2011, an open-end account is exempt 
under Sec. 1026.3(b) based on a firm commitment to extend credit in 
excess of $25,000, the account remains exempt under Sec. 1026.3(b)(2) 
until December 31, 2011 (unless the firm commitment is reduced to 
$25,000 or less). If the firm commitment is increased on or before 
December 31, 2011 to an amount in excess of $50,000, the account remains 
exempt under Sec. 1026.3(b)(1) regardless of subsequent increases in 
the threshold amount as a result of increases in the CPI-W. If the firm 
commitment is not increased on or before December 31, 2011 to an amount 
in excess of $50,000, the account ceases to be exempt under Sec. 
1026.3(b) based on a firm commitment to extend credit. For example:
    i. Assume that, on July 20, 2011, the account is exempt under Sec. 
1026.3(b) based on the creditor's firm commitment to extend $30,000 in 
credit. On November 1, 2011, the creditor increases the firm commitment 
on the account to $55,000. In these circumstances, the account remains 
exempt under Sec. 1026.3(b)(1) regardless of subsequent increases in 
the threshold amount as a result of increases in the CPI-W.
    ii. Same facts as paragraph i above except, on November 1, 2011, the 
creditor increases the firm commitment on the account to

[[Page 756]]

$40,000. In these circumstances, the account ceases to be exempt under 
Sec. 1026.3(b)(2) after December 31, 2011, and the creditor must begin 
to comply with the applicable requirements of this Part.

                       3(c) Public Utility Credit

    1. Examples. Examples of public utility services include:
    i. General. A. Gas, water, or electrical services.
    B. Cable television services.
    C. Installation of new sewer lines, water lines, conduits, telephone 
poles, or metering equipment in an area not already serviced by the 
utility.
    ii. Extensions of credit not covered. The exemption does not apply 
to extensions of credit, for example:
    A. To purchase appliances such as gas or electric ranges, grills, or 
telephones.
    B. To finance home improvements such as new heating or air 
conditioning systems.

                 3(d) Securities or Commodities Accounts

    1. Coverage. This exemption does not apply to a transaction with a 
broker registered solely with the state, or to a separate credit 
extension in which the proceeds are used to purchase securities.

                       3(e) Home Fuel Budget Plans

    1. Definition. Under a typical home fuel budget plan, the fuel 
dealer estimates the total cost of fuel for the season, bills the 
customer for an average monthly payment, and makes an adjustment in the 
final payment for any difference between the estimated and the actual 
cost of the fuel. Fuel is delivered as needed, no finance charge is 
assessed, and the customer may withdraw from the plan at any time. Under 
these circumstances, the arrangement is exempt from the regulation, even 
if a charge to cover the billing costs is imposed.

                       3(f) Student Loan Programs

    1. Coverage. This exemption applies to loans made, insured, or 
guaranteed under Title IV of the Higher Education Act of 1965 (20 U.S.C. 
1070 et seq.). This exemption does not apply to private education loans 
as defined by Sec. 1026.46(b)(5).

                     Section 1026.4--Finance Charge

                             4(a) Definition

    1. Charges in comparable cash transactions. Charges imposed 
uniformly in cash and credit transactions are not finance charges. In 
determining whether an item is a finance charge, the creditor should 
compare the credit transaction in question with a similar cash 
transaction. A creditor financing the sale of property or services may 
compare charges with those payable in a similar cash transaction by the 
seller of the property or service.
    i. For example, the following items are not finance charges:
    A. Taxes, license fees, or registration fees paid by both cash and 
credit customers.
    B. Discounts that are available to cash and credit customers, such 
as quantity discounts.
    C. Discounts available to a particular group of consumers because 
they meet certain criteria, such as being members of an organization or 
having accounts at a particular financial institution. This is the case 
even if an individual must pay cash to obtain the discount, provided 
that credit customers who are members of the group and do not qualify 
for the discount pay no more than the nonmember cash customers.
    D. Charges for a service policy, auto club membership, or policy of 
insurance against latent defects offered to or required of both cash and 
credit customers for the same price.
    ii. In contrast, the following items are finance charges:
    A. Inspection and handling fees for the staged disbursement of 
construction-loan proceeds.
    B. Fees for preparing a Truth in Lending disclosure statement, if 
permitted by law (for example, the Real Estate Settlement Procedures Act 
prohibits such charges in certain transactions secured by real 
property).
    C. Charges for a required maintenance or service contract imposed 
only in a credit transaction.
    iii. If the charge in a credit transaction exceeds the charge 
imposed in a comparable cash transaction, only the difference is a 
finance charge. For example:
    A. If an escrow agent is used in both cash and credit sales of real 
estate and the agent's charge is $100 in a cash transaction and $150 in 
a credit transaction, only $50 is a finance charge.
    2. Costs of doing business. Charges absorbed by the creditor as a 
cost of doing business are not finance charges, even though the creditor 
may take such costs into consideration in determining the interest rate 
to be charged or the cash price of the property or service sold. 
However, if the creditor separately imposes a charge on the consumer to 
cover certain costs, the charge is a finance charge if it otherwise 
meets the definition. For example:
    i. A discount imposed on a credit obligation when it is assigned by 
a seller-creditor to another party is not a finance charge as long as 
the discount is not separately imposed on the consumer. (See Sec. 
1026.4(b)(6).)
    ii. A tax imposed by a state or other governmental body on a 
creditor is not a finance charge if the creditor absorbs the tax as a 
cost of doing business and does not separately impose the tax on the 
consumer. (For

[[Page 757]]

additional discussion of the treatment of taxes, see other commentary to 
Sec. 1026.4(a).)
    3. Forfeitures of interest. If the creditor reduces the interest 
rate it pays or stops paying interest on the consumer's deposit account 
or any portion of it for the term of a credit transaction (including, 
for example, an overdraft on a checking account or a loan secured by a 
certificate of deposit), the interest lost is a finance charge. (See the 
commentary to Sec. 1026.4(c)(6).) For example:
    i. A consumer borrows $5,000 for 90 days and secures it with a 
$10,000 certificate of deposit paying 15% interest. The creditor charges 
the consumer an interest rate of 6% on the loan and stops paying 
interest on $5,000 of the $10,000 certificate for the term of the loan. 
The interest lost is a finance charge and must be reflected in the 
annual percentage rate on the loan.
    ii. However, the consumer must be entitled to the interest that is 
not paid in order for the lost interest to be a finance charge. For 
example:
    A. A consumer wishes to buy from a financial institution a $10,000 
certificate of deposit paying 15% interest but has only $4,000. The 
financial institution offers to lend the consumer $6,000 at an interest 
rate of 6% but will pay the 15% interest only on the amount of the 
consumer's deposit, $4,000. The creditor's failure to pay interest on 
the $6,000 does not result in an additional finance charge on the 
extension of credit, provided the consumer is entitled by the deposit 
agreement with the financial institution to interest only on the amount 
of the consumer's deposit.
    B. A consumer enters into a combined time deposit/credit agreement 
with a financial institution that establishes a time deposit account and 
an open-end line of credit. The line of credit may be used to borrow 
against the funds in the time deposit. The agreement provides for an 
interest rate on any credit extension of, for example, 1%. In addition, 
the agreement states that the creditor will pay 0% interest on the 
amount of the time deposit that corresponds to the amount of the credit 
extension(s). The interest that is not paid on the time deposit by the 
financial institution is not a finance charge (and therefore does not 
affect the annual percentage rate computation).
    4. Treatment of transaction fees on credit card plans. Any 
transaction charge imposed on a cardholder by a card issuer is a finance 
charge, regardless of whether the issuer imposes the same, greater, or 
lesser charge on withdrawals of funds from an asset account such as a 
checking or savings account. For example:
    i. Any charge imposed on a credit cardholder by a card issuer for 
the use of an automated teller machine (ATM) to obtain a cash advance 
(whether in a proprietary, shared, interchange, or other system) is a 
finance charge regardless of whether the card issuer imposes a charge on 
its debit cardholders for using the ATM to withdraw cash from a consumer 
asset account, such as a checking or savings account.
    ii. Any charge imposed on a credit cardholder for making a purchase 
or obtaining a cash advance outside the United States, with a foreign 
merchant, or in a foreign currency is a finance charge, regardless of 
whether a charge is imposed on debit cardholders for such transactions. 
The following principles apply in determining what is a foreign 
transaction fee and the amount of the fee:
    A. Included are (1) fees imposed when transactions are made in a 
foreign currency and converted to U.S. dollars; (2) fees imposed when 
transactions are made in U.S. dollars outside the U.S.; and (3) fees 
imposed when transactions are made (whether in a foreign currency or in 
U.S. dollars) with a foreign merchant, such as via a merchant's Web 
site. For example, a consumer may use a credit card to make a purchase 
in Bermuda, in U.S. dollars, and the card issuer may impose a fee 
because the transaction took place outside the United States.
    B. Included are fees imposed by the card issuer and fees imposed by 
a third party that performs the conversion, such as a credit card 
network or the card issuer's corporate parent. (For example, in a 
transaction processed through a credit card network, the network may 
impose a 1 percent charge and the card-issuing bank may impose an 
additional 2 percent charge, for a total of a 3 percentage point foreign 
transaction fee being imposed on the consumer.)
    C. Fees imposed by a third party are included only if they are 
directly passed on to the consumer. For example, if a credit card 
network imposes a 1 percent fee on the card issuer, but the card issuer 
absorbs the fee as a cost of doing business (and only passes it on to 
consumers in the general sense that the interest and fees are imposed on 
all its customers to recover its costs), then the fee is not a foreign 
transaction fee and need not be disclosed. In another example, if the 
credit card network imposes a 1 percent fee for a foreign transaction on 
the card issuer, and the card issuer imposes this same fee on the 
consumer who engaged in the foreign transaction, then the fee is a 
foreign transaction fee and a finance charge.
    D. A card issuer is not required to disclose a fee imposed by a 
merchant. For example, if the merchant itself performs the currency 
conversion and adds a fee, this fee need not be disclosed by the card 
issuer. Under Sec. 1026.9(d), a card issuer is not obligated to 
disclose finance charges imposed by a party honoring a credit card, such 
as a merchant, although the merchant is required to disclose such a 
finance charge if the merchant is subject to the Truth in Lending Act 
and Regulation Z.

[[Page 758]]

    E. The foreign transaction fee is determined by first calculating 
the dollar amount of the transaction by using a currency conversion rate 
outside the card issuer's and third party's control. Any amount in 
excess of that dollar amount is a foreign transaction fee. Conversion 
rates outside the card issuer's and third party's control include, for 
example, a rate selected from the range of rates available in the 
wholesale currency exchange markets, an average of the highest and 
lowest rates available in such markets, or a government-mandated or 
government-managed exchange rate (or a rate selected from a range of 
such rates).
    F. The rate used for a particular transaction need not be the same 
rate that the card issuer (or third party) itself obtains in its 
currency conversion operations. In addition, the rate used for a 
particular transaction need not be the rate in effect on the date of the 
transaction (purchase or cash advance).
    5. Taxes. i. Generally, a tax imposed by a state or other 
governmental body solely on a creditor is a finance charge if the 
creditor separately imposes the charge on the consumer.
    ii. In contrast, a tax is not a finance charge (even if it is 
collected by the creditor) if applicable law imposes the tax:
    A. Solely on the consumer;
    B. On the creditor and the consumer jointly;
    C. On the credit transaction, without indicating which party is 
liable for the tax; or
    D. On the creditor, if applicable law directs or authorizes the 
creditor to pass the tax on to the consumer. (For purposes of this 
section, if applicable law is silent as to passing on the tax, the law 
is deemed not to authorize passing it on.)
    iii. For example, a stamp tax, property tax, intangible tax, or any 
other state or local tax imposed on the consumer, or on the credit 
transaction, is not a finance charge even if the tax is collected by the 
creditor.
    iv. In addition, a tax is not a finance charge if it is excluded 
from the finance charge by another provision of the regulation or 
commentary (for example, if the tax is imposed uniformly in cash and 
credit transactions).

                    4(a)(1) Charges by Third Parties

    1. Choosing the provider of a required service. An example of a 
third-party charge included in the finance charge is the cost of 
required mortgage insurance, even if the consumer is allowed to choose 
the insurer.
    2. Annuities associated with reverse mortgages. Some creditors offer 
annuities in connection with a reverse-mortgage transaction. The amount 
of the premium is a finance charge if the creditor requires the purchase 
of the annuity incident to the credit. Examples include the following:
    i. The credit documents reflect the purchase of an annuity from a 
specific provider or providers.
    ii. The creditor assesses an additional charge on consumers who do 
not purchase an annuity from a specific provider.
    iii. The annuity is intended to replace in whole or in part the 
creditor's payments to the consumer either immediately or at some future 
date.

               4(a)(2) Special Rule; Closing Agent Charges

    1. General. This rule applies to charges by a third party serving as 
the closing agent for the particular loan. An example of a closing agent 
charge included in the finance charge is a courier fee where the 
creditor requires the use of a courier.
    2. Required closing agent. If the creditor requires the use of a 
closing agent, fees charged by the closing agent are included in the 
finance charge only if the creditor requires the particular service, 
requires the imposition of the charge, or retains a portion of the 
charge. Fees charged by a third-party closing agent may be otherwise 
excluded from the finance charge under Sec. 1026.4. For example, a fee 
that would be paid in a comparable cash transaction may be excluded 
under Sec. 1026.4(a). A charge for conducting or attending a closing is 
a finance charge and may be excluded only if the charge is included in 
and is incidental to a lump-sum fee excluded under Sec. 1026.4(c)(7).

               4(a)(3) Special Rule; Mortgage Broker Fees

    1. General. A fee charged by a mortgage broker is excluded from the 
finance charge if it is the type of fee that is also excluded when 
charged by the creditor. For example, to exclude an application fee from 
the finance charge under Sec. 1026.4(c)(1), a mortgage broker must 
charge the fee to all applicants for credit, whether or not credit is 
extended.
    2. Coverage. This rule applies to charges paid by consumers to a 
mortgage broker in connection with a consumer credit transaction secured 
by real property or a dwelling.
    3. Compensation by lender. The rule requires all mortgage broker 
fees to be included in the finance charge. Creditors sometimes 
compensate mortgage brokers under a separate arrangement with those 
parties. Creditors may draw on amounts paid by the consumer, such as 
points or closing costs, to fund their payment to the broker. 
Compensation paid by a creditor to a mortgage broker under an agreement 
is not included as a separate component of a consumer's total finance 
charge (although this compensation may be reflected in the finance 
charge if it comes from amounts paid by the consumer to the creditor 
that are finance charges, such as points and interest).

[[Page 759]]

                    4(b) Examples of Finance Charges

    1. Relationship to other provisions. Charges or fees shown as 
examples of finance charges in Sec. 1026.4(b) may be excludable under 
Sec. 1026.4(c), (d), or (e). For example:
    i. Premiums for credit life insurance, shown as an example of a 
finance charge under Sec. 1026.4(b)(7), may be excluded if the 
requirements of Sec. 1026.4(d)(1) are met.
    ii. Appraisal fees mentioned in Sec. 1026.4(b)(4) are excluded for 
real property or residential mortgage transactions under Sec. 
1026.4(c)(7).

                            Paragraph 4(b)(2)

    1. Checking account charges. A checking or transaction account 
charge imposed in connection with a credit feature is a finance charge 
under Sec. 1026.4(b)(2) to the extent the charge exceeds the charge for 
a similar account without a credit feature. If a charge for an account 
with a credit feature does not exceed the charge for an account without 
a credit feature, the charge is not a finance charge under Sec. 
1026.4(b)(2). To illustrate:
    i. A $5 service charge is imposed on an account with an overdraft 
line of credit (where the institution has agreed in writing to pay an 
overdraft), while a $3 service charge is imposed on an account without a 
credit feature; the $2 difference is a finance charge. (If the 
difference is not related to account activity, however, it may be 
excludable as a participation fee. See the commentary to Sec. 
1026.4(c)(4).)
    ii. A $5 service charge is imposed for each item that results in an 
overdraft on an account with an overdraft line of credit, while a $25 
service charge is imposed for paying or returning each item on a similar 
account without a credit feature; the $5 charge is not a finance charge.

                            Paragraph 4(b)(3)

    1. Assumption fees. The assumption fees mentioned in Sec. 
1026.4(b)(3) are finance charges only when the assumption occurs and the 
fee is imposed on the new buyer. The assumption fee is a finance charge 
in the new buyer's transaction.

                            Paragraph 4(b)(5)

    1. Credit loss insurance. Common examples of the insurance against 
credit loss mentioned in Sec. 1026.4(b)(5) are mortgage guaranty 
insurance, holder in due course insurance, and repossession insurance. 
Such premiums must be included in the finance charge only for the period 
that the creditor requires the insurance to be maintained.
    2. Residual value insurance. Where a creditor requires a consumer to 
maintain residual value insurance or where the creditor is a beneficiary 
of a residual value insurance policy written in connection with an 
extension of credit (as is the case in some forms of automobile balloon-
payment financing, for example), the premiums for the insurance must be 
included in the finance charge for the period that the insurance is to 
be maintained. If a creditor pays for residual-value insurance and 
absorbs the payment as a cost of doing business, such costs are not 
considered finance charges. (See comment 4(a)-2.)

                      Paragraphs 4(b)(7) and (b)(8)

    1. Pre-existing insurance policy. The insurance discussed in Sec. 
1026.4(b)(7) and (b)(8) does not include an insurance policy (such as a 
life or an automobile collision insurance policy) that is already owned 
by the consumer, even if the policy is assigned to or otherwise made 
payable to the creditor to satisfy an insurance requirement. Such a 
policy is not ``written in connection with'' the transaction, as long as 
the insurance was not purchased for use in that credit extension, since 
it was previously owned by the consumer.
    2. Insurance written in connection with a transaction. Credit 
insurance sold before or after an open-end (not home-secured) plan is 
opened is considered ``written in connection with a credit 
transaction.'' Insurance sold after consummation in closed-end credit 
transactions or after the opening of a home-equity plan subject to the 
requirements of Sec. 1026.40 is not considered ``written in connection 
with'' the credit transaction if the insurance is written because of the 
consumer's default (for example, by failing to obtain or maintain 
required property insurance) or because the consumer requests insurance 
after consummation or the opening of a home-equity plan subject to the 
requirements of Sec. 1026.40 (although credit-sale disclosures may be 
required for the insurance sold after consummation if it is financed).
    3. Substitution of life insurance. The premium for a life insurance 
policy purchased and assigned to satisfy a credit life insurance 
requirement must be included in the finance charge, but only to the 
extent of the cost of the credit life insurance if purchased from the 
creditor or the actual cost of the policy (if that is less than the cost 
of the insurance available from the creditor). If the creditor does not 
offer the required insurance, the premium to be included in the finance 
charge is the cost of a policy of insurance of the type, amount, and 
term required by the creditor.
    4. Other insurance. Fees for required insurance not of the types 
described in Sec. 1026.4(b)(7) and (b)(8) are finance charges and are 
not excludable. For example, the premium for a hospitalization insurance 
policy, if it is required to be purchased only in a credit transaction, 
is a finance charge.

                            Paragraph 4(b)(9)

    1. Discounts for payment by other than credit. The discounts to 
induce payment by other

[[Page 760]]

than credit mentioned in Sec. 1026.4(b)(9) include, for example, the 
following situation: The seller of land offers individual tracts for 
$10,000 each. If the purchaser pays cash, the price is $9,000, but if 
the purchaser finances the tract with the seller the price is $10,000. 
The $1,000 difference is a finance charge for those who buy the tracts 
on credit.
    2. Exception for cash discounts. i. Creditors may exclude from the 
finance charge discounts offered to consumers for using cash or another 
means of payment instead of using a credit card or an open-end plan. The 
discount may be in whatever amount the seller desires, either as a 
percentage of the regular price (as defined in section 103(z) of the 
Act, as amended) or a dollar amount. Pursuant to section 167(b) of the 
Act, this provision applies only to transactions involving an open-end 
credit plan or a credit card (whether open-end or closed-end credit is 
extended on the card). The merchant must offer the discount to 
prospective buyers whether or not they are cardholders or members of the 
open-end credit plan. The merchant may, however, make other 
distinctions. For example:
    A. The merchant may limit the discount to payment by cash and not 
offer it for payment by check or by use of a debit card.
    B. The merchant may establish a discount plan that allows a 15% 
discount for payment by cash, a 10% discount for payment by check, and a 
5% discount for payment by a particular credit card. None of these 
discounts is a finance charge.
    ii. Pursuant to section 171(c) of the Act, discounts excluded from 
the finance charge under this paragraph are also excluded from treatment 
as a finance charge or other charge for credit under any state usury or 
disclosure laws.
    3. Determination of the regular price. i. The regular price is 
critical in determining whether the difference between the price charged 
to cash customers and credit customers is a discount or a surcharge, as 
these terms are defined in amended section 103 of the Act. The regular 
price is defined in section 103 of the Act as--* * * the tag or posted 
price charged for the property or service if a single price is tagged or 
posted, or the price charged for the property or service when payment is 
made by use of an open-end credit account or a credit card if either (1) 
no price is tagged or posted, or (2) two prices are tagged or posted * * 
*.
    ii. For example, in the sale of motor vehicle fuel, the tagged or 
posted price is the price displayed at the pump. As a result, the higher 
price (the open-end credit or credit card price) must be displayed at 
the pump, either alone or along with the cash price. Service station 
operators may designate separate pumps or separate islands as being for 
either cash or credit purchases and display only the appropriate prices 
at the various pumps. If a pump is capable of displaying on its meter 
either a cash or a credit price depending upon the consumer's means of 
payment, both the cash price and the credit price must be displayed at 
the pump. A service station operator may display the cash price of fuel 
by itself on a curb sign, as long as the sign clearly indicates that the 
price is limited to cash purchases.

                           Paragraph 4(b)(10)

    1. Definition. Debt cancellation coverage provides for payment or 
satisfaction of all or part of a debt when a specified event occurs. The 
term ``debt cancellation coverage'' includes guaranteed automobile 
protection, or ``GAP,'' agreements, which pay or satisfy the remaining 
debt after property insurance benefits are exhausted. Debt suspension 
coverage provides for suspension of the obligation to make one or more 
payments on the date(s) otherwise required by the credit agreement, when 
a specified event occurs. The term ``debt suspension'' does not include 
loan payment deferral arrangements in which the triggering event is the 
bank's unilateral decision to allow a deferral of payment and the 
borrower's unilateral election to do so, such as by skipping or reducing 
one or more payments (``skip payments'').
    2. Coverage written in connection with a transaction. Coverage sold 
after consummation in closed-end credit transactions or after the 
opening of a home-equity plan subject to the requirements of Sec. 
1026.40 is not ``written in connection with'' the credit transaction if 
the coverage is written because the consumer requests coverage after 
consummation or the opening of a home-equity plan subject to the 
requirements of Sec. 1026.40 (although credit-sale disclosures may be 
required for the coverage sold after consummation if it is financed). 
Coverage sold before or after an open-end (not home-secured) plan is 
opened is considered ``written in connection with a credit 
transaction.''

              4(c) Charges Excluded From the Finance Charge

                            Paragraph 4(c)(1)

    1. Application fees. An application fee that is excluded from the 
finance charge is a charge to recover the costs associated with 
processing applications for credit. The fee may cover the costs of 
services such as credit reports, credit investigations, and appraisals. 
The creditor is free to impose the fee in only certain of its loan 
programs, such as mortgage loans. However, if the fee is to be excluded 
from the finance charge under Sec. 1026.4(c)(1), it must be charged to 
all applicants, not just to applicants who are approved or who actually 
receive credit.

[[Page 761]]

                            Paragraph 4(c)(2)

    1. Late payment charges. i. Late payment charges can be excluded 
from the finance charge under Sec. 1026.4(c)(2) whether or not the 
person imposing the charge continues to extend credit on the account or 
continues to provide property or services to the consumer. In 
determining whether a charge is for actual unanticipated late payment on 
a 30-day account, for example, factors to be considered include:
    A. The terms of the account. For example, is the consumer required 
by the account terms to pay the account balance in full each month? If 
not, the charge may be a finance charge.
    B. The practices of the creditor in handling the accounts. For 
example, regardless of the terms of the account, does the creditor allow 
consumers to pay the accounts over a period of time without demanding 
payment in full or taking other action to collect? If no effort is made 
to collect the full amount due, the charge may be a finance charge.
    ii. section 1026.4(c)(2) applies to late payment charges imposed for 
failure to make payments as agreed, as well as failure to pay an account 
in full when due.
    2. Other excluded charges. Charges for ``delinquency, default, or a 
similar occurrence'' include, for example, charges for reinstatement of 
credit privileges or for submitting as payment a check that is later 
returned unpaid.

                            Paragraph 4(c)(3)

    1. Assessing interest on an overdraft balance. A charge on an 
overdraft balance computed by applying a rate of interest to the amount 
of the overdraft is not a finance charge, even though the consumer 
agrees to the charge in the account agreement, unless the financial 
institution agrees in writing that it will pay such items.

                            Paragraph 4(c)(4)

    1. Participation fees--periodic basis. The participation fees 
described in Sec. 1026.4(c)(4) do not necessarily have to be formal 
membership fees, nor are they limited to credit card plans. The 
provision applies to any credit plan in which payment of a fee is a 
condition of access to the plan itself, but it does not apply to fees 
imposed separately on individual closed-end transactions. The fee may be 
charged on a monthly, annual, or other periodic basis; a one-time, non-
recurring fee imposed at the time an account is opened is not a fee that 
is charged on a periodic basis, and may not be treated as a 
participation fee.
    2. Participation fees--exclusions. Minimum monthly charges, charges 
for non-use of a credit card, and other charges based on either account 
activity or the amount of credit available under the plan are not 
excluded from the finance charge by Sec. 1026.4(c)(4). Thus, for 
example, a fee that is charged and then refunded to the consumer based 
on the extent to which the consumer uses the credit available would be a 
finance charge. (See the commentary to Sec. 1026.4(b)(2). Also, see 
comment 14(c)-2 for treatment of certain types of fees excluded in 
determining the annual percentage rate for the periodic statement.)

                            Paragraph 4(c)(5)

    1. Seller's points. The seller's points mentioned in Sec. 
1026.4(c)(5) include any charges imposed by the creditor upon the 
noncreditor seller of property for providing credit to the buyer or for 
providing credit on certain terms. These charges are excluded from the 
finance charge even if they are passed on to the buyer, for example, in 
the form of a higher sales price. Seller's points are frequently 
involved in real estate transactions guaranteed or insured by 
governmental agencies. A commitment fee paid by a noncreditor seller 
(such as a real estate developer) to the creditor should be treated as 
seller's points. Buyer's points (that is, points charged to the buyer by 
the creditor), however, are finance charges.
    2. Other seller-paid amounts. Mortgage insurance premiums and other 
finance charges are sometimes paid at or before consummation or 
settlement on the borrower's behalf by a noncreditor seller. The 
creditor should treat the payment made by the seller as seller's points 
and exclude it from the finance charge if, based on the seller's 
payment, the consumer is not legally bound to the creditor for the 
charge. A creditor who gives disclosures before the payment has been 
made should base them on the best information reasonably available.

                            Paragraph 4(c)(6)

    1. Lost interest. Certain Federal and state laws mandate a 
percentage differential between the interest rate paid on a deposit and 
the rate charged on a loan secured by that deposit. In some situations, 
because of usury limits the creditor must reduce the interest rate paid 
on the deposit and, as a result, the consumer loses some of the interest 
that would otherwise have been earned. Under Sec. 1026.4(c)(6), such 
``lost interest'' need not be included in the finance charge. This rule 
applies only to an interest reduction imposed because a rate 
differential is required by law and a usury limit precludes compliance 
by any other means. If the creditor imposes a differential that exceeds 
that required, only the lost interest attributable to the excess amount 
is a finance charge. (See the commentary to Sec. 1026.4(a).)

                    4(c)(7) Real-Estate Related Fees

    1. Real estate or residential mortgage transaction charges. The list 
of charges in

[[Page 762]]

Sec. 1026.4(c)(7) applies both to residential mortgage transactions 
(which may include, for example, the purchase of a mobile home) and to 
other transactions secured by real estate. The fees are excluded from 
the finance charge even if the services for which the fees are imposed 
are performed by the creditor's employees rather than by a third party. 
In addition, the cost of verifying or confirming information connected 
to the item is also excluded. For example, credit-report fees cover not 
only the cost of the report but also the cost of verifying information 
in the report. In all cases, charges excluded under Sec. 1026.4(c)(7) 
must be bona fide and reasonable.
    2. Lump-sum charges. If a lump sum charged for several services 
includes a charge that is not excludable, a portion of the total should 
be allocated to that service and included in the finance charge. 
However, a lump sum charged for conducting or attending a closing (for 
example, by a lawyer or a title company) is excluded from the finance 
charge if the charge is primarily for services related to items listed 
in Sec. 1026.4(c)(7) (for example, reviewing or completing documents), 
even if other incidental services such as explaining various documents 
or disbursing funds for the parties are performed. The entire charge is 
excluded even if a fee for the incidental services would be a finance 
charge if it were imposed separately.
    3. Charges assessed during the loan term. Real estate or residential 
mortgage transaction charges excluded under Sec. 1026.4(c)(7) are those 
charges imposed solely in connection with the initial decision to grant 
credit. This would include, for example, a fee to search for tax liens 
on the property or to determine if flood insurance is required. The 
exclusion does not apply to fees for services to be performed 
periodically during the loan term, regardless of when the fee is 
collected. For example, a fee for one or more determinations during the 
loan term of the current tax-lien status or flood-insurance requirements 
is a finance charge, regardless of whether the fee is imposed at 
closing, or when the service is performed. If a creditor is uncertain 
about what portion of a fee to be paid at consummation or loan closing 
is related to the initial decision to grant credit, the entire fee may 
be treated as a finance charge.

    4(d) Insurance and Debt Cancellation and Debt Suspension Coverage

    1. General. Section 1026.4(d) permits insurance premiums and charges 
and debt cancellation and debt suspension charges to be excluded from 
the finance charge. The required disclosures must be made in writing, 
except as provided in Sec. 1026.4(d)(4). The rules on location of 
insurance and debt cancellation and debt suspension disclosures for 
closed-end transactions are in Sec. 1026.17(a). For purposes of Sec. 
1026.4(d), all references to insurance also include debt cancellation 
and debt suspension coverage unless the context indicates otherwise.
    2. Timing of disclosures. If disclosures are given early, for 
example under Sec. 1026.17(f) or Sec. 1026.19(a), the creditor need 
not redisclose if the actual premium is different at the time of 
consummation. If insurance disclosures are not given at the time of 
early disclosure and insurance is in fact written in connection with the 
transaction, the disclosures under Sec. 1026.4(d) must be made in order 
to exclude the premiums from the finance charge.
    3. Premium rate increases. The creditor should disclose the premium 
amount based on the rates currently in effect and need not designate it 
as an estimate even if the premium rates may increase. An increase in 
insurance rates after consummation of a closed-end credit transaction or 
during the life of an open-end credit plan does not require redisclosure 
in order to exclude the additional premium from treatment as a finance 
charge.
    4. Unit-cost disclosures. i. Open-end credit. The premium or fee for 
insurance or debt cancellation or debt suspension for the initial term 
of coverage may be disclosed on a unit-cost basis in open-end credit 
transactions. The cost per unit should be based on the initial term of 
coverage, unless one of the options under comment 4(d)-12 is available.
    ii. Closed-end credit. One of the transactions for which unit-cost 
disclosures (such as 50 cents per year for each $100 of the amount 
financed) may be used in place of the total insurance premium involves a 
particular kind of insurance plan. For example, a consumer with a 
current indebtedness of $8,000 is covered by a plan of credit life 
insurance coverage with a maximum of $10,000. The consumer requests an 
additional $4,000 loan to be covered by the same insurance plan. Since 
the $4,000 loan exceeds, in part, the maximum amount of indebtedness 
that can be covered by the plan, the creditor may properly give the 
insurance-cost disclosures on the $4,000 loan on a unit-cost basis.
    5. Required credit life insurance; debt cancellation or suspension 
coverage. Credit life, accident, health, or loss-of-income insurance, 
and debt cancellation and suspension coverage described in Sec. 
1026.4(b)(10), must be voluntary in order for the premium or charges to 
be excluded from the finance charge. Whether the insurance or coverage 
is in fact required or optional is a factual question. If the insurance 
or coverage is required, the premiums must be included in the finance 
charge, whether the insurance or coverage is purchased from the creditor 
or from a third party. If the consumer is required to elect one of 
several options--such as to purchase credit life insurance, or to assign 
an

[[Page 763]]

existing life insurance policy, or to pledge security such as a 
certificate of deposit--and the consumer purchases the credit life 
insurance policy, the premium must be included in the finance charge. 
(If the consumer assigns a preexisting policy or pledges security 
instead, no premium is included in the finance charge. The security 
interest would be disclosed under Sec. 1026.6(a)(4), Sec. 
1026.6(b)(5)(ii), or Sec. 1026.18(m). See the commentary to Sec. 
1026.4(b)(7) and (b)(8).)
    6. Other types of voluntary insurance. Insurance is not credit life, 
accident, health, or loss-of-income insurance if the creditor or the 
credit account of the consumer is not the beneficiary of the insurance 
coverage. If the premium for such insurance is not imposed by the 
creditor as an incident to or a condition of credit, it is not covered 
by Sec. 1026.4.
    7. Signatures. If the creditor offers a number of insurance options 
under Sec. 1026.4(d), the creditor may provide a means for the consumer 
to sign or initial for each option, or it may provide for a single 
authorizing signature or initial with the options selected designated by 
some other means, such as a check mark. The insurance authorization may 
be signed or initialed by any consumer, as defined in Sec. 
1026.2(a)(11), or by an authorized user on a credit card account.
    8. Property insurance. To exclude property insurance premiums or 
charges from the finance charge, the creditor must allow the consumer to 
choose the insurer and disclose that fact. This disclosure must be made 
whether or not the property insurance is available from or through the 
creditor. The requirement that an option be given does not require that 
the insurance be readily available from other sources. The premium or 
charge must be disclosed only if the consumer elects to purchase the 
insurance from the creditor; in such a case, the creditor must also 
disclose the term of the property insurance coverage if it is less than 
the term of the obligation.
    9. Single-interest insurance. Blanket and specific single-interest 
coverage are treated the same for purposes of the regulation. A charge 
for either type of single-interest insurance may be excluded from the 
finance charge if:
    i. The insurer waives any right of subrogation.
    ii. The other requirements of Sec. 1026.4(d)(2) are met. This 
includes, of course, giving the consumer the option of obtaining the 
insurance from a person of the consumer's choice. The creditor need not 
ascertain whether the consumer is able to purchase the insurance from 
someone else.
    10. Single-interest insurance defined. The term single-interest 
insurance as used in the regulation refers only to the types of coverage 
traditionally included in the term vendor's single-interest insurance 
(or VSI), that is, protection of tangible property against normal 
property damage, concealment, confiscation, conversion, embezzlement, 
and skip. Some comprehensive insurance policies may include a variety of 
additional coverages, such as repossession insurance and holder-in-due-
course insurance. These types of coverage do not constitute single-
interest insurance for purposes of the regulation, and premiums for them 
do not qualify for exclusion from the finance charge under Sec. 
1026.4(d). If a policy that is primarily VSI also provides coverages 
that are not VSI or other property insurance, a portion of the premiums 
must be allocated to the nonexcludable coverages and included in the 
finance charge. However, such allocation is not required if the total 
premium in fact attributable to all of the non-VSI coverages included in 
the policy is $1.00 or less (or $5.00 or less in the case of a multiyear 
policy).
    11. Initial term. i. The initial term of insurance or debt 
cancellation or debt suspension coverage determines the period for which 
a premium amount must be disclosed, unless one of the options discussed 
under comment 4(d)-12 is available. For purposes of Sec. 1026.4(d), the 
initial term is the period for which the insurer or creditor is 
obligated to provide coverage, even though the consumer may be allowed 
to cancel the coverage or coverage may end due to nonpayment before that 
term expires.
    ii. For example: A. The initial term of a property insurance policy 
on an automobile that is written for one year is one year even though 
premiums are paid monthly and the term of the credit transaction is four 
years.
    B. The initial term of an insurance policy is the full term of the 
credit transaction if the consumer pays or finances a single premium in 
advance.
    12. Initial term; alternative. i. General. A creditor has the option 
of providing cost disclosures on the basis of one year of insurance or 
debt cancellation or debt suspension coverage instead of a longer 
initial term (provided the premium or fee is clearly labeled as being 
for one year) if:
    A. The initial term is indefinite or not clear, or
    B. The consumer has agreed to pay a premium or fee that is assessed 
periodically but the consumer is under no obligation to continue the 
coverage, whether or not the consumer has made an initial payment.
    ii. Open-end plans. For open-end plans, a creditor also has the 
option of providing unit-cost disclosure on the basis of a period that 
is less than one year if the consumer has agreed to pay a premium or fee 
that is assessed periodically, for example monthly, but the consumer is 
under no obligation to continue the coverage.
    iii. Examples. To illustrate:
    A. A credit life insurance policy providing coverage for a 30-year 
mortgage loan has an

[[Page 764]]

initial term of 30 years, even though premiums are paid monthly and the 
consumer is not required to continue the coverage. Disclosures may be 
based on the initial term, but the creditor also has the option of 
making disclosures on the basis of coverage for an assumed initial term 
of one year.
    13. Loss-of-income insurance. The loss-of-income insurance mentioned 
in Sec. 1026.4(d) includes involuntary unemployment insurance, which 
provides that some or all of the consumer's payments will be made if the 
consumer becomes unemployed involuntarily.

       4(d)(3) Voluntary Debt Cancellation or Debt Suspension Fees

    1. General. Fees charged for the specialized form of debt 
cancellation agreement known as guaranteed automobile protection 
(``GAP'') agreements must be disclosed according to Sec. 1026.4(d)(3) 
rather than according to Sec. 1026.4(d)(2) for property insurance.
    2. Disclosures. Creditors can comply with Sec. 1026.4(d)(3) by 
providing a disclosure that refers to debt cancellation or debt 
suspension coverage whether or not the coverage is considered insurance. 
Creditors may use the model credit insurance disclosures only if the 
debt cancellation or debt suspension coverage constitutes insurance 
under state law. (See Model Clauses and Samples at G-16 and H-17 in 
Appendix G and Appendix H to part 1026 for guidance on how to provide 
the disclosure required by Sec. 1026.4(d)(3)(iii) for debt suspension 
products.)
    3. Multiple events. If debt cancellation or debt suspension coverage 
for two or more events is provided at a single charge, the entire charge 
may be excluded from the finance charge if at least one of the events is 
accident or loss of life, health, or income and the conditions specified 
in Sec. 1026.4(d)(3) or, as applicable, Sec. 1026.4(d)(4), are 
satisfied.
    4. Disclosures in programs combining debt cancellation and debt 
suspension features. If the consumer's debt can be cancelled under 
certain circumstances, the disclosure may be modified to reflect that 
fact. The disclosure could, for example, state (in addition to the 
language required by Sec. 1026.4(d)(3)(iii)) that ``In some 
circumstances, my debt may be cancelled.'' However, the disclosure would 
not be permitted to list the specific events that would result in debt 
cancellation.

                       4(d)(4) Telephone Purchases

    1. Affirmative request. A creditor would not satisfy the requirement 
to obtain a consumer's affirmative request if the ``request'' was a 
response to a script that uses leading questions or negative consent. A 
question asking whether the consumer wishes to enroll in the credit 
insurance or debt cancellation or suspension plan and seeking a yes-or-
no response (such as ``Do you want to enroll in this optional debt 
cancellation plan?'') would not be considered leading.

                 4(e) Certain Security Interest Charges

    1. Examples. i. Excludable charges. Sums must be actually paid to 
public officials to be excluded from the finance charge under Sec. 
1026.4(e)(1) and (e)(3). Examples are charges or other fees required for 
filing or recording security agreements, mortgages, continuation 
statements, termination statements, and similar documents, as well as 
intangible property or other taxes even when the charges or fees are 
imposed by the state solely on the creditor and charged to the consumer 
(if the tax must be paid to record a security agreement). (See comment 
4(a)-5 regarding the treatment of taxes, generally.)
    ii. Charges not excludable. If the obligation is between the 
creditor and a third party (an assignee, for example), charges or other 
fees for filing or recording security agreements, mortgages, 
continuation statements, termination statements, and similar documents 
relating to that obligation are not excludable from the finance charge 
under this section.
    2. Itemization. The various charges described in Sec. 1026.4(e)(1) 
and (e)(3) may be totaled and disclosed as an aggregate sum, or they may 
be itemized by the specific fees and taxes imposed. If an aggregate sum 
is disclosed, a general term such as security interest fees or filing 
fees may be used.
    3. Notary fees. In order for a notary fee to be excluded under Sec. 
1026.4(e)(1), all of the following conditions must be met:
    i. The document to be notarized is one used to perfect, release, or 
continue a security interest.
    ii. The document is required by law to be notarized.
    iii. A notary is considered a public official under applicable law.
    iv. The amount of the fee is set or authorized by law.
    4. Nonfiling insurance. The exclusion in Sec. 1026.4(e)(2) is 
available only if nonfiling insurance is purchased. If the creditor 
collects and simply retains a fee as a sort of ``self-insurance'' 
against nonfiling, it may not be excluded from the finance charge. If 
the nonfiling insurance premium exceeds the amount of the fees 
excludable from the finance charge under Sec. 1026.4(e)(1), only the 
excess is a finance charge. For example:
    i. The fee for perfecting a security interest is $5.00 and the fee 
for releasing the security interest is $3.00. The creditor charges 
$10.00 for nonfiling insurance. Only $8.00 of the $10.00 is excludable 
from the finance charge.

                         4(f) Prohibited Offsets

    1. Earnings on deposits or investments. The rule that the creditor 
shall not deduct any

[[Page 765]]

earnings by the consumer on deposits or investments applies whether or 
not the creditor has a security interest in the property.

                       Subpart B--Open-End Credit

             Section 1026.5--General Disclosure Requirements

                        5(a) Form of Disclosures

                             5(a)(1) General

    1. Clear and conspicuous standard. The ``clear and conspicuous'' 
standard generally requires that disclosures be in a reasonably 
understandable form. Disclosures for credit card applications and 
solicitations under Sec. 1026.60, highlighted account-opening 
disclosures under Sec. 1026.6(b)(1), highlighted disclosure on checks 
that access a credit card under Sec. 1026.9(b)(3), highlighted change-
in-terms disclosures under Sec. 1026.9(c)(2)(iv)(D), and highlighted 
disclosures when a rate is increased due to delinquency, default or for 
a penalty under Sec. 1026.9(g)(3)(ii) must also be readily noticeable 
to the consumer.
    2. Clear and conspicuous--reasonably understandable form. Except 
where otherwise provided, the reasonably understandable form standard 
does not require that disclosures be segregated from other material or 
located in any particular place on the disclosure statement, or that 
numerical amounts or percentages be in any particular type size. For 
disclosures that are given orally, the standard requires that they be 
given at a speed and volume sufficient for a consumer to hear and 
comprehend them. (See comment 5(b)(1)(ii)-1.) Except where otherwise 
provided, the standard does not prohibit:
    i. Pluralizing required terminology (``finance charge'' and ``annual 
percentage rate'').
    ii. Adding to the required disclosures such items as contractual 
provisions, explanations of contract terms, state disclosures, and 
translations.
    iii. Sending promotional material with the required disclosures.
    iv. Using commonly accepted or readily understandable abbreviations 
(such as ``mo.'' for ``month'' or ``TX'' for ``Texas'') in making any 
required disclosures.
    v. Using codes or symbols such as ``APR'' (for annual percentage 
rate), ``FC'' (for finance charge), or ``Cr'' (for credit balance), so 
long as a legend or description of the code or symbol is provided on the 
disclosure statement.
    3. Clear and conspicuous--readily noticeable standard. To meet the 
readily noticeable standard, disclosures for credit card applications 
and solicitations under Sec. 1026.60, highlighted account-opening 
disclosures under Sec. 1026.6(b)(1), highlighted disclosures on checks 
that access a credit card account under Sec. 1026.9(b)(3), highlighted 
change-in-terms disclosures under Sec. 1026.9(c)(2)(iv)(D), and 
highlighted disclosures when a rate is increased due to delinquency, 
default or penalty pricing under Sec. 1026.9(g)(3)(ii) must be given in 
a minimum of 10-point font. (See special rule for font size requirements 
for the annual percentage rate for purchases under Sec. Sec. 
1026.60(b)(1) and 1026.6(b)(2)(i).)
    4. Integrated document. The creditor may make both the account-
opening disclosures (Sec. 1026.6) and the periodic-statement 
disclosures (Sec. 1026.7) on more than one page, and use both the front 
and the reverse sides, except where otherwise indicated, so long as the 
pages constitute an integrated document. An integrated document would 
not include disclosure pages provided to the consumer at different times 
or disclosures interspersed on the same page with promotional material. 
An integrated document would include, for example:
    i. Multiple pages provided in the same envelope that cover related 
material and are folded together, numbered consecutively, or clearly 
labeled to show that they relate to one another; or
    ii. A brochure that contains disclosures and explanatory material 
about a range of services the creditor offers, such as credit, checking 
account, and electronic fund transfer features.
    5. Disclosures covered. Disclosures that must meet the ``clear and 
conspicuous'' standard include all required communications under this 
subpart. Therefore, disclosures made by a person other than the card 
issuer, such as disclosures of finance charges imposed at the time of 
honoring a consumer's credit card under Sec. 1026.9(d), and notices, 
such as the correction notice required to be sent to the consumer under 
Sec. 1026.13(e), must also be clear and conspicuous.

                        Paragraph 5(a)(1)(ii)(A)

    1. Electronic disclosures. Disclosures that need not be provided in 
writing under Sec. 1026.5(a)(1)(ii)(A) may be provided in writing, 
orally, or in electronic form. If the consumer requests the service in 
electronic form, such as on the creditor's Web site, the specified 
disclosures may be provided in electronic form without regard to the 
consumer consent or other provisions of the Electronic Signatures in 
Global and National Commerce Act (E-Sign Act) (15 U.S.C. 7001 et seq.).

                         Paragraph 5(a)(1)(iii)

    1. Disclosures not subject to E-Sign Act. See the commentary to 
Sec. 1026.5(a)(1)(ii)(A) regarding disclosures (in addition to those 
specified under Sec. 1026.5(a)(1)(iii)) that may be provided in 
electronic form without regard to the consumer consent or other 
provisions of the E-Sign Act.

[[Page 766]]

                           5(a)(2) Terminology

    1. When disclosures must be more conspicuous. For home-equity plans 
subject to Sec. 1026.40, the terms finance charge and annual percentage 
rate, when required to be used with a number, must be disclosed more 
conspicuously than other required disclosures, except in the cases 
provided in Sec. 1026.5(a)(2)(ii). At the creditor's option, finance 
charge and annual percentage rate may also be disclosed more 
conspicuously than the other required disclosures even when the 
regulation does not so require. The following examples illustrate these 
rules:
    i. In disclosing the annual percentage rate as required by Sec. 
1026.6(a)(1)(ii), the term annual percentage rate is subject to the more 
conspicuous rule.
    ii. In disclosing the amount of the finance charge, required by 
Sec. 1026.7(a)(6)(i), the term finance charge is subject to the more 
conspicuous rule.
    iii. Although neither finance charge nor annual percentage rate need 
be emphasized when used as part of general informational material or in 
textual descriptions of other terms, emphasis is permissible in such 
cases. For example, when the terms appear as part of the explanations 
required under Sec. 1026.6(a)(1)(iii) and (a)(1)(iv), they may be 
equally conspicuous as the disclosures required under Sec. Sec. 
1026.6(a)(1)(ii) and 1026.7(a)(7).
    2. Making disclosures more conspicuous. In disclosing the terms 
finance charge and annual percentage rate more conspicuously for home-
equity plans subject to Sec. 1026.40, only the words finance charge and 
annual percentage rate should be accentuated. For example, if the term 
total finance charge is used, only finance charge should be emphasized. 
The disclosures may be made more conspicuous by, for example:
    i. Capitalizing the words when other disclosures are printed in 
lower case.
    ii. Putting them in bold print or a contrasting color.
    iii. Underlining them.
    iv. Setting them off with asterisks.
    v. Printing them in larger type.
    3. Disclosure of figures--exception to more conspicuous rule. For 
home-equity plans subject to Sec. 1026.40, the terms annual percentage 
rate and finance charge need not be more conspicuous than figures 
(including, for example, numbers, percentages, and dollar signs).
    4. Consistent terminology. Language used in disclosures required in 
this subpart must be close enough in meaning to enable the consumer to 
relate the different disclosures; however, the language need not be 
identical.

                        5(b) Time of Disclosures

                   5(b)(1) Account-Opening Disclosures

                         5(b)(1)(i) General Rule

    1. Disclosure before the first transaction. When disclosures must be 
furnished ``before the first transaction,'' account-opening disclosures 
must be delivered before the consumer becomes obligated on the plan. 
Examples include:
    i. Purchases. The consumer makes the first purchase, such as when a 
consumer opens a credit plan and makes purchases contemporaneously at a 
retail store, except when the consumer places a telephone call to make 
the purchase and opens the plan contemporaneously. (See commentary to 
Sec. 1026.5(b)(1)(iii) below.)
    ii. Advances. The consumer receives the first advance. If the 
consumer receives a cash advance check at the same time the account-
opening disclosures are provided, disclosures are still timely if the 
consumer can, after receiving the disclosures, return the cash advance 
check to the creditor without obligation (for example, without paying 
finance charges).
    2. Reactivation of suspended account. If an account is temporarily 
suspended (for example, because the consumer has exceeded a credit 
limit, or because a credit card is reported lost or stolen) and then is 
reactivated, no new account-opening disclosures are required.
    3. Reopening closed account. If an account has been closed (for 
example, due to inactivity, cancellation, or expiration) and then is 
reopened, new account-opening disclosures are required. No new account-
opening disclosures are required, however, when the account is closed 
merely to assign it a new number (for example, when a credit card is 
reported lost or stolen) and the ``new'' account then continues on the 
same terms.
    4. Converting closed-end to open-end credit. If a closed-end credit 
transaction is converted to an open-end credit account under a written 
agreement with the consumer, account-opening disclosures under Sec. 
1026.6 must be given before the consumer becomes obligated on the open-
end credit plan. (See the commentary to Sec. 1026.17 on converting 
open-end credit to closed-end credit.)
    5. Balance transfers. A creditor that solicits the transfer by a 
consumer of outstanding balances from an existing account to a new open-
end plan must furnish the disclosures required by Sec. 1026.6 so that 
the consumer has an opportunity, after receiving the disclosures, to 
contact the creditor before the balance is transferred and decline the 
transfer. For example, assume a consumer responds to a card issuer's 
solicitation for a credit card account subject to Sec. 1026.60 that 
offers a range of balance transfer annual percentage

[[Page 767]]

rates, based on the consumer's creditworthiness. If the creditor opens 
an account for the consumer, the creditor would comply with the timing 
rules of this section by providing the consumer with the annual 
percentage rate (along with the fees and other required disclosures) 
that would apply to the balance transfer in time for the consumer to 
contact the creditor and withdraw the request. A creditor that permits 
consumers to withdraw the request by telephone has met this timing 
standard if the creditor does not effect the balance transfer until 10 
days after the creditor has sent account-opening disclosures to the 
consumer, assuming the consumer has not contacted the creditor to 
withdraw the request. Card issuers that are subject to the requirements 
of Sec. 1026.60 may establish procedures that comply with both 
Sec. Sec. 1026.60 and 1026.6 in a single disclosure statement.
    6. Substitution or replacement of credit card accounts. i. 
Generally. When a card issuer substitutes or replaces an existing credit 
card account with another credit card account, the card issuer must 
either provide notice of the terms of the new account consistent with 
Sec. 1026.6(b) or provide notice of the changes in the terms of the 
existing account consistent with Sec. 1026.9(c)(2). Whether a 
substitution or replacement results in the opening of a new account or a 
change in the terms of an existing account for purposes of the 
disclosure requirements in Sec. Sec. 1026.6(b) and 1026.9(c)(2) is 
determined in light of all the relevant facts and circumstances. For 
additional requirements and limitations related to the substitution or 
replacement of credit card accounts, see Sec. Sec. 1026.12(a) and 
1026.55(d) and comments 12(a)(1)-1 through -8, 12(a)(2)-1 through -9, 
55(b)(3)-3, and 55(d)-1 through -3.
    ii. Relevant facts and circumstances. Listed below are facts and 
circumstances that are relevant to whether a substitution or replacement 
results in the opening of a new account or a change in the terms of an 
existing account for purposes of the disclosure requirements in 
Sec. Sec. 1026.6(b) and 1026.9(c)(2). When most of the facts and 
circumstances listed below are present, the substitution or replacement 
likely constitutes the opening of a new account for which Sec. 
1026.6(b) disclosures are appropriate. When few of the facts and 
circumstances listed below are present, the substitution or replacement 
likely constitutes a change in the terms of an existing account for 
which Sec. 1026.9(c)(2) disclosures are appropriate.
    A. Whether the card issuer provides the consumer with a new credit 
card;
    B. Whether the card issuer provides the consumer with a new account 
number;
    C. Whether the account provides new features or benefits after the 
substitution or replacement (such as rewards on purchases);
    D. Whether the account can be used to conduct transactions at a 
greater or lesser number of merchants after the substitution or 
replacement (such as when a retail card is replaced with a cobranded 
general purpose credit card that can be used at a wider number of 
merchants);
    E. Whether the card issuer implemented the substitution or 
replacement on an individualized basis (such as in response to a 
consumer's request); and
    F. Whether the account becomes a different type of open-end plan 
after the substitution or replacement (such as when a charge card is 
replaced by a credit card).
    iii. Replacement as a result of theft or unauthorized use. 
Notwithstanding paragraphs i and ii above, 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. Sec. 1026.6(b) or 1026.9(c)(2) unless the card issuer has 
changed a term of the account that is subject to Sec. Sec. 1026.6(b) or 
1026.9(c)(2).

 5(b)(1)(ii) Charges Imposed as Part of an Open-End (Not Home-Secured) 
                                  Plan

    1. Disclosing charges before the fee is imposed. Creditors may 
disclose charges imposed as part of an open-end (not home-secured) plan 
orally or in writing at any time before a consumer agrees to pay the fee 
or becomes obligated for the charge, unless the charge is specified 
under Sec. 1026.6(b)(2). (Charges imposed as part of an open-end (not 
home-secured plan) that are not specified under Sec. 1026.6(b)(2) may 
alternatively be disclosed in electronic form; see the commentary to 
Sec. 1026.5(a)(1)(ii)(A).) Creditors must provide such disclosures at a 
time and in a manner that a consumer would be likely to notice them. For 
example, if a consumer telephones a card issuer to discuss a particular 
service, a creditor would meet the standard if the creditor clearly and 
conspicuously discloses the fee associated with the service that is the 
topic of the telephone call orally to the consumer. Similarly, a 
creditor providing marketing materials in writing to a consumer about a 
particular service would meet the standard if the creditor provided a 
clear and conspicuous written disclosure of the fee for that service in 
those same materials. A creditor that provides written materials to a 
consumer about a particular service but provides a fee disclosure for 
another service not promoted in such materials would not meet the 
standard. For example, if a creditor provided marketing materials 
promoting payment by Internet, but included the fee for a replacement 
card on such materials with no explanation, the creditor would not be 
disclosing the fee at a time and in a manner that the consumer would be 
likely to notice the fee.

[[Page 768]]

                    5(b)(1)(iii) Telephone Purchases

    1. Return policies. In order for creditors to provide disclosures in 
accordance with the timing requirements of this paragraph, consumers 
must be permitted to return merchandise purchased at the time the plan 
was established without paying mailing or return-shipment costs. 
Creditors may impose costs to return subsequent purchases of merchandise 
under the plan, or to return merchandise purchased by other means such 
as a credit card issued by another creditor. A reasonable return policy 
would be of sufficient duration that the consumer is likely to have 
received the disclosures and had sufficient time to make a decision 
about the financing plan before his or her right to return the goods 
expires. Return policies need not provide a right to return goods if the 
consumer consumes or damages the goods, or for installed appliances or 
fixtures, provided there is a reasonable repair or replacement policy to 
cover defective goods or installations. If the consumer chooses to 
reject the financing plan, creditors comply with the requirements of 
this paragraph by permitting the consumer to pay for the goods with 
another reasonable form of payment acceptable to the merchant and keep 
the goods although the creditor cannot require the consumer to do so.

                       5(b)(1)(iv) Membership Fees

    1. Membership fees. See Sec. 1026.60(b)(2) and related commentary 
for guidance on fees for issuance or availability of a credit or charge 
card.
    2. Rejecting the plan. If a consumer has paid or promised to pay a 
membership fee including an application fee excludable from the finance 
charge under Sec. 1026.4(c)(1) before receiving account-opening 
disclosures, the consumer may, after receiving the disclosures, reject 
the plan and not be obligated for the membership fee, application fee, 
or any other fee or charge. A consumer who has received the disclosures 
and uses the account, or makes a payment on the account after receiving 
a billing statement, is deemed not to have rejected the plan.
    3. Using the account. A consumer uses an account by obtaining an 
extension of credit after receiving the account-opening disclosures, 
such as by making a purchase or obtaining an advance. A consumer does 
not ``use'' the account by activating the account. A consumer also does 
not ``use'' the account when the creditor assesses fees on the account 
(such as start-up fees or fees associated with credit insurance or debt 
cancellation or suspension programs agreed to as a part of the 
application and before the consumer receives account-opening 
disclosures). For example, the consumer does not ``use'' the account 
when a creditor sends a billing statement with start-up fees, there is 
no other activity on the account, the consumer does not pay the fees, 
and the creditor subsequently assesses a late fee or interest on the 
unpaid fee balances. A consumer also does not ``use'' the account by 
paying an application fee excludable from the finance charge under Sec. 
1026.4(c)(1) prior to receiving the account-opening disclosures.
    4. Home-equity plans. Creditors offering home-equity plans subject 
to the requirements of Sec. 1026.40 are subject to the requirements of 
Sec. 1026.40(h) regarding the collection of fees.

                       5(b)(2) Periodic Statements

                      5(b)(2)(i) Statement Required

    1. Periodic statements not required. Periodic statements need not be 
sent in the following cases:
    i. If the creditor adjusts an account balance so that at the end of 
the cycle the balance is less than $1--so long as no finance charge has 
been imposed on the account for that cycle.
    ii. If a statement was returned as undeliverable. If a new address 
is provided, however, within a reasonable time before the creditor must 
send a statement, the creditor must resume sending statements. Receiving 
the address at least 20 days before the end of a cycle would be a 
reasonable amount of time to prepare the statement for that cycle. For 
example, if an address is received 22 days before the end of the June 
cycle, the creditor must send the periodic statement for the June cycle. 
(See Sec. 1026.13(a)(7).)
    2. Termination of draw privileges. When a consumer's ability to draw 
on an open-end account is terminated without being converted to closed-
end credit under a written agreement, the creditor must continue to 
provide periodic statements to those consumers entitled to receive them 
under Sec. 1026.5(b)(2)(i), for example, when the draw period of an 
open-end credit plan ends and consumers are paying off outstanding 
balances according to the account agreement or under the terms of a 
workout agreement that is not converted to a closed-end transaction. In 
addition, creditors must continue to follow all of the other open-end 
credit requirements and procedures in subpart B.
    3. Uncollectible accounts. An account is deemed uncollectible for 
purposes of Sec. 1026.5(b)(2)(i) when a creditor has ceased collection 
efforts, either directly or through a third party.
    4. Instituting collection proceedings. Creditors institute a 
delinquency collection proceeding by filing a court action or initiating 
an adjudicatory process with a third party. Assigning a debt to a debt 
collector or other third party would not constitute instituting a 
collection proceeding.

[[Page 769]]

                     5(b)(2)(ii) Timing Requirements

    1. Mailing or delivery of periodic statements. A creditor is not 
required to determine the specific date on which a periodic statement is 
mailed or delivered to an individual consumer for purposes of Sec. 
1026.5(b)(2)(ii). A creditor complies with Sec. 1026.5(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 or 14-day period required by Sec. 
1026.5(b)(2)(ii) when determining, as applicable, the payment due date 
for purposes of Sec. 1026.5(b)(2)(ii)(A), the date on which any grace 
period expires for purposes of Sec. 1026.5(b)(2)(ii)(B)(1), or the date 
after which the payment will be treated as late for purposes of Sec. 
1026.5(b)(2)(ii)(B)(2). For example:
    A. If a creditor has adopted reasonable procedures designed to 
ensure that periodic statements for a credit card account under an open-
end (not home-secured) consumer credit plan or an account under an open-
end consumer credit plan that provides a grace period are mailed or 
delivered to consumers no later than three days after the closing date 
of the billing cycle, the payment due date for purposes of Sec. 
1026.5(b)(2)(ii)(A) and the date on which any grace period expires for 
purposes of Sec. 1026.5(b)(2)(ii)(B)(1) must be no less than 24 days 
after the closing date of the billing cycle. Similarly, in these 
circumstances, the limitations in Sec. 1026.5(b)(2)(ii)(A) and 
(b)(2)(ii)(B)(1) on treating a payment as late and imposing finance 
charges apply for 24 days after the closing date of the billing cycle.
    B. If a creditor has adopted reasonable procedures designed to 
ensure that periodic statements for an account under an open-end 
consumer credit plan that does not provide a grace period are mailed or 
delivered to consumers no later than five days after the closing date of 
the billing cycle, the date on which a payment must be received in order 
to avoid being treated as late for purposes of Sec. 
1026.5(b)(2)(ii)(B)(2) must be no less than 19 days after the closing 
date of the billing cycle. Similarly, in these circumstances, the 
limitation in Sec. 1026.5(b)(2)(ii)(B)(2) on treating a payment as late 
for any purpose applies for 19 days after the closing date of the 
billing cycle.
    2. Treating a payment as late for any purpose. 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, assessing a late fee or any other fee, initiating collection 
activities, or terminating benefits (such as rewards on purchases) based 
on the consumer's failure to make a payment within a specified amount of 
time or by a specified date. The prohibitions in Sec. 
1026.5(b)(2)(ii)(A)(2) and (b)(2)(B)(2)(ii) on treating a payment as 
late for any purpose apply only during the 21-day or 14-day period (as 
applicable) following mailing or delivery of the periodic statement 
stating the due date for that payment and only if the required minimum 
periodic payment is received within that period. For example:
    i. Assume that, for a credit card account under an open-end (not 
home-secured) consumer credit plan, a periodic statement mailed on April 
4 states that a required minimum periodic payment of $50 is due on April 
25. If the card issuer does not receive any payment on or before April 
25, Sec. 1026.5(b)(2)(ii)(A)(2) does not prohibit the card issuer from 
treating the required minimum periodic payment as late.
    ii. Same facts as in paragraph i above. On April 20, the card issuer 
receives a payment of $30 and no additional payment is received on or 
before April 25. Section 1026.5(b)(2)(ii)(A)(2) does not prohibit the 
card issuer from treating the required minimum periodic payment as late.
    iii. Same facts as in paragraph i above. On May 4, the card issuer 
has not received the $50 required minimum periodic payment that was due 
on April 25. The periodic statement mailed on May 4 states that a 
required minimum periodic payment of $150 is due on May 25. Section 
1026.5(b)(2)(ii)(A)(2) does not permit the card issuer to treat the $150 
required minimum periodic payment as late until April 26. However, the 
card issuer may continue to treat the $50 required minimum periodic 
payment as late during this period.
    iv. Assume that, for an account under an open-end consumer credit 
plan that does not provide a grace period, a periodic statement mailed 
on September 10 states that a required minimum periodic payment of $100 
is due on September 24. If the creditor does not receive any payment on 
or before September 24, Sec. 1026.5(b)(2)(ii)(B)(2)(ii) does not 
prohibit the creditor from treating the required minimum periodic 
payment as late.
    3. Grace periods. i. Definition of grace period. For purposes of 
Sec. 1026.5(b)(2)(ii)(B), ``grace period'' means a period within which 
any credit extended may be repaid without incurring a finance charge due 
to a periodic interest rate. A deferred interest or similar promotional 
program under which the consumer is not obligated to pay interest that 
accrues on a balance if that balance is paid in full prior to the 
expiration of a specified period of time is not a grace period for 
purposes of Sec. 1026.5(b)(2)(ii)(B). Similarly, a period following the 
payment due date during which a late payment fee will not be imposed is 
not a grace period for purposes of Sec. 1026.5(b)(2)(ii)(B). See 
comments 7(b)(11)-1, 7(b)(11)-2, and 54(a)(1)-2.
    ii. Applicability of Sec. 1026.5(b)(2)(ii)(B)(1). Section 
1026.5(b)(2)(ii)(B)(1) applies if an account

[[Page 770]]

is eligible for a grace period when the periodic statement is mailed or 
delivered. Section 1026.5(b)(2)(ii)(B)(1) 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. 1026.5(b)(2)(ii)(B) and Sec. 1026.54. See comment 54(a)(1)-
1. Furthermore, the prohibition in Sec. 1026.5(b)(2)(ii)(B)(1)(ii) 
applies only during the 21-day period following mailing or delivery of 
the periodic statement and applies only when the creditor receives a 
payment within that 21-day period that satisfies the terms of the grace 
period.
    iii. Example. Assume that the billing cycles for an account begin on 
the first day of the month and end on the last day of the month and that 
the payment due date for the account is the twenty-fifth of the month. 
Assume also that, under the terms of the account, the balance at the end 
of a billing cycle must be paid in full by the following payment due 
date in order for the account to remain eligible for the grace period. 
At the end of the April billing cycle, the balance on the account is 
$500. The grace period applies to the $500 balance because the balance 
for the March billing cycle was paid in full on April 25. Accordingly, 
Sec. 1026.5(b)(2)(ii)(B)(1)(i) requires the creditor to have reasonable 
procedures designed to ensure that the periodic statement reflecting the 
$500 balance is mailed or delivered on or before May 4. Furthermore, 
Sec. 1026.5(b)(2)(ii)(B)(1)(ii) requires the creditor to have 
reasonable procedures designed to ensure that the creditor does not 
impose finance charges as a result of the loss of the grace period if a 
$500 payment is received on or before May 25. However, if the creditor 
receives a payment of $300 on April 25, Sec. 1026.5(b)(2)(ii)(B)(1)(ii) 
would not prohibit the creditor from imposing finance charges as a 
result of the loss of the grace period (to the extent permitted by Sec. 
1026.54).
    4. Application of Sec. 1026.5(b)(2)(ii) to charge card and charged-
off accounts. i. Charge card accounts. For purposes of Sec. 
1026.5(b)(2)(ii)(A)(1), the payment due date for a credit card account 
under an open-end (not home-secured) consumer credit plan is the date 
the card issuer is required to disclose on the periodic statement 
pursuant to Sec. 1026.7(b)(11)(i)(A). Because Sec. 1026.7(b)(11)(ii) 
provides that Sec. 1026.7(b)(11)(i) does not apply to periodic 
statements provided solely for charge card accounts, Sec. 
1026.5(b)(2)(ii)(A)(1) also does not apply to the mailing or delivery of 
periodic statements provided solely for such accounts. However, in these 
circumstances, Sec. 1026.5(b)(2)(ii)(A)(2) 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 the statement. A card issuer that complies with 
Sec. 1026.5(b)(2)(ii)(A) as discussed above with respect to a charge 
card account has also complied with Sec. 1026.5(b)(2)(ii)(B)(2). 
Section 1026.5(b)(2)(ii)(B)(1) does not apply to charge card accounts 
because, for purposes of Sec. 1026.5(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. 1026.2(a)(15)(iii), charge card accounts do not impose a finance 
charge based on a periodic rate.
    ii. Charged-off accounts. For purposes of Sec. 
1026.5(b)(2)(ii)(A)(1), the payment due date for a credit card account 
under an open-end (not home-secured) consumer credit plan is the date 
the card issuer is required to disclose on the periodic statement 
pursuant to Sec. 1026.7(b)(11)(i)(A). Because Sec. 1026.7(b)(11)(ii) 
provides that Sec. 1026.7(b)(11)(i) does not apply to periodic 
statements provided for charged-off accounts where full payment of the 
entire account balance is due immediately, Sec. 1026.5(b)(2)(ii)(A)(1) 
also does not apply to the mailing or delivery of periodic statements 
provided solely for such accounts. Furthermore, although Sec. 
1026.5(b)(2)(ii)(A)(2) 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 
the statement, Sec. 1026.5(b)(2)(ii)(A)(2) does not prohibit a card 
issuer from continuing to treat prior payments as late during that 
period. See comment 5(b)(2)(ii)-2. Similarly, although Sec. 
1026.5(b)(2)(ii)(B)(2) applies to open-end consumer credit accounts in 
these circumstances, Sec. 1026.5(b)(2)(ii)(B)(2)(ii) does not prohibit 
a creditor from continuing treating prior payments as late during the 
14-day period following mailing or delivery of a periodic statement. 
Section 1026.5(b)(2)(ii)(B)(1) 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.
    5. Consumer request to pick up periodic statements. When a consumer 
initiates a request, the creditor may permit, but may not require, the 
consumer to pick up periodic statements. If the consumer wishes to pick 
up a statement, the statement must be made available in accordance with 
Sec. 1026.5(b)(2)(ii).
    6. Deferred interest and similar promotional programs. See comment 
7(b)-1.iv.

             5(c) Basis of Disclosures and Use of Estimates

    1. Legal obligation. The disclosures should reflect the credit terms 
to which the parties are legally bound at the time of giving the 
disclosures.
    i. The legal obligation is determined by applicable state or other 
law.
    ii. The fact that a term or contract may later be deemed 
unenforceable by a court on the basis of equity or other grounds does 
not,

[[Page 771]]

by itself, mean that disclosures based on that term or contract did not 
reflect the legal obligation.
    iii. The legal obligation normally is presumed to be contained in 
the contract that evidences the agreement. But this may be rebutted if 
another agreement between the parties legally modifies that contract.
    2. Estimates--obtaining information. Disclosures may be estimated 
when the exact information is unknown at the time disclosures are made. 
Information is unknown if it is not reasonably available to the creditor 
at the time disclosures are made. The reasonably available standard 
requires that the creditor, acting in good faith, exercise due diligence 
in obtaining information. In using estimates, the creditor is not 
required to disclose the basis for the estimated figures, but may 
include such explanations as additional information. The creditor 
normally may rely on the representations of other parties in obtaining 
information. For example, the creditor might look to insurance companies 
for the cost of insurance.
    3. Estimates--redisclosure. If the creditor makes estimated 
disclosures, redisclosure is not required for that consumer, even though 
more accurate information becomes available before the first 
transaction. For example, in an open-end plan to be secured by real 
estate, the creditor may estimate the appraisal fees to be charged; such 
an estimate might reasonably be based on the prevailing market rates for 
similar appraisals. If the exact appraisal fee is determinable after the 
estimate is furnished but before the consumer receives the first advance 
under the plan, no new disclosure is necessary.

               5(d) Multiple Creditors; Multiple Consumers

    1. Multiple creditors. Under Sec. 1026.5(d):
    i. Creditors must choose which of them will make the disclosures.
    ii. A single, complete set of disclosures must be provided, rather 
than partial disclosures from several creditors.
    iii. All disclosures for the open-end credit plan must be given, 
even if the disclosing creditor would not otherwise have been obligated 
to make a particular disclosure.
    2. Multiple consumers. Disclosures may be made to either obligor on 
a joint account. Disclosure responsibilities are not satisfied by giving 
disclosures to only a surety or guarantor for a principal obligor or to 
an authorized user. In rescindable transactions, however, separate 
disclosures must be given to each consumer who has the right to rescind 
under Sec. 1026.15.
    3. Card issuer and person extending credit not the same person. 
Section 127(c)(4)(D) of the Truth in Lending Act (15 U.S.C. 
1637(c)(4)(D)) contains rules pertaining to charge card issuers with 
plans that allow access to an open-end credit plan that is maintained by 
a person other than the charge card issuer. These rules are not 
implemented in Regulation Z (although they were formerly implemented in 
Sec. 1026.60(f)). However, the statutory provisions remain in effect 
and may be used by charge card issuers with plans meeting the specified 
criteria.

                    5(e) Effect of Subsequent Events

    1. Events causing inaccuracies. Inaccuracies in disclosures are not 
violations if attributable to events occurring after disclosures are 
made. For example, when the consumer fails to fulfill a prior commitment 
to keep the collateral insured and the creditor then provides the 
coverage and charges the consumer for it, such a change does not make 
the original disclosures inaccurate. The creditor may, however, be 
required to provide a new disclosure(s) under Sec. 1026.9(c).
    2. Use of inserts. When changes in a creditor's plan affect required 
disclosures, the creditor may use inserts with outdated disclosure 
forms. Any insert:
    i. Should clearly refer to the disclosure provision it replaces.
    ii. Need not be physically attached or affixed to the basic 
disclosure statement.
    iii. May be used only until the supply of outdated forms is 
exhausted.

               Section 1026.6--Account-Opening Disclosures

                 6(a) Rules Affecting Home-Equity Plans

                         6(a)(1) Finance Charge

                          Paragraph 6(a)(1)(i)

    1. When finance charges accrue. Creditors are not required to 
disclose a specific date when finance charges will begin to accrue. 
Creditors may provide a general explanation such as that the consumer 
has 30 days from the closing date to pay the new balance before finance 
charges will accrue on the account.
    2. Grace periods. In disclosing whether or not a grace period 
exists, the creditor need not use ``free period,'' ``free-ride period,'' 
``grace period'' or any other particular descriptive phrase or term. For 
example, a statement that ``the finance charge begins on the date the 
transaction is posted to your account'' adequately discloses that no 
grace period exists. In the same fashion, a statement that ``finance 
charges will be imposed on any new purchases only if they are not paid 
in full within 25 days after the close of the billing cycle'' indicates 
that a grace period exists in the interim.

                          Paragraph 6(a)(1)(ii)

    1. Range of balances. The range of balances disclosure is 
inapplicable:
    i. If only one periodic rate may be applied to the entire account 
balance.

[[Page 772]]

    ii. If only one periodic rate may be applied to the entire balance 
for a feature (for example, cash advances), even though the balance for 
another feature (purchases) may be subject to two rates (a 1.5% monthly 
periodic rate on purchase balances of $0-$500, and a 1% monthly periodic 
rate for balances above $500). In this example, the creditor must give a 
range of balances disclosure for the purchase feature.
    2. Variable-rate disclosures--coverage. i. Examples. This section 
covers open-end credit plans under which rate changes are specifically 
set forth in the account agreement and are tied to an index or formula. 
A creditor would use variable-rate disclosures for plans involving rate 
changes such as the following:
    A. Rate changes that are tied to the rate the creditor pays on its 
six-month certificates of deposit.
    B. Rate changes that are tied to Treasury bill rates.
    C. Rate changes that are tied to changes in the creditor's 
commercial lending rate.
    ii. An open-end credit plan in which the employee receives a lower 
rate contingent upon employment (that is, with the rate to be increased 
upon termination of employment) is not a variable-rate plan.
    3. Variable-rate plan--rate(s) in effect. In disclosing the rate(s) 
in effect at the time of the account-opening disclosures (as is required 
by Sec. 1026.6(a)(1)(ii)), the creditor may use an insert showing the 
current rate; may give the rate as of a specified date and then update 
the disclosure from time to time, for example, each calendar month; or 
may disclose an estimated rate under Sec. 1026.5(c).
    4. Variable-rate plan--additional disclosures required. In addition 
to disclosing the rates in effect at the time of the account-opening 
disclosures, the disclosures under Sec. 1026.6(a)(1)(ii) also must be 
made.
    5. Variable-rate plan--index. The index to be used must be clearly 
identified; the creditor need not give, however, an explanation of how 
the index is determined or provide instructions for obtaining it.
    6. Variable-rate plan--circumstances for increase. i. Circumstances 
under which the rate(s) may increase include, for example:
    A. An increase in the Treasury bill rate.
    B. An increase in the Federal Reserve discount rate.
    ii. The creditor must disclose when the increase will take effect; 
for example:
    A. ``An increase will take effect on the day that the Treasury bill 
rate increases,'' or
    B. ``An increase in the Federal Reserve discount rate will take 
effect on the first day of the creditor's billing cycle.''
    7. Variable-rate plan--limitations on increase. In disclosing any 
limitations on rate increases, limitations such as the maximum increase 
per year or the maximum increase over the duration of the plan must be 
disclosed. When there are no limitations, the creditor may, but need 
not, disclose that fact. (A maximum interest rate must be included in 
dwelling-secured open-end credit plans under which the interest rate may 
be changed. See Sec. 1026.30 and the commentary to that section.) Legal 
limits such as usury or rate ceilings under state or Federal statutes or 
regulations need not be disclosed. Examples of limitations that must be 
disclosed include:
    i. ``The rate on the plan will not exceed 25% annual percentage 
rate.''
    ii. ``Not more than \1/2\ percent increase in the annual percentage 
rate per year will occur.''
    8. Variable-rate plan--effects of increase. Examples of effects of 
rate increases that must be disclosed include:
    i. Any requirement for additional collateral if the annual 
percentage rate increases beyond a specified rate.
    ii. Any increase in the scheduled minimum periodic payment amount.
    9. Variable-rate plan--change-in-terms notice not required. No 
notice of a change in terms is required for a rate increase under a 
variable-rate plan as defined in comment 6(a)(1)(ii)-2.
    10. Discounted variable-rate plans. In some variable-rate plans, 
creditors may set an initial interest rate that is not determined by the 
index or formula used to make later interest rate adjustments. 
Typically, this initial rate is lower than the rate would be if it were 
calculated using the index or formula.
    i. For example, a creditor may calculate interest rates according to 
a formula using the six-month Treasury bill rate plus a 2 percent 
margin. If the current Treasury bill rate is 10 percent, the creditor 
may forgo the 2 percent spread and charge only 10 percent for a limited 
time, instead of setting an initial rate of 12 percent, or the creditor 
may disregard the index or formula and set the initial rate at 9 
percent.
    ii. When creditors use an initial rate that is not calculated using 
the index or formula for later rate adjustments, the account-opening 
disclosure statement should reflect:
    A. The initial rate (expressed as a periodic rate and a 
corresponding annual percentage rate), together with a statement of how 
long the initial rate will remain in effect;
    B. The current rate that would have been applied using the index or 
formula (also expressed as a periodic rate and a corresponding annual 
percentage rate); and
    C. The other variable-rate information required in Sec. 
1026.6(a)(1)(ii).
    iii. In disclosing the current periodic and annual percentage rates 
that would be applied using the index or formula, the creditor may use 
any of the disclosure options described in comment 6(a)(1)(ii)-3.
    11. Increased penalty rates. If the initial rate may increase upon 
the occurrence of one or more specific events, such as a late payment

[[Page 773]]

or an extension of credit that exceeds the credit limit, the creditor 
must disclose the initial rate and the increased penalty rate that may 
apply. If the penalty rate is based on an index and an increased margin, 
the issuer must disclose the index and the margin. The creditor must 
also disclose the specific event or events that may result in the 
increased rate, such as ``22% APR, if 60 days late.'' If the penalty 
rate cannot be determined at the time disclosures are given, the 
creditor must provide an explanation of the specific event or events 
that may result in the increased rate. At the creditor's option, the 
creditor may disclose the period for which the increased rate will 
remain in effect, such as ``until you make three timely payments.'' The 
creditor need not disclose an increased rate that is imposed when credit 
privileges are permanently terminated.

                         Paragraph 6(a)(1)(iii)

    1. Explanation of balance computation method. A shorthand phrase 
such as ``previous balance method'' does not suffice in explaining the 
balance computation method. (See Model Clauses G-1 and G-1(A) to part 
1026.)
    2. Allocation of payments. Creditors may, but need not, explain how 
payments and other credits are allocated to outstanding balances. For 
example, the creditor need not disclose that payments are applied to 
late charges, overdue balances, and finance charges before being applied 
to the principal balance; or in a multifeatured plan, that payments are 
applied first to finance charges, then to purchases, and then to cash 
advances. (See comment 7-1 for definition of multifeatured plan.)

                          Paragraph 6(a)(1)(iv)

    1. Finance charges. In addition to disclosing the periodic rate(s) 
under Sec. 1026.6(a)(1)(ii), creditors must disclose any other type of 
finance charge that may be imposed, such as minimum, fixed, transaction, 
and activity charges; required insurance; or appraisal or credit report 
fees (unless excluded from the finance charge under Sec. 1026.4(c)(7)). 
Creditors are not required to disclose the fact that no finance charge 
is imposed when the outstanding balance is less than a certain amount or 
the balance below which no finance charge will be imposed.

                          6(a)(2) Other Charges

    1. General; examples of other charges. Under Sec. 1026.6(a)(2), 
significant charges related to the plan (that are not finance charges) 
must also be disclosed. For example:
    i. Late-payment and over-the-credit-limit charges.
    ii. Fees for providing documentary evidence of transactions 
requested under Sec. 1026.13 (billing error resolution).
    iii. Charges imposed in connection with residential mortgage 
transactions or real estate transactions such as title, appraisal, and 
credit-report fees (see Sec. 1026.4(c)(7)).
    iv. A tax imposed on the credit transaction by a state or other 
governmental body, such as a documentary stamp tax on cash advances. 
(See the commentary to Sec. 1026.4(a)).
    v. A membership or participation fee for a package of services that 
includes an open-end credit feature, unless the fee is required whether 
or not the open-end credit feature is included. For example, a 
membership fee to join a credit union is not an ``other charge,'' even 
if membership is required to apply for credit. For example, if the 
primary benefit of membership in an organization is the opportunity to 
apply for a credit card, and the other benefits offered (such as a 
newsletter or a member information hotline) are merely incidental to the 
credit feature, the membership fee would be disclosed as an ``other 
charge.''
    vi. Charges imposed for the termination of an open-end credit plan.
    2. Exclusions. The following are examples of charges that are not 
``other charges'':
    i. Fees charged for documentary evidence of transactions for income 
tax purposes.
    ii. Amounts payable by a consumer for collection activity after 
default; attorney's fees, whether or not automatically imposed; 
foreclosure costs; post-judgment interest rates imposed by law; and 
reinstatement or reissuance fees.
    iii. Premiums for voluntary credit life or disability insurance, or 
for property insurance, that are not part of the finance charge.
    iv. Application fees under Sec. 1026.4(c)(1).
    v. A monthly service charge for a checking account with overdraft 
protection that is applied to all checking accounts, whether or not a 
credit feature is attached.
    vi. Charges for submitting as payment a check that is later returned 
unpaid (See commentary to Sec. 1026.4(c)(2)).
    vii. Charges imposed on a cardholder by an institution other than 
the card issuer for the use of the other institution's ATM in a shared 
or interchange system. (See also comment 7(a)(2)-2.)
    viii. Taxes and filing or notary fees excluded from the finance 
charge under Sec. 1026.4(e).
    ix. A fee to expedite delivery of a credit card, either at account 
opening or during the life of the account, provided delivery of the card 
is also available by standard mail service (or other means at least as 
fast) without paying a fee for delivery.
    x. A fee charged for arranging a single payment on the credit 
account, upon the consumer's request (regardless of how frequently the 
consumer requests the service), if the credit plan provides that the 
consumer may make payments on the account by another reasonable means, 
such as by standard

[[Page 774]]

mail service, without paying a fee to the creditor.

                  6(a)(3) Home-Equity Plan Information

    1. Additional disclosures required. For home-equity plans, creditors 
must provide several of the disclosures set forth in Sec. 1026.40(d) 
along with the disclosures required under Sec. 1026.6. Creditors also 
must disclose a list of the conditions that permit the creditor to 
terminate the plan, freeze or reduce the credit limit, and implement 
specified modifications to the original terms. (See comment 
40(d)(4)(iii)-1.)
    2. Form of disclosures. The home-equity disclosures provided under 
this section must be in a form the consumer can keep, and are governed 
by Sec. 1026.5(a)(1). The segregation standard set forth in Sec. 
1026.40(a) does not apply to home-equity disclosures provided under 
Sec. 1026.6.
    3. Disclosure of payment and variable-rate examples. i. The payment-
example disclosure in Sec. 1026.40(d)(5)(iii) and the variable-rate 
information in Sec. 1026.40(d)(12)(viii), (d)(12)(x), (d)(12)(xi), and 
(d)(12)(xii) need not be provided with the disclosures under Sec. 
1026.6 if the disclosures under Sec. 1026.40(d) were provided in a form 
the consumer could keep; and the disclosures of the payment example 
under Sec. 1026.40(d)(5)(iii), the maximum-payment example under Sec. 
1026.40(d)(12)(x) and the historical table under Sec. 
1026.40(d)(12)(xi) included a representative payment example for the 
category of payment options the consumer has chosen.
    ii. For example, if a creditor offers three payment options (one for 
each of the categories described in the commentary to Sec. 
1026.40(d)(5)), describes all three options in its early disclosures, 
and provides all of the disclosures in a retainable form, that creditor 
need not provide the Sec. 1026.40(d)(5)(iii) or (d)(12) disclosures 
again when the account is opened. If the creditor showed only one of the 
three options in the early disclosures (which would be the case with a 
separate disclosure form rather than a combined form, as discussed under 
Sec. 1026.40(a)), the disclosures under Sec. 1026.40(d)(5)(iii), 
(d)(12)(viii), (d)(12)(x), (d)(12)(xi) and (d)(12)(xii) must be given to 
any consumer who chooses one of the other two options. If the Sec. 
1026.40(d)(5)(iii) and (d)(12) disclosures are provided with the second 
set of disclosures, they need not be transaction-specific, but may be 
based on a representative example of the category of payment option 
chosen.
    4. Disclosures for the repayment period. The creditor must provide 
disclosures about both the draw and repayment phases when giving the 
disclosures under Sec. 1026.6. Specifically, the creditor must make the 
disclosures in Sec. 1026.6(a)(3), state the corresponding annual 
percentage rate, and provide the variable-rate information required in 
Sec. 1026.6(a)(1)(ii) for the repayment phase. To the extent the 
corresponding annual percentage rate, the information in Sec. 
1026.6(a)(1)(ii), and any other required disclosures are the same for 
the draw and repayment phase, the creditor need not repeat such 
information, as long as it is clear that the information applies to both 
phases.

                       6(a)(4) Security Interests

    1. General. Creditors are not required to use specific terms to 
describe a security interest, or to explain the type of security or the 
creditor's rights with respect to the collateral.
    2. Identification of property. Creditors sufficiently identify 
collateral by type by stating, for example, motor vehicle or household 
appliances. (Creditors should be aware, however, that the Federal credit 
practices rules, as well as some state laws, prohibit certain security 
interests in household goods.) The creditor may, at its option, provide 
a more specific identification (for example, a model and serial number).
    3. Spreader clause. If collateral for preexisting credit with the 
creditor will secure the plan being opened, the creditor must disclose 
that fact. (Such security interests may be known as ``spreader'' or 
``dragnet'' clauses, or as ``cross-collateralization'' clauses.) The 
creditor need not specifically identify the collateral; a reminder such 
as ``collateral securing other loans with us may also secure this loan'' 
is sufficient. At the creditor's option, a more specific description of 
the property involved may be given.
    4. Additional collateral. If collateral is required when advances 
reach a certain amount, the creditor should disclose the information 
available at the time of the account-opening disclosures. For example, 
if the creditor knows that a security interest will be taken in 
household goods if the consumer's balance exceeds $1,000, the creditor 
should disclose accordingly. If the creditor knows that security will be 
required if the consumer's balance exceeds $1,000, but the creditor does 
not know what security will be required, the creditor must disclose on 
the initial disclosure statement that security will be required if the 
balance exceeds $1,000, and the creditor must provide a change-in-terms 
notice under Sec. 1026.9(c) at the time the security is taken. (See 
comment 6(a)(4)-2.)
    5. Collateral from third party. Security interests taken in 
connection with the plan must be disclosed, whether the collateral is 
owned by the consumer or a third party.

                   6(a)(5) Statement of Billing Rights

    1. See the commentary to Model Forms G-3, G-3(A), G-4, and G-4(A).

[[Page 775]]

         6(b) Rules Affecting Open-End (Not Home-Secured) Plans

   6(b)(1) Form of Disclosures; Tabular Format for Open-End (Not Home-
                             Secured) Plans

    1. Relation to tabular summary for applications and solicitations. 
See commentary to Sec. 1026.60(a), (b), and (c) regarding format and 
content requirements, except for the following:
    i. Creditors must use the accuracy standard for annual percentage 
rates in Sec. 1026.6(b)(4)(ii)(G).
    ii. Generally, creditors must disclose the specific rate for each 
feature that applies to the account. If the rates on an open-end (not 
home-secured) plan vary by state and the creditor is providing the 
account-opening table in person at the time the plan is established in 
connection with financing the purchase of goods or services the creditor 
may, at its option, disclose in the account-opening table (A) the rate 
applicable to the consumer's account, or (B) the range of rates, if the 
disclosure includes a statement that the rate varies by state and refers 
the consumer to the account agreement or other disclosure provided with 
the account-opening table where the rate applicable to the consumer's 
account is disclosed.
    iii. Creditors must explain whether or not a grace period exists for 
all features on the account. The row heading ``Paying Interest'' must be 
used if any one feature on the account does not have a grace period.
    iv. Creditors must name the balance computation method used for each 
feature of the account and state that an explanation of the balance 
computation method(s) is provided in the account-opening disclosures.
    v. Creditors must state that consumers' billing rights are provided 
in the account-opening disclosures.
    vi. If fees on an open-end (not home-secured) plan vary by state and 
the creditor is providing the account-opening table in person at the 
time the plan is established in connection with financing the purchase 
of goods or services the creditor may, at its option, disclose in the 
account-opening table (A) the specific fee applicable to the consumer's 
account, or (B) the range of fees, if the disclosure includes a 
statement that the amount of the fee varies by state and refers the 
consumer to the account agreement or other disclosure provided with the 
account-opening table where the fee applicable to the consumer's account 
is disclosed.
    vii. Creditors that must disclose the amount of available credit 
must state the initial credit limit provided on the account.
    viii. Creditors must disclose directly beneath the table the 
circumstances under which an introductory rate may be revoked and the 
rate that will apply after the introductory rate is revoked. Issuers of 
credit card accounts under an open-end (not home-secured) consumer 
credit plan are subject to limitations on the circumstances under which 
an introductory rate may be revoked. (See comment 60(b)(1)-5 for 
guidance on how a card issuer may disclose the circumstances under which 
an introductory rate may be revoked.)
    ix. The applicable forms providing safe harbors for account-opening 
tables are under Appendix G-17 to part 1026.
    2. Clear and conspicuous standard. See comment 5(a)(1)-1 for the 
clear and conspicuous standard applicable to Sec. 1026.6 disclosures.
    3. Terminology. Section 1026.6(b)(1) generally requires that the 
headings, content, and format of the tabular disclosures be 
substantially similar, but need not be identical, to the tables in 
Appendix G to part 1026; but see Sec. 1026.5(a)(2) for terminology 
requirements applicable to Sec. 1026.6(b).

6(b)(2) Required Disclosures for Account-Opening Table for Open-End (Not 
                           Home-Secured) Plans

       6(b)(2)(iii) Fixed Finance Charge; Minimum Interest Charge

    1. Example of brief statement. See Samples G-17(B), G-17(C), and G-
17(D) for guidance on how to provide a brief description of a minimum 
interest charge.

                         6(b)(2)(v) Grace Period

    1. Grace period. Creditors must state any conditions on the 
applicability of the grace period. A creditor, however, may not disclose 
under Sec. 1026.6(b)(2)(v) the limitations on the imposition of finance 
charges as a result of a loss of a grace period in Sec. 1026.54, or the 
impact of payment allocation on whether interest is charged on 
transactions as a result of a loss of a grace period. Some creditors may 
offer a grace period on all types of transactions under which interest 
will not be charged on transactions if the consumer pays the outstanding 
balance shown on a periodic statement in full by the due date shown on 
that statement for one or more billing cycles. In these circumstances, 
Sec. 1026.6(b)(2)(v) requires that the creditor disclose the grace 
period and the conditions for its applicability using the following 
language, or substantially similar language, as applicable: ``Your due 
date is [at least] ------ days after the close of each billing cycle. We 
will not charge you any interest on your account if you pay your entire 
balance by the due date each month.'' However, other creditors may offer 
a grace period on all types of transactions under which interest may be 
charged on transactions even if the consumer pays the outstanding 
balance shown on a periodic statement in full by the due date shown on 
that statement each billing cycle. In these circumstances, Sec. 
1026.6(b)(2)(v) requires the creditor to amend the above disclosure 
language to describe accurately the

[[Page 776]]

conditions on the applicability of the grace period.
    2. No grace period. Creditors may use the following language to 
describe that no grace period is offered, as applicable: ``We will begin 
charging interest on [applicable transactions] on the transaction 
date.''
    3. Grace period on some features. Some creditors do not offer a 
grace period on cash advances and balance transfers, but offer a grace 
period for all purchases under which interest will not be charged on 
purchases if the consumer pays the outstanding balance shown on a 
periodic statement in full by the due date shown on that statement for 
one or more billing cycles. In these circumstances, Sec. 
1026.6(b)(2)(v) requires that the creditor disclose the grace period for 
purchases and the conditions for its applicability, and the lack of a 
grace period for cash advances and balance transfers using the following 
language, or substantially similar language, as applicable: ``Your due 
date is [at least] ------ 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. We will begin charging interest on 
cash advances and balance transfers on the transaction date.'' However, 
other creditors may offer a grace period on all purchases under which 
interest may be charged on purchases even if the consumer pays the 
outstanding balance shown on a periodic statement in full by the due 
date shown on that statement each billing cycle. In these circumstances, 
Sec. 1026.6(a)(2)(v) requires the creditor to amend the above 
disclosure language to describe accurately the conditions on the 
applicability of the grace period. Also, some creditors may not offer a 
grace period on cash advances and balance transfers, and will begin 
charging interest on these transactions from a date other than the 
transaction date, such as the posting date. In these circumstances, 
Sec. 1026.6(a)(2)(v) requires the creditor to amend the above 
disclosure language to be accurate.

                 6(b)(2)(vi) Balance Computation Method

    1. Use of same balance computation method for all features. In cases 
where the balance for each feature is computed using the same balance 
computation method, a single identification of the name of the balance 
computation method is sufficient. In this case, a creditor may use an 
appropriate name listed in Sec. 1026.60(g) (e.g., ``average daily 
balance (including new purchases)'') to satisfy the requirement to 
disclose the name of the method for all features on the account, even 
though the name only refers to purchases. For example, if a creditor 
uses the average daily balance method including new transactions for all 
features, a creditor may use the name ``average daily balance (including 
new purchases)'' listed in Sec. 1026.60(g)(i) to satisfy the 
requirement to disclose the name of the balance computation method for 
all features. As an alternative, in this situation, a creditor may 
revise the balance computation names listed in Sec. 1026.60(g) to refer 
more broadly to all new credit transactions, such as using the language 
``new transactions'' or ``current transactions'' (e.g., ``average daily 
balance (including new transactions)''), rather than simply referring to 
new purchases when the same method is used to calculate the balances for 
all features of the account. See Samples G-17(B) and G-17(C) for 
guidance on how to disclose the balance computation method where the 
same method is used for all features on the account.
    2. Use of balance computation names in Sec. 1026.60(g) for balances 
other than purchases. The names of the balance computation methods 
listed in Sec. 1026.60(g) describe balance computation methods for 
purchases. When a creditor is disclosing the name of the balance 
computation methods separately for each feature, in using the names 
listed in Sec. 1026.60(g) to satisfy the requirements of Sec. 
1026.6(b)(2)(vi) for features other than purchases, a creditor must 
revise the names listed in Sec. 1026.60(g) to refer to the other 
features. For example, when disclosing the name of the balance 
computation method applicable to cash advances, a creditor must revise 
the name listed in Sec. 1026.60(g)(i) to disclose it as ``average daily 
balance (including new cash advances)'' when the balance for cash 
advances is figured by adding the outstanding balance (including new 
cash advances and deducting payments and credits) for each day in the 
billing cycle, and then dividing by the number of days in the billing 
cycle. Similarly, a creditor must revise the name listed in Sec. 
1026.60(g)(ii) to disclose it as ``average daily balance (excluding new 
cash advances)'' when the balance for cash advances is figured by adding 
the outstanding balance (excluding new cash advances and deducting 
payments and credits) for each day in the billing cycle, and then 
dividing by the number of days in the billing cycle. See comment 
6(b)(2)(vi)-1 for guidance on the use of one balance computation name 
when the same balance computation method is used for all features on the 
account.

                     6(b)(2)(xiii) Available Credit

    1. Right to reject the plan. Creditors may use the following 
language to describe consumers' right to reject a plan after receiving 
account-opening disclosures: ``You may still reject this plan, provided 
that you have not yet used the account or paid a fee after receiving a 
billing statement. If you do reject the plan, you are not responsible 
for any fees or charges.''

[[Page 777]]

  6(b)(3) Disclosure of Charges Imposed as Part of Open-End (Not Home-
                             Secured) Plans

    1. When finance charges accrue. Creditors are not required to 
disclose a specific date when a cost that is a finance charge under 
Sec. 1026.4 will begin to accrue.
    2. Grace periods. In disclosing in the account agreement or 
disclosure statement whether or not a grace period exists, the creditor 
need not use any particular descriptive phrase or term. However, the 
descriptive phrase or term must be sufficiently similar to the 
disclosures provided pursuant to Sec. Sec. 1026.60(b)(5) and 
1026.6(b)(2)(v) to satisfy a creditor's duty to provide consistent 
terminology under Sec. 1026.5(a)(2).
    3. No finance charge imposed below certain balance. Creditors are 
not required to disclose the fact that no finance charge is imposed when 
the outstanding balance is less than a certain amount or the balance 
below which no finance charge will be imposed.

                          Paragraph 6(b)(3)(ii)

    1. Failure to use the plan as agreed. Late payment fees, over-the-
limit fees, and fees for payments returned unpaid are examples of 
charges resulting from consumers' failure to use the plan as agreed.
    2. Examples of fees that affect the plan. Examples of charges the 
payment, or nonpayment, of which affects the consumer's account are:
    i. Access to the plan. Fees for using the card at the creditor's ATM 
to obtain a cash advance, fees to obtain additional cards including 
replacements for lost or stolen cards, fees to expedite delivery of 
cards or other credit devices, application and membership fees, and 
annual or other participation fees identified in Sec. 1026.4(c)(4).
    ii. Amount of credit extended. Fees for increasing the credit limit 
on the account, whether at the consumer's request or unilaterally by the 
creditor.
    iii. Timing or method of billing or payment. Fees to pay by 
telephone or via the Internet.
    3. Threshold test. If the creditor is unsure whether a particular 
charge is a cost imposed as part of the plan, the creditor may at its 
option consider such charges as a cost imposed as part of the plan for 
purposes of the Truth in Lending Act.

                        Paragraph 6(b)(3)(iii)(B)

    1. Fees for package of services. A fee to join a credit union is an 
example of a fee for a package of services that is not imposed as part 
of the plan, even if the consumer must join the credit union to apply 
for credit. In contrast, a membership fee is an example of a fee for a 
package of services that is considered to be imposed as part of a plan 
where the primary benefit of membership in the organization is the 
opportunity to apply for a credit card, and the other benefits offered 
(such as a newsletter or a member information hotline) are merely 
incidental to the credit feature.

    6(b)(4) Disclosure of Rates for Open-End (Not Home-Secured) Plans

                     6(b)(4)(i)(B) Range of Balances

    1. Range of balances. Creditors are not required to disclose the 
range of balances:
    i. If only one periodic interest rate may be applied to the entire 
account balance.
    ii. If only one periodic interest rate may be applied to the entire 
balance for a feature (for example, cash advances), even though the 
balance for another feature (purchases) may be subject to two rates (a 
1.5% monthly periodic interest rate on purchase balances of $0-$500, and 
a 1% periodic interest rate for balances above $500). In this example, 
the creditor must give a range of balances disclosure for the purchase 
feature.

                6(b)(4)(i)(D) Balance Computation Method

    1. Explanation of balance computation method. Creditors do not 
provide a sufficient explanation of a balance computation method by 
using a shorthand phrase such as ``previous balance method'' or the name 
of a balance computation method listed in Sec. 1026.60(g). (See Model 
Clauses G-1(A) in Appendix G to part 1026. See Sec. 1026.6(b)(2)(vi) 
regarding balance computation descriptions in the account-opening 
summary.)
    2. Allocation of payments. Creditors may, but need not, explain how 
payments and other credits are allocated to outstanding balances.

                   6(b)(4)(ii) Variable-Rate Accounts

    1. Variable-rate disclosures--coverage. i. Examples. Examples of 
open-end plans that permit the rate to change and are considered 
variable-rate plans include:
    A. Rate changes that are tied to the rate the creditor pays on its 
six-month certificates of deposit.
    B. Rate changes that are tied to Treasury bill rates.
    C. Rate changes that are tied to changes in the creditor's 
commercial lending rate.
    ii. Examples of open-end plans that permit the rate to change and 
are not considered variable-rate include:
    A. Rate changes that are invoked under a creditor's contract 
reservation to increase the rate without reference to such an index or 
formula (for example, a plan that simply provides that the creditor 
reserves the right to raise its rates).
    B. Rate changes that are triggered by a specific event such as an 
open-end credit plan in which the employee receives a lower rate 
contingent upon employment, and the rate increases upon termination of 
employment.

[[Page 778]]

    2. Variable-rate plan--circumstances for increase. i. The following 
are examples that comply with the requirement to disclose circumstances 
under which the rate(s) may increase:
    A. ``The Treasury bill rate increases.''
    B. ``The Federal Reserve discount rate increases.''
    ii. Disclosing the frequency with which the rate may increase 
includes disclosing when the increase will take effect; for example:
    A. ``An increase will take effect on the day that the Treasury bill 
rate increases.''
    B. ``An increase in the Federal Reserve discount rate will take 
effect on the first day of the creditor's billing cycle.''
    3. Variable-rate plan--limitations on increase. In disclosing any 
limitations on rate increases, limitations such as the maximum increase 
per year or the maximum increase over the duration of the plan must be 
disclosed. When there are no limitations, the creditor may, but need 
not, disclose that fact. Legal limits such as usury or rate ceilings 
under state or Federal statutes or regulations need not be disclosed. 
Examples of limitations that must be disclosed include:
    i. ``The rate on the plan will not exceed 25% annual percentage 
rate.''
    ii. ``Not more than \1/2\; of 1% increase in the annual percentage 
rate per year will occur.''
    4. Variable-rate plan--effects of increase. Examples of effects of 
rate increases that must be disclosed include:
    i. Any requirement for additional collateral if the annual 
percentage rate increases beyond a specified rate.
    ii. Any increase in the scheduled minimum periodic payment amount.
    5. Discounted variable-rate plans. In some variable-rate plans, 
creditors may set an initial interest rate that is not determined by the 
index or formula used to make later interest rate adjustments. 
Typically, this initial rate is lower than the rate would be if it were 
calculated using the index or formula.
    i. For example, a creditor may calculate interest rates according to 
a formula using the six-month Treasury bill rate plus a 2 percent 
margin. If the current Treasury bill rate is 10 percent, the creditor 
may forgo the 2 percent spread and charge only 10 percent for a limited 
time, instead of setting an initial rate of 12 percent, or the creditor 
may disregard the index or formula and set the initial rate at 9 
percent.
    ii. When creditors disclose in the account-opening disclosures an 
initial rate that is not calculated using the index or formula for later 
rate adjustments, the disclosure should reflect:
    A. The initial rate (expressed as a periodic rate and a 
corresponding annual percentage rate), together with a statement of how 
long the initial rate will remain in effect;
    B. The current rate that would have been applied using the index or 
formula (also expressed as a periodic rate and a corresponding annual 
percentage rate); and
    C. The other variable-rate information required by Sec. 
1026.6(b)(4)(ii).

          6(b)(4)(iii) Rate Changes Not Due to Index or Formula

    1. Events that cause the initial rate to change. i. Changes based on 
expiration of time period. If the initial rate will change at the 
expiration of a time period, creditors that disclose the initial rate in 
the account-opening disclosure must identify the expiration date and the 
fact that the initial rate will end at that time.
    ii. Changes based on specified contract terms. If the account 
agreement provides that the creditor may change the initial rate upon 
the occurrence of a specified event or events, the creditor must 
identify the events or events. Examples include the consumer not making 
the required minimum payment when due, or the termination of an employee 
preferred rate when the employment relationship is terminated.
    2. Rate that will apply after initial rate changes. i. Increased 
margins. If the initial rate is based on an index and the rate may 
increase due to a change in the margin applied to the index, the 
creditor must disclose the increased margin. If more than one margin 
could apply, the creditor may disclose the highest margin.
    ii. Risk-based pricing. In some plans, the amount of the rate change 
depends on how the creditor weighs the occurrence of events specified in 
the account agreement that authorize the creditor to change rates, as 
well as other factors. Creditors must state the increased rate that may 
apply. At the creditor's option, the creditor may state the possible 
rates as a range, or by stating only the highest rate that could be 
assessed. The creditor must disclose the period for which the increased 
rate will remain in effect, such as ``until you make three timely 
payments,'' or if there is no limitation, the fact that the increased 
rate may remain indefinitely.
    3. Effect of rate change on balances. Creditors must disclose 
information to consumers about the balance to which the new rate will 
apply and the balance to which the current rate at the time of the 
change will apply. Card issuers subject to Sec. 1026.55 may be subject 
to certain restrictions on the application of increased rates to certain 
balances.

  6(b)(5) Additional Disclosures for Open-End (Not Home-Secured) Plans

    6(b)(5)(i) Voluntary Credit Insurance, Debt Cancellation or Debt 
                               Suspension

    1. Timing. Under Sec. 1026.4(d), disclosures required to exclude 
the cost of voluntary credit insurance or debt cancellation or debt 
suspension coverage from the finance charge must be provided before the 
consumer agrees

[[Page 779]]

to the purchase of the insurance or coverage. Creditors comply with 
Sec. 1026.6(b)(5)(i) if they provide those disclosures in accordance 
with Sec. 1026.4(d). For example, if the disclosures required by Sec. 
1026.4(d) are provided at application, creditors need not repeat those 
disclosures at account opening.

                     6(b)(5)(ii) Security Interests

    1. General. Creditors are not required to use specific terms to 
describe a security interest, or to explain the type of security or the 
creditor's rights with respect to the collateral.
    2. Identification of property. Creditors sufficiently identify 
collateral by type by stating, for example, motor vehicle or household 
appliances. (Creditors should be aware, however, that the Federal credit 
practices rules, as well as some state laws, prohibit certain security 
interests in household goods.) The creditor may, at its option, provide 
a more specific identification (for example, a model and serial number.)
    3. Spreader clause. If collateral for preexisting credit with the 
creditor will secure the plan being opened, the creditor must disclose 
that fact. (Such security interests may be known as ``spreader'' or 
``dragnet'' clauses, or as ``cross-collateralization'' clauses.) The 
creditor need not specifically identify the collateral; a reminder such 
as ``collateral securing other loans with us may also secure this loan'' 
is sufficient. At the creditor's option, a more specific description of 
the property involved may be given.
    4. Additional collateral. If collateral is required when advances 
reach a certain amount, the creditor should disclose the information 
available at the time of the account-opening disclosures. For example, 
if the creditor knows that a security interest will be taken in 
household goods if the consumer's balance exceeds $1,000, the creditor 
should disclose accordingly. If the creditor knows that security will be 
required if the consumer's balance exceeds $1,000, but the creditor does 
not know what security will be required, the creditor must disclose on 
the initial disclosure statement that security will be required if the 
balance exceeds $1,000, and the creditor must provide a change-in-terms 
notice under Sec. 1026.9(c) at the time the security is taken. (See 
comment 6(b)(5)(ii)-2.)
    5. Collateral from third party. Security interests taken in 
connection with the plan must be disclosed, whether the collateral is 
owned by the consumer or a third party.

                6(b)(5)(iii) Statement of Billing Rights

    1. See the commentary to Model Forms G-3(A) and G-4(A).

                   Section 1026.7--Periodic Statement

    1. Multifeatured plans. Some plans involve a number of different 
features, such as purchases, cash advances, or overdraft checking. 
Groups of transactions subject to different finance charge terms because 
of the dates on which the transactions took place are treated like 
different features for purposes of disclosures on the periodic 
statements. The commentary includes additional guidance for 
multifeatured plans.

                 7(a) Rules Affecting Home-Equity Plans

                        7(a)(1) Previous Balance

    1. Credit balances. If the previous balance is a credit balance, it 
must be disclosed in such a way so as to inform the consumer that it is 
a credit balance, rather than a debit balance.
    2. Multifeatured plans. In a multifeatured plan, the previous 
balance may be disclosed either as an aggregate balance for the account 
or as separate balances for each feature (for example, a previous 
balance for purchases and a previous balance for cash advances). If 
separate balances are disclosed, a total previous balance is optional.
    3. Accrued finance charges allocated from payments. Some open-end 
credit plans provide that the amount of the finance charge that has 
accrued since the consumer's last payment is directly deducted from each 
new payment, rather than being separately added to each statement and 
reflected as an increase in the obligation. In such a plan, the previous 
balance need not reflect finance charges accrued since the last payment.

                 7(a)(2) Identification of Transactions

    1. Multifeatured plans. In identifying transactions under Sec. 
1026.7(a)(2) for multifeatured plans, creditors may, for example, choose 
to arrange transactions by feature (such as disclosing sale transactions 
separately from cash advance transactions) or in some other clear 
manner, such as by arranging the transactions in general chronological 
order.
    2. Automated teller machine (ATM) charges imposed by other 
institutions in shared or interchange systems. A charge imposed on the 
cardholder by an institution other than the card issuer for the use of 
the other institution's ATM in a shared or interchange system and 
included by the terminal-operating institution in the amount of the 
transaction need not be separately disclosed on the periodic statement.

                             7(a)(3) Credits

    1. Identification--sufficiency. The creditor need not describe each 
credit by type (returned merchandise, rebate of finance charge, etc.)--
``credit'' would suffice--except if the creditor is using the periodic 
statement to satisfy the billing-error correction notice requirement. 
(See the commentary to Sec. 1026.13(e) and (f).)

[[Page 780]]

    2. Format. A creditor may list credits relating to credit extensions 
(payments, rebates, etc.) together with other types of credits (such as 
deposits to a checking account), as long as the entries are identified 
so as to inform the consumer which type of credit each entry represents.
    3. Date. If only one date is disclosed (that is, the crediting date 
as required by the regulation), no further identification of that date 
is necessary. More than one date may be disclosed for a single entry, as 
long as it is clear which date represents the date on which credit was 
given.
    4. Totals. A total of amounts credited during the billing cycle is 
not required.

                         7(a)(4) Periodic Rates

    1. Disclosure of periodic rates--whether or not actually applied. 
Except as provided in Sec. 1026.7(a)(4)(ii), any periodic rate that may 
be used to compute finance charges (and its corresponding annual 
percentage rate) must be disclosed whether or not it is applied during 
the billing cycle. For example:
    i. If the consumer's account has both a purchase feature and a cash 
advance feature, the creditor must disclose the rate for each, even if 
the consumer only makes purchases on the account during the billing 
cycle.
    ii. If the rate varies (such as when it is tied to a particular 
index), the creditor must disclose each rate in effect during the cycle 
for which the statement was issued.
    2. Disclosure of periodic rates required only if imposition 
possible. With regard to the periodic rate disclosure (and its 
corresponding annual percentage rate), only rates that could have been 
imposed during the billing cycle reflected on the periodic statement 
need to be disclosed. For example:
    i. If the creditor is changing rates effective during the next 
billing cycle (because of a variable-rate plan), the rates required to 
be disclosed under Sec. 1026.7(a)(4) are only those in effect during 
the billing cycle reflected on the periodic statement. For example, if 
the monthly rate applied during May was 1.5%, but the creditor will 
increase the rate to 1.8% effective June 1, 1.5% (and its corresponding 
annual percentage rate) is the only required disclosure under Sec. 
1026.7(a)(4) for the periodic statement reflecting the May account 
activity.
    ii. If rates applicable to a particular type of transaction changed 
after a certain date and the old rate is only being applied to 
transactions that took place prior to that date, the creditor need not 
continue to disclose the old rate for those consumers that have no 
outstanding balances to which that rate could be applied.
    3. Multiple rates--same transaction. If two or more periodic rates 
are applied to the same balance for the same type of transaction (for 
example, if the finance charge consists of a monthly periodic rate of 
1.5% applied to the outstanding balance and a required credit life 
insurance component calculated at 0.1% per month on the same outstanding 
balance), the creditor may do either of the following:
    i. Disclose each periodic rate, the range of balances to which it is 
applicable, and the corresponding annual percentage rate for each. (For 
example, 1.5% monthly, 18% annual percentage rate; 0.1% monthly, 1.2% 
annual percentage rate.)
    ii. Disclose one composite periodic rate (that is, 1.6% per month) 
along with the applicable range of balances and the corresponding annual 
percentage rate.
    4. Corresponding annual percentage rate. In disclosing the annual 
percentage rate that corresponds to each periodic rate, the creditor may 
use ``corresponding annual percentage rate,'' ``nominal annual 
percentage rate,'' ``corresponding nominal annual percentage rate,'' or 
similar phrases.
    5. Rate same as actual annual percentage rate. When the 
corresponding rate is the same as the annual percentage rate disclosed 
under Sec. 1026.7(a)(7), the creditor need disclose only one annual 
percentage rate, but must use the phrase ``annual percentage rate.''
    6. Range of balances. See comment 6(a)(1)(ii)-1. A creditor is not 
required to adjust the range of balances disclosure to reflect the 
balance below which only a minimum charge applies.

            7(a)(5) Balance on Which Finance Charge Computed

    1. Limitation to periodic rates. Section 1026.7(a)(5) only requires 
disclosure of the balance(s) to which a periodic rate was applied and 
does not apply to balances on which other kinds of finance charges (such 
as transaction charges) were imposed. For example, if a consumer obtains 
a $1,500 cash advance subject to both a 1% transaction fee and a 1% 
monthly periodic rate, the creditor need only disclose the balance 
subject to the monthly rate (which might include portions of earlier 
cash advances not paid off in previous cycles).
    2. Split rates applied to balance ranges. If split rates were 
applied to a balance because different portions of the balance fall 
within two or more balance ranges, the creditor need not separately 
disclose the portions of the balance subject to such different rates 
since the range of balances to which the rates apply has been separately 
disclosed. For example, a creditor could disclose a balance of $700 for 
purchases even though a monthly periodic rate of 1.5% applied to the 
first $500, and a monthly periodic rate of 1% to the remainder. This 
option to disclose a combined balance does not apply when the finance 
charge is computed by applying the split rates to each day's balance (in 
contrast,

[[Page 781]]

for example, to applying the rates to the average daily balance). In 
that case, the balances must be disclosed using any of the options that 
are available if two or more daily rates are imposed. (See comment 
7(a)(5)-5.)
    3. Monthly rate on average daily balance. Creditors may apply a 
monthly periodic rate to an average daily balance.
    4. Multifeatured plans. In a multifeatured plan, the creditor must 
disclose a separate balance (or balances, as applicable) to which a 
periodic rate was applied for each feature or group of features subject 
to different periodic rates or different balance computation methods. 
Separate balances are not required, however, merely because a grace 
period is available for some features but not others. A total balance 
for the entire plan is optional. This does not affect how many balances 
the creditor must disclose--or may disclose--within each feature. (See, 
for example, comment 7(a)(5)-5.)
    5. Daily rate on daily balances. If the finance charge is computed 
on the balance each day by application of one or more daily periodic 
rates, the balance on which the finance charge was computed may be 
disclosed in any of the following ways for each feature:
    i. If a single daily periodic rate is imposed, the balance to which 
it is applicable may be stated as:
    A. A balance for each day in the billing cycle.
    B. A balance for each day in the billing cycle on which the balance 
in the account changes.
    C. The sum of the daily balances during the billing cycle.
    D. The average daily balance during the billing cycle, in which case 
the creditor shall explain that the average daily balance is or can be 
multiplied by the number of days in the billing cycle and the periodic 
rate applied to the product to determine the amount of the finance 
charge.
    ii. If two or more daily periodic rates may be imposed, the balances 
to which the rates are applicable may be stated as:
    A. A balance for each day in the billing cycle.
    B. A balance for each day in the billing cycle on which the balance 
in the account changes.
    C. Two or more average daily balances, each applicable to the daily 
periodic rates imposed for the time that those rates were in effect, as 
long as the creditor explains that the finance charge is or may be 
determined by (1) multiplying each of the average balances by the number 
of days in the billing cycle (or if the daily rate varied during the 
cycle, by multiplying by the number of days the applicable rate was in 
effect), (2) multiplying each of the results by the applicable daily 
periodic rate, and (3) adding these products together.
    6. Explanation of balance computation method. See the commentary to 
6(a)(1)(iii).
    7. Information to compute balance. In connection with disclosing the 
finance charge balance, the creditor need not give the consumer all of 
the information necessary to compute the balance if that information is 
not otherwise required to be disclosed. For example, if current 
purchases are included from the date they are posted to the account, the 
posting date need not be disclosed.
    8. Non-deduction of credits. The creditor need not specifically 
identify the total dollar amount of credits not deducted in computing 
the finance charge balance. Disclosure of the amount of credits not 
deducted is accomplished by listing the credits (Sec. 1026.7(a)(3)) and 
indicating which credits will not be deducted in determining the balance 
(for example, ``credits after the 15th of the month are not deducted in 
computing the finance charge.'').
    9. Use of one balance computation method explanation when multiple 
balances disclosed. Sometimes the creditor will disclose more than one 
balance to which a periodic rate was applied, even though each balance 
was computed using the same balance computation method. For example, if 
a plan involves purchases and cash advances that are subject to 
different rates, more than one balance must be disclosed, even though 
the same computation method is used for determining the balance for each 
feature. In these cases, one explanation of the balance computation 
method is sufficient. Sometimes the creditor separately discloses the 
portions of the balance that are subject to different rates because 
different portions of the balance fall within two or more balance 
ranges, even when a combined balance disclosure would be permitted under 
comment 7(a)(5)-2. In these cases, one explanation of the balance 
computation method is also sufficient (assuming, of course, that all 
portions of the balance were computed using the same method).

           7(a)(6) Amount of Finance Charge and Other Charges

                       7(a)(6)(i) Finance Charges

    1. Total. A total finance charge amount for the plan is not 
required.
    2. Itemization--types of finance charges. Each type of finance 
charge (such as periodic rates, transaction charges, and minimum 
charges) imposed during the cycle must be separately itemized; for 
example, disclosure of only a combined finance charge attributable to 
both a minimum charge and transaction charges would not be permissible. 
Finance charges of the same type may be disclosed, however, individually 
or as a total. For example, five transaction charges of $1 may be listed 
separately or as $5.

[[Page 782]]

    3. Itemization--different periodic rates. Whether different periodic 
rates are applicable to different types of transactions or to different 
balance ranges, the creditor may give the finance charge attributable to 
each rate or may give a total finance charge amount. For example, if a 
creditor charges 1.5% per month on the first $500 of a balance and 1% 
per month on amounts over $500, the creditor may itemize the two 
components ($7.50 and $1.00) of the $8.50 charge, or may disclose $8.50.
    4. Multifeatured plans. In a multifeatured plan, in disclosing the 
amount of the finance charge attributable to the application of periodic 
rates no total periodic rate disclosure for the entire plan need be 
given.
    5. Finance charges not added to account. A finance charge that is 
not included in the new balance because it is payable to a third party 
(such as required life insurance) must still be shown on the periodic 
statement as a finance charge.
    6. Finance charges other than periodic rates. See comment 
6(a)(1)(iv)-1 for examples.
    7. Accrued finance charges allocated from payments. Some plans 
provide that the amount of the finance charge that has accrued since the 
consumer's last payment is directly deducted from each new payment, 
rather than being separately added to each statement and therefore 
reflected as an increase in the obligation. In such a plan, no 
disclosure is required of finance charges that have accrued since the 
last payment.
    8. Start-up fees. Points, loan fees, and similar finance charges 
relating to the opening of the account that are paid prior to the 
issuance of the first periodic statement need not be disclosed on the 
periodic statement. If, however, these charges are financed as part of 
the plan, including charges that are paid out of the first advance, the 
charges must be disclosed as part of the finance charge on the first 
periodic statement. However, they need not be factored into the annual 
percentage rate. (See Sec. 1026.14(c)(3).)

                        7(a)(6)(ii) Other Charges

    1. Identification. In identifying any other charges actually imposed 
during the billing cycle, the type is adequately described as late 
charge or membership fee, for example. Similarly, closing costs or 
settlement costs, for example, may be used to describe charges imposed 
in connection with real estate transactions that are excluded from the 
finance charge under Sec. 1026.4(c)(7), if the same term (such as 
closing costs) was used in the initial disclosures and if the creditor 
chose to itemize and individually disclose the costs included in that 
term. Even though the taxes and filing or notary fees excluded from the 
finance charge under Sec. 1026.4(e) are not required to be disclosed as 
other charges under Sec. 1026.6(a)(2), these charges may be included in 
the amount shown as closing costs or settlement costs on the periodic 
statement, if the charges were itemized and disclosed as part of the 
closing costs or settlement costs on the initial disclosure statement. 
(See comment 6(a)(2)-1 for examples of other charges.)
    2. Date. The date of imposing or debiting other charges need not be 
disclosed.
    3. Total. Disclosure of the total amount of other charges is 
optional.
    4. Itemization--types of other charges. Each type of other charge 
(such as late-payment charges, over-the-credit-limit charges, and 
membership fees) imposed during the cycle must be separately itemized; 
for example, disclosure of only a total of other charges attributable to 
both an over-the-credit-limit charge and a late-payment charge would not 
be permissible. Other charges of the same type may be disclosed, 
however, individually or as a total. For example, three fees of $3 for 
providing copies related to the resolution of a billing error could be 
listed separately or as $9.

                     7(a)(7) Annual Percentage Rate

    1. Plans subject to the requirements of Sec. 1026.40. For home-
equity plans subject to the requirements of Sec. 1026.40, creditors are 
not required to disclose an effective annual percentage rate. Creditors 
that state an annualized rate in addition to the corresponding annual 
percentage rate required by Sec. 1026.7(a)(4) must calculate that rate 
in accordance with Sec. 1026.14(c).
    2. Labels. Creditors that choose to disclose an annual percentage 
rate calculated under Sec. 1026.14(c) and label the figure as ``annual 
percentage rate'' must label the periodic rate expressed as an 
annualized rate as the ``corresponding APR,'' ``nominal APR,'' or a 
similar phrase as provided in comment 7(a)(4)-4. Creditors also comply 
with the label requirement if the rate calculated under Sec. 1026.14(c) 
is described as the ``effective APR'' or something similar. For those 
creditors, the periodic rate expressed as an annualized rate could be 
labeled ``annual percentage rate,'' consistent with the requirement 
under Sec. 1026.7(b)(4). If the two rates represent different values, 
creditors must label the rates differently to meet the clear and 
conspicuous standard under Sec. 1026.5(a)(1).

                          7(a)(8) Grace Period

    1. Terminology. Although the creditor is required to indicate any 
time period the consumer may have to pay the balance outstanding without 
incurring additional finance charges, no specific wording is required, 
so long as the language used is consistent with that used on the 
account-opening disclosure statement. For example, ``To avoid additional 
finance charges, pay the new balance before ----'' would suffice.

[[Page 783]]

              7(a)(9) Address for Notice of Billing Errors

    1. Terminology. The periodic statement should indicate the general 
purpose for the address for billing-error inquiries, although a detailed 
explanation or particular wording is not required.
    2. Telephone number. A telephone number, email address, or Web site 
location may be included, but the mailing address for billing-error 
inquiries, which is the required disclosure, must be clear and 
conspicuous. The address is deemed to be clear and conspicuous if a 
precautionary instruction is included that telephoning or notifying the 
creditor by email or Web site will not preserve the consumer's billing 
rights, unless the creditor has agreed to treat billing error notices 
provided by electronic means as written notices, in which case the 
precautionary instruction is required only for telephoning.

           7(a)(10) Closing Date of Billing Cycle; New Balance

    1. Credit balances. See comment 7(a)(1)-1.
    2. Multifeatured plans. In a multifeatured plan, the new balance may 
be disclosed for each feature or for the plan as a whole. If separate 
new balances are disclosed, a total new balance is optional.
    3. Accrued finance charges allocated from payments. Some plans 
provide that the amount of the finance charge that has accrued since the 
consumer's last payment is directly deducted from each new payment, 
rather than being separately added to each statement and therefore 
reflected as an increase in the obligation. In such a plan, the new 
balance need not reflect finance charges accrued since the last payment.

         7(b) Rules Affecting Open-End (Not Home-Secured) Plans

    1. Deferred interest or similar transactions. Creditors offer a 
variety of payment plans for purchases that permit consumers to avoid 
interest charges if the purchase balance is paid in full by a certain 
date. ``Deferred interest'' has the same meaning as in Sec. 
1026.16(h)(2) and associated commentary. The following provides guidance 
for a deferred interest or similar plan where, for example, no interest 
charge is imposed on a $500 purchase made in January if the $500 balance 
is paid by July 31.
    i. Annual percentage rates. Under Sec. 1026.7(b)(4), creditors must 
disclose each annual percentage rate that may be used to compute the 
interest charge. Under some plans with a deferred interest or similar 
feature, if the deferred interest balance is not paid by a certain date, 
July 31 in this example, interest charges applicable to the billing 
cycles between the date of purchase in January and July 31 may be 
imposed. Annual percentage rates that may apply to the deferred interest 
balance ($500 in this example) if the balance is not paid in full by 
July 31 must appear on periodic statements for the billing cycles 
between the date of purchase and July 31. However, if the consumer does 
not pay the deferred interest balance by July 31, the creditor is not 
required to identify, on the periodic statement disclosing the interest 
charge for the deferred interest balance, annual percentage rates that 
have been disclosed in previous billing cycles between the date of 
purchase and July 31.
    ii. Balances subject to periodic rates. Under Sec. 1026.7(b)(5), 
creditors must disclose the balances subject to interest during a 
billing cycle. The deferred interest balance ($500 in this example) is 
not subject to interest for billing cycles between the date of purchase 
and July 31 in this example. Periodic statements sent for those billing 
cycles should not include the deferred interest balance in the balance 
disclosed under Sec. 1026.7(b)(5). This amount must be separately 
disclosed on periodic statements and identified by a term other than the 
term used to identify the balance disclosed under Sec. 1026.7(b)(5) 
(such as ``deferred interest balance''). During any billing cycle in 
which an interest charge on the deferred interest balance is debited to 
the account, the balance disclosed under Sec. 1026.7(b)(5) should 
include the deferred interest balance for that billing cycle.
    iii. Amount of interest charge. Under Sec. 1026.7(b)(6)(ii), 
creditors must disclose interest charges imposed during a billing cycle. 
For some deferred interest purchases, the creditor may impose interest 
from the date of purchase if the deferred interest balance ($500 in this 
example) is not paid in full by July 31 in this example, but otherwise 
will not impose interest for billing cycles between the date of purchase 
and July 31. Periodic statements for billing cycles preceding July 31 in 
this example should not include in the interest charge disclosed under 
Sec. 1026.7(b)(6)(ii) the amounts a consumer may owe if the deferred 
interest balance is not paid in full by July 31. In this example, the 
February periodic statement should not identify as interest charges 
interest attributable to the $500 January purchase. This amount must be 
separately disclosed on periodic statements and identified by a term 
other than ``interest charge'' (such as ``contingent interest charge'' 
or ``deferred interest charge''). The interest charge on a deferred 
interest balance should be reflected on the periodic statement under 
Sec. 1026.7(b)(6)(ii) for the billing cycle in which the interest 
charge is debited to the account.
    iv. Due date to avoid obligation for finance charges under a 
deferred interest or similar program. Section 1026.7(b)(14) requires 
disclosure on periodic statements of the date by which any outstanding 
balance subject to a deferred interest or similar program must be paid 
in full in order to avoid the obligation

[[Page 784]]

for finance charges on such balance. This disclosure must appear on the 
front of any page of each periodic statement issued during the deferred 
interest period beginning with the first periodic statement issued 
during the deferred interest period that reflects the deferred interest 
or similar transaction.

                        7(b)(1) Previous Balance

    1. Credit balances. If the previous balance is a credit balance, it 
must be disclosed in such a way so as to inform the consumer that it is 
a credit balance, rather than a debit balance.
    2. Multifeatured plans. In a multifeatured plan, the previous 
balance may be disclosed either as an aggregate balance for the account 
or as separate balances for each feature (for example, a previous 
balance for purchases and a previous balance for cash advances). If 
separate balances are disclosed, a total previous balance is optional.
    3. Accrued finance charges allocated from payments. Some open-end 
credit plans provide that the amount of the finance charge that has 
accrued since the consumer's last payment is directly deducted from each 
new payment, rather than being separately added to each statement and 
reflected as an increase in the obligation. In such a plan, the previous 
balance need not reflect finance charges accrued since the last payment.

                 7(b)(2) Identification of Transactions

    1. Multifeatured plans. Creditors may, but are not required to, 
arrange transactions by feature (such as disclosing purchase 
transactions separately from cash advance transactions). Pursuant to 
Sec. 1026.7(b)(6), however, creditors must group all fees and all 
interest separately from transactions and may not disclose any fees or 
interest charges with transactions.
    2. Automated teller machine (ATM) charges imposed by other 
institutions in shared or interchange systems. A charge imposed on the 
cardholder by an institution other than the card issuer for the use of 
the other institution's ATM in a shared or interchange system and 
included by the terminal-operating institution in the amount of the 
transaction need not be separately disclosed on the periodic statement.

                             7(b)(3) Credits

    1. Identification--sufficiency. The creditor need not describe each 
credit by type (returned merchandise, rebate of finance charge, etc.)--
``credit'' would suffice--except if the creditor is using the periodic 
statement to satisfy the billing-error correction notice requirement. 
(See the commentary to Sec. 1026.13(e) and (f).) Credits may be 
distinguished from transactions in any way that is clear and 
conspicuous, for example, by use of debit and credit columns or by use 
of plus signs and/or minus signs.
    2. Date. If only one date is disclosed (that is, the crediting date 
as required by the regulation), no further identification of that date 
is necessary. More than one date may be disclosed for a single entry, as 
long as it is clear which date represents the date on which credit was 
given.
    3. Totals. A total of amounts credited during the billing cycle is 
not required.

                         7(b)(4) Periodic Rates

    1. Disclosure of periodic interest rates--whether or not actually 
applied. Except as provided in Sec. 1026.7(b)(4)(ii), any periodic 
interest rate that may be used to compute finance charges, expressed as 
and labeled ``Annual Percentage Rate,'' must be disclosed whether or not 
it is applied during the billing cycle. For example:
    i. If the consumer's account has both a purchase feature and a cash 
advance feature, the creditor must disclose the annual percentage rate 
for each, even if the consumer only makes purchases on the account 
during the billing cycle.
    ii. If the annual percentage rate varies (such as when it is tied to 
a particular index), the creditor must disclose each annual percentage 
rate in effect during the cycle for which the statement was issued.
    2. Disclosure of periodic interest rates required only if imposition 
possible. With regard to the periodic interest rate disclosure (and its 
corresponding annual percentage rate), only rates that could have been 
imposed during the billing cycle reflected on the periodic statement 
need to be disclosed. For example:
    i. If the creditor is changing annual percentage rates effective 
during the next billing cycle (either because it is changing terms or 
because of a variable-rate plan), the annual percentage rates required 
to be disclosed under Sec. 1026.7(b)(4) are only those in effect during 
the billing cycle reflected on the periodic statement. For example, if 
the annual percentage rate applied during May was 18%, but the creditor 
will increase the rate to 21% effective June 1, 18% is the only required 
disclosure under Sec. 1026.7(b)(4) for the periodic statement 
reflecting the May account activity.
    ii. If the consumer has an overdraft line that might later be 
expanded upon the consumer's request to include secured advances, the 
rates for the secured advance feature need not be given until such time 
as the consumer has requested and received access to the additional 
feature.
    iii. If annual percentage rates applicable to a particular type of 
transaction changed after a certain date and the old rate is only being 
applied to transactions that took place

[[Page 785]]

prior to that date, the creditor need not continue to disclose the old 
rate for those consumers that have no outstanding balances to which that 
rate could be applied.
    3. Multiple rates--same transaction. If two or more periodic rates 
are applied to the same balance for the same type of transaction (for 
example, if the interest charge consists of a monthly periodic interest 
rate of 1.5% applied to the outstanding balance and a required credit 
life insurance component calculated at 0.1% per month on the same 
outstanding balance), creditors must disclose the periodic interest 
rate, expressed as an 18% annual percentage rate and the range of 
balances to which it is applicable. Costs attributable to the credit 
life insurance component must be disclosed as a fee under Sec. 
1026.7(b)(6)(iii).
    4. Fees. Creditors that identify fees in accordance with Sec. 
1026.7(b)(6)(iii) need not identify the periodic rate at which a fee 
would accrue if the fee remains unpaid. For example, assume a fee is 
imposed for a late payment in the previous cycle and that the fee, 
unpaid, would be included in the purchases balance and accrue interest 
at the rate for purchases. The creditor need not separately disclose 
that the purchase rate applies to the portion of the purchases balance 
attributable to the unpaid fee.
    5. Ranges of balances. See comment 6(b)(4)(i)(B)-1. A creditor is 
not required to adjust the range of balances disclosure to reflect the 
balance below which only a minimum charge applies.
    6. Deferred interest transactions. See comment 7(b)-1.i.

            7(b)(5) Balance on Which Finance Charge Computed

    1. Split rates applied to balance ranges. If split rates were 
applied to a balance because different portions of the balance fall 
within two or more balance ranges, the creditor need not separately 
disclose the portions of the balance subject to such different rates 
since the range of balances to which the rates apply has been separately 
disclosed. For example, a creditor could disclose a balance of $700 for 
purchases even though a monthly periodic rate of 1.5% applied to the 
first $500, and a monthly periodic rate of 1% to the remainder. This 
option to disclose a combined balance does not apply when the interest 
charge is computed by applying the split rates to each day's balance (in 
contrast, for example, to applying the rates to the average daily 
balance). In that case, the balances must be disclosed using any of the 
options that are available if two or more daily rates are imposed. (See 
comment 7(b)(5)-4.)
    2. Monthly rate on average daily balance. Creditors may apply a 
monthly periodic rate to an average daily balance.
    3. Multifeatured plans. In a multifeatured plan, the creditor must 
disclose a separate balance (or balances, as applicable) to which a 
periodic rate was applied for each feature. Separate balances are not 
required, however, merely because a grace period is available for some 
features but not others. A total balance for the entire plan is 
optional. This does not affect how many balances the creditor must 
disclose--or may disclose--within each feature. (See, for example, 
comments 7(b)(5)-4 and 7(b)(4)-5.)
    4. Daily rate on daily balance. If a finance charge is computed on 
the balance each day by application of one or more daily periodic 
interest rates, the balance on which the interest charge was computed 
may be disclosed in any of the following ways for each feature:
    i. If a single daily periodic interest rate is imposed, the balance 
to which it is applicable may be stated as:
    A. A balance for each day in the billing cycle.
    B. A balance for each day in the billing cycle on which the balance 
in the account changes.
    C. The sum of the daily balances during the billing cycle.
    D. The average daily balance during the billing cycle, in which case 
the creditor may, at its option, explain that the average daily balance 
is or can be multiplied by the number of days in the billing cycle and 
the periodic rate applied to the product to determine the amount of 
interest.
    ii. If two or more daily periodic interest rates may be imposed, the 
balances to which the rates are applicable may be stated as:
    A. A balance for each day in the billing cycle.
    B. A balance for each day in the billing cycle on which the balance 
in the account changes.
    C. Two or more average daily balances, each applicable to the daily 
periodic interest rates imposed for the time that those rates were in 
effect. The creditor may, at its option, explain that interest is or may 
be determined by (1) multiplying each of the average balances by the 
number of days in the billing cycle (or if the daily rate varied during 
the cycle, by multiplying by the number of days the applicable rate was 
in effect), (2) multiplying each of the results by the applicable daily 
periodic rate, and (3) adding these products together.
    5. Information to compute balance. In connection with disclosing the 
interest charge balance, the creditor need not give the consumer all of 
the information necessary to compute the balance if that information is 
not otherwise required to be disclosed. For example, if current 
purchases are included from the date they are posted to the account, the 
posting date need not be disclosed.
    6. Non-deduction of credits. The creditor need not specifically 
identify the total dollar amount of credits not deducted in computing

[[Page 786]]

the finance charge balance. Disclosure of the amount of credits not 
deducted is accomplished by listing the credits (Sec. 1026.7(b)(3)) and 
indicating which credits will not be deducted in determining the balance 
(for example, ``credits after the 15th of the month are not deducted in 
computing the interest charge.'').
    7. Use of one balance computation method explanation when multiple 
balances disclosed. Sometimes the creditor will disclose more than one 
balance to which a periodic rate was applied, even though each balance 
was computed using the same balance computation method. For example, if 
a plan involves purchases and cash advances that are subject to 
different rates, more than one balance must be disclosed, even though 
the same computation method is used for determining the balance for each 
feature. In these cases, one explanation or a single identification of 
the name of the balance computation method is sufficient. Sometimes the 
creditor separately discloses the portions of the balance that are 
subject to different rates because different portions of the balance 
fall within two or more balance ranges, even when a combined balance 
disclosure would be permitted under comment 7(b)(5)-1. In these cases, 
one explanation or a single identification of the name of the balance 
computation method is also sufficient (assuming, of course, that all 
portions of the balance were computed using the same method). In these 
cases, a creditor may use an appropriate name listed in Sec. 1026.60(g) 
(e.g., ``average daily balance (including new purchases) '') as the 
single identification of the name of the balance computation method 
applicable to all features, even though the name only refers to 
purchases. For example, if a creditor uses the average daily balance 
method including new transactions for all features, a creditor may use 
the name ``average daily balance (including new purchases) '' listed in 
Sec. 1026.60(g)(i) to satisfy the requirement to disclose the name of 
the balance computation method for all features. As an alternative, in 
this situation, a creditor may revise the balance computation names 
listed in Sec. 1026.60(g) to refer more broadly to all new credit 
transactions, such as using the language ``new transactions'' or 
``current transactions'' (e.g., ``average daily balance (including new 
transactions) ''), rather than simply referring to new purchases, when 
the same method is used to calculate the balances for all features of 
the account.
    8. Use of balance computation names in Sec. 1026.60(g) for balances 
other than purchases. The names of the balance computation methods 
listed in Sec. 1026.60(g) describe balance computation methods for 
purchases. When a creditor is disclosing the name of the balance 
computation methods separately for each feature, in using the names 
listed in Sec. 1026.60(g) to satisfy the requirements of Sec. 
1026.7(b)(5) for features other than purchases, a creditor must revise 
the names listed in Sec. 1026.60(g) to refer to the other features. For 
example, when disclosing the name of the balance computation method 
applicable to cash advances, a creditor must revise the name listed in 
Sec. 1026.60(g)(i) to disclose it as ``average daily balance (including 
new cash advances)'' when the balance for cash advances is figured by 
adding the outstanding balance (including new cash advances and 
deducting payments and credits) for each day in the billing cycle, and 
then dividing by the number of days in the billing cycle. Similarly, a 
creditor must revise the name listed in Sec. 1026.60(g)(ii) to disclose 
it as ``average daily balance (excluding new cash advances) '' when the 
balance for cash advances is figured by adding the outstanding balance 
(excluding new cash advances and deducting payments and credits) for 
each day in the billing cycle, and then dividing by the number of days 
in the billing cycle. See comment 7(b)(5)-7 for guidance on the use of 
one balance computation method explanation or name when multiple 
balances are disclosed.

                         7(b)(6) Charges Imposed

    1. Examples of charges. See commentary to Sec. 1026.6(b)(3).
    2. Fees. Costs attributable to periodic rates other than interest 
charges shall be disclosed as a fee. For example, if a consumer obtains 
credit life insurance that is calculated at 0.1% per month on an 
outstanding balance and a monthly interest rate of 1.5% applies to the 
same balance, the creditor must disclose the dollar cost attributable to 
interest as an ``interest charge'' and the credit insurance cost as a 
``fee.''
    3. Total fees and interest charged for calendar year to date. i. 
Monthly statements. Some creditors send monthly statements but the 
statement periods do not coincide with the calendar month. For creditors 
sending monthly statements, the following comply with the requirement to 
provide calendar year-to-date totals.
    A. A creditor may disclose calendar-year-to-date totals at the end 
of the calendar year by separately aggregating finance charges 
attributable to periodic interest rates and fees for 12 monthly cycles, 
starting with the period that begins during January and finishing with 
the period that begins during December. For example, if statement 
periods begin on the 10th day of each month, the statement covering 
December 10, 2011 through January 9, 2012, may disclose the separate 
year-to-date totals for interest charged and fees imposed from January 
10, 2011, through January 9, 2012. Alternatively, the creditor could 
provide a statement for the cycle ending January 9, 2012, showing the 
separate year-to-date totals for interest charged and fees imposed 
January 1, 2011, through December 31, 2011.

[[Page 787]]

    B. A creditor may disclose calendar-year-to-date totals at the end 
of the calendar year by separately aggregating finance charges 
attributable to periodic interest rates and fees for 12 monthly cycles, 
starting with the period that begins during December and finishing with 
the period that begins during November. For example, if statement 
periods begin on the 10th day of each month, the statement covering 
November 10, 2011 through December 9, 2011, may disclose the separate 
year-to-date totals for interest charged and fees imposed from December 
10, 2010, through December 9, 2011.
    ii. Quarterly statements. Creditors issuing quarterly statements may 
apply the guidance set forth for monthly statements to comply with the 
requirement to provide calendar year-to-date totals on quarterly 
statements.
    4. Minimum charge in lieu of interest. A minimum charge imposed if a 
charge would otherwise have been determined by applying a periodic rate 
to a balance except for the fact that such charge is smaller than the 
minimum must be disclosed as a fee. For example, assume a creditor 
imposes a minimum charge of $1.50 in lieu of interest if the calculated 
interest for a billing period is less than that minimum charge. If the 
interest calculated on a consumer's account for a particular billing 
period is 50 cents, the minimum charge of $1.50 would apply. In this 
case, the entire $1.50 would be disclosed as a fee; the periodic 
statement would reflect the $1.50 as a fee, and $0 in interest.
    5. Adjustments to year-to-date totals. In some cases, a creditor may 
provide a statement for the current period reflecting that fees or 
interest charges imposed during a previous period were waived or 
reversed and credited to the account. Creditors may, but are not 
required to, reflect the adjustment in the year-to-date totals, nor, if 
an adjustment is made, to provide an explanation about the reason for 
the adjustment. Such adjustments should not affect the total fees or 
interest charges imposed for the current statement period.
    6. Acquired accounts. An institution that acquires an account or 
plan must include, as applicable, fees and charges imposed on the 
account or plan prior to the acquisition in the aggregate disclosures 
provided under Sec. 1026.7(b)(6) for the acquired account or plan. 
Alternatively, the institution may provide separate totals reflecting 
activity prior and subsequent to the account or plan acquisition. For 
example, a creditor that acquires an account or plan on August 12 of a 
given calendar year may provide one total for the period from January 1 
to August 11 and a separate total for the period beginning on August 12.
    7. Account upgrades. A creditor that upgrades, or otherwise changes, 
a consumer's plan to a different open-end credit plan must include, as 
applicable, fees and charges imposed for that portion of the calendar 
year prior to the upgrade or change in the consumer's plan in the 
aggregate disclosures provided pursuant to Sec. 1026.7(b)(6) for the 
new plan. For example, assume a consumer has incurred $125 in fees for 
the calendar year to date for a retail credit card account, which is 
then replaced by a cobranded credit card account also issued by the 
creditor. In this case, the creditor must reflect the $125 in fees 
incurred prior to the replacement of the retail credit card account in 
the calendar year-to-date totals provided for the cobranded credit card 
account. Alternatively, the institution may provide two separate totals 
reflecting activity prior and subsequent to the plan upgrade or change.

7(b)(7) Change-in-Terms and Increased Penalty Rate Summary for Open-End 
                         (Not Home-Secured) Plan

    1. Location of summary tables. If a change-in-terms notice required 
by Sec. 1026.9(c)(2) is provided on or with a periodic statement, a 
tabular summary of key changes must appear on the front of the 
statement. Similarly, if a notice of a rate increase due to delinquency 
or default or as a penalty required by Sec. 1026.9(g)(1) is provided on 
or with a periodic statement, information required to be provided about 
the increase, presented in a table, must appear on the front of the 
statement.

                          7(b)(8) Grace Period

    1. Terminology. In describing the grace period, the language used 
must be consistent with that used on the account-opening disclosure 
statement. (See Sec. 1026.5(a)(2)(i).)
    2. Deferred interest transactions. See comment 7(b)-1.iv.
    3. Limitation on the imposition of finance charges in Sec. 1026.54. 
Section 1026.7(b)(8) does not require a card issuer to disclose the 
limitations on the imposition of finance charges as a result of a loss 
of a grace period in Sec. 1026.54, or the impact of payment allocation 
on whether interest is charged on transactions as a result of a loss of 
a grace period.

              7(b)(9) Address for Notice of Billing Errors

    1. Terminology. The periodic statement should indicate the general 
purpose for the address for billing-error inquiries, although a detailed 
explanation or particular wording is not required.
    2. Telephone number. A telephone number, email address, or Web site 
location may be included, but the mailing address for billing-error 
inquiries, which is the required disclosure, must be clear and 
conspicuous. The address is deemed to be clear and conspicuous if a 
precautionary instruction is included that telephoning or notifying the 
creditor by email or Web site will not preserve the consumer's billing 
rights, unless the creditor

[[Page 788]]

has agreed to treat billing error notices provided by electronic means 
as written notices, in which case the precautionary instruction is 
required only for telephoning.

           7(b)(10) Closing Date of Billing Cycle; New Balance

    1. Credit balances. See comment 7(b)(1)-1.
    2. Multifeatured plans. In a multifeatured plan, the new balance may 
be disclosed for each feature or for the plan as a whole. If separate 
new balances are disclosed, a total new balance is optional.
    3. Accrued finance charges allocated from payments. Some plans 
provide that the amount of the finance charge that has accrued since the 
consumer's last payment is directly deducted from each new payment, 
rather than being separately added to each statement and therefore 
reflected as an increase in the obligation. In such a plan, the new 
balance need not reflect finance charges accrued since the last payment.

                  7(b)(11) Due Date; Late Payment Costs

    1. Informal periods affecting late payments. Although the terms of 
the account agreement may provide that a card issuer may assess a late 
payment fee if a payment is not received by a certain date, the card 
issuer may have an informal policy or practice that delays the 
assessment of the late payment fee for payments received a brief period 
of time after the date upon which a card issuer has the contractual 
right to impose the fee. A card issuer must disclose the due date 
according to the legal obligation between the parties, and need not 
consider the end of an informal ``courtesy period'' as the due date 
under Sec. 1026.7(b)(11).
    2. Assessment of late payment fees. 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. In addition, a card issuer may be 
restricted by the terms of the account agreement from imposing a late 
payment fee until a payment is late for a certain number of days 
following a due date. For example, assume a payment is due on March 10 
and the account agreement or state law provides that a late payment fee 
cannot be assessed before March 21. A card issuer 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 the card issuer 
is restricted by the account agreement or 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 card 
issuer would disclose March 10 as the due date for purposes of Sec. 
1026.7(b)(11), but could not, under state law, assess a late payment fee 
before March 21.
    3. Fee or rate triggered by multiple events. If a late payment fee 
or penalty rate is triggered after multiple events, such as two late 
payments in six months, the card issuer may, but is not required to, 
disclose the late payment and penalty rate 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 rate, such as 
after the consumer made one late payment in this example. For example, 
if a cardholder has already made one late payment, the disclosure must 
be on each statement for the following five billing cycles.
    4. Range of late fees or penalty rates. A card issuer that imposes a 
range of late payment fees or rates on a credit card account under an 
open-end (not home-secured) consumer credit plan may state the highest 
fee or rate along with an indication lower fees or rates could be 
imposed. For example, a phrase indicating the late payment fee could be 
``up to $29'' complies with this requirement.
    5. Penalty rate in effect. If the highest penalty rate has 
previously been triggered on an account, the card issuer may, but is not 
required to, delete the amount of the penalty rate and the warning that 
the rate may be imposed for an untimely payment, as not applicable. 
Alternatively, the card issuer may, but is not required to, modify the 
language to indicate that the penalty rate has been increased due to 
previous late payments (if applicable).
    6. Same day each month. The requirement that the due date be the 
same day each month means that the due date must generally be the same 
numerical date. For example, a consumer's due date could be the 25th of 
every month. In contrast, a due date that is the same relative date but 
not numerical date each month, such as the third Tuesday of the month, 
generally would not comply with this requirement. However, a consumer's 
due date may be the last day of each month, even though that date will 
not be the same numerical date. For example, if a consumer's due date is 
the last day of each month, it will fall on February 28th (or February 
29th in a leap year) and on August 31st.
    7. Change in due date. A creditor may adjust a consumer's due date 
from time to time provided that the new due date will be the same 
numerical date each month on an ongoing basis. For example, a creditor 
may choose to honor a consumer's request to change from a due date that 
is the 20th of each month to the 5th of each month, or may choose to 
change a consumer's due date from time to time for operational reasons. 
See comment 2(a)(4)-3 for guidance on transitional billing cycles.

[[Page 789]]

    8. Billing cycles longer than one month. The requirement that the 
due date be the same day each month 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 the month. For example, a 
creditor that establishes two-month billing cycles could send a consumer 
periodic statements disclosing due dates of January 25, March 25, and 
May 25.
    9. Payment due date when the creditor does not accept or receive 
payments by mail. If the due date in a given month falls on a day on 
which the creditor does not receive or accept payments by mail and the 
creditor is required to treat a payment received the next business day 
as timely pursuant to Sec. 1026.10(d), the creditor must disclose the 
due date according to the legal obligation between the parties, not the 
date as of which the creditor is permitted to treat the payment as late. 
For example, assume that the consumer's due date is the 4th of every 
month and the creditor does not accept or receive payments by mail on 
Thursday, July 4. Pursuant to Sec. 1026.10(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 disclose 
July 4 as the due date on the periodic statement and may not disclose a 
July 5 due date.

                     7(b)(12) Repayment Disclosures

    1. Rounding. In disclosing on the periodic statement the minimum 
payment total cost estimate, the estimated monthly payment for repayment 
in 36 months, the total cost estimate for repayment in 36 months, and 
the savings estimate for repayment in 36 months under Sec. 
1026.7(b)(12)(i) or (b)(12)(ii) as applicable, a card issuer, at its 
option, must either round these disclosures to the nearest whole dollar 
or to the nearest cent. Nonetheless, an issuer's rounding for all of 
these disclosures must be consistent. An issuer may round all of these 
disclosures to the nearest whole dollar when disclosing them on the 
periodic statement, or may round all of these disclosures to the nearest 
cent. An issuer may not, however, round some of the disclosures to the 
nearest whole dollar, while rounding other disclosures to the nearest 
cent.

                        Paragraph 7(b)(12)(i)(F)

    1. Minimum payment repayment estimate disclosed on the periodic 
statement is three years or less. Section 1026.7(b)(12)(i)(F)(2)(i) 
provides that a credit card issuer is not required to provide the 
disclosures related to repayment in 36 months if the minimum payment 
repayment estimate disclosed under Sec. 1026.7(b)(12)(i)(B) after 
rounding is 3 years or less. For example, if the minimum payment 
repayment estimate is 2 years 6 months to 3 years 5 months, issuers 
would be required under Sec. 1026.7(b)(12)(i)(B) to disclose 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.

 7(b)(12)(iv) Provision of Information About Credit Counseling Services

    1. Approved organizations. Section 1026.7(b)(12)(iv)(A) requires 
card issuers to provide information regarding 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, at the card issuer's option, either the 
state in which the billing address for the account is located or the 
state specified by the consumer. A card issuer does not satisfy the 
requirements in Sec. 1026.7(b)(12)(iv)(A) by providing information 
regarding providers that have been approved pursuant to 11 U.S.C. 
111(a)(2) to offer personal financial management courses.
    2. Information regarding approved organizations. i. Provision of 
information obtained from United States Trustee or bankruptcy 
administrator. A card issuer complies with the requirements of Sec. 
1026.7(b)(12)(iv)(A) if, through the toll-free number disclosed pursuant 
to Sec. 1026.7(b)(12)(i) or (b)(12)(ii), it provides the consumer with 
information obtained from the United States Trustee or a bankruptcy 
administrator, such as information obtained from the Web site operated 
by the United States Trustee. Section 1026.7(b)(12)(iv)(A) does not 
require a card issuer to provide information that is not available from 
the United States Trustee or a bankruptcy administrator. 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, Sec. 1026.7(b)(12)(iv)(B) 
requires the card issuer to, at least annually, update the information 
it provides for consistency with the information provided by the United 
States Trustee or a bankruptcy administrator.
    ii. Provision of information consistent with request of approved 
organization. If requested by an approved organization, a card issuer 
may at its option provide, in addition to the name of the organization 
obtained from the United States Trustee or a bankruptcy administrator, 
another name used by that organization through the toll-free number 
disclosed pursuant to Sec. 1026.7(b)(12)(i) or (b)(12)(ii). In

[[Page 790]]

addition, if requested by an approved organization, a card issuer may at 
its option provide through the toll-free number disclosed pursuant to 
Sec. 1026.7(b)(12)(i) or (b)(12)(ii) 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. However, if 
requested by an approved organization, a card issuer must not provide 
information regarding that organization through the toll-free number 
disclosed pursuant to Sec. 1026.7(b)(12)(i) or (b)(12)(ii).
    iii. Information regarding approved organizations that provide 
credit counseling services in a language other than English. A card 
issuer may at its option provide through the toll-free number disclosed 
pursuant to Sec. 1026.7(b)(12)(i) or (b)(12)(ii) information regarding 
approved organizations that provide credit counseling services in 
languages other than English. In the alternative, a card issuer may at 
its option state that such information is available from the Web site 
operated by the United States Trustee. Disclosing this 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.iv.
    iv. Statements regarding approval by the United States Trustee or a 
bankruptcy administrator. Section 1026.7(b)(12)(iv) does not require a 
card issuer to disclose through the toll-free number disclosed pursuant 
to Sec. 1026.7(b)(12)(i) or (b)(12)(ii) that organizations have been 
approved by the United States Trustee or a bankruptcy administrator. 
However, if a card issuer chooses to make such a disclosure, Sec. 
1026.7(b)(12)(iv) requires that the card issuer also disclose that:
    A. The United States Trustee or a bankruptcy administrator has 
determined that the organizations meet the minimum requirements for 
nonprofit pre-bankruptcy budget and credit counseling;
    B. The organizations may provide other credit counseling services 
that have not been reviewed by the United States Trustee or a bankruptcy 
administrator; and
    C. The United States Trustee or the bankruptcy administrator does 
not endorse or recommend any particular organization.
    3. Automated response systems or devices. 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. 
1026.7(b)(12)(iv) by inputting information using a touch-tone telephone 
or similar device.
    4. Toll-free telephone number. 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. 1026.7(b)(12)(iv) is prominently disclosed to the consumer. For 
automated systems, the option to receive the information required by 
Sec. 1026.7(b)(12)(iv) is prominently disclosed to the consumer if it 
is listed as one of the options in the first menu of options given to 
the consumer, such as ``Press or say `3' if you would like information 
about credit counseling services.'' If the automated system permits 
callers to select the language in which the call is conducted and in 
which information is provided, the menu to select the language may 
precede the menu with the option to receive information about accessing 
credit counseling services.
    5. Third parties. 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. 
1026.7(b)(12)(iv).
    6. Web site address. When making the repayment disclosures on the 
periodic statement pursuant to Sec. 1026.7(b)(12), 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. 1026.7(b)(12)(iv), so long as the 
information provided on the Web site complies with Sec. 
1026.7(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. Disclosing this 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.iv.
    7. Advertising or marketing information. 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. 1026.7(b)(12)(iv). Educational materials that do not 
solicit business are not considered advertisements or marketing 
materials for this purpose. Examples:
    i. Toll-free telephone number. As described in comment 7(b)(12)(iv)-
4, an 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. 1026.7(b)(12)(iv) through that 
toll-free telephone number is prominently disclosed to the consumer. 
Once the consumer selects the option to receive the information required 
by Sec. 1026.7(b)(12)(iv), the issuer may not provide advertisements

[[Page 791]]

or marketing materials to the consumer (except for providing the name of 
the issuer) prior to providing the required information.
    ii. Web page. If the issuer discloses a link to a Web site address 
as part of the disclosures pursuant to comment 7(b)(12)(iv)-6, the 
issuer may not provide advertisements or marketing materials (except for 
providing the name of the issuer) on the Web page accessed by the 
address prior to providing the information required by Sec. 
1026.7(b)(12)(iv).

                         7(b)(12)(v) Exemptions

    1. Billing cycle where paying the minimum payment due for that 
billing cycle will pay the outstanding balance on the account for that 
billing cycle. Under Sec. 1026.7(b)(12)(v)(C), a card issuer is exempt 
from the repayment disclosure requirements set forth in Sec. 
1026.7(b)(12) 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. 
In addition, this exemption would apply to a charged-off account where 
payment of the entire account balance is due immediately.

                      7(b)(13) Format Requirements

    1. Combined deposit account and credit account statements. Some 
financial institutions provide information about deposit account and 
open-end credit account activity on one periodic statement. For purposes 
of providing disclosures on the front of the first page of the periodic 
statement pursuant to Sec. 1026.7(b)(13), the first page of such a 
combined statement shall be the page on which credit transactions first 
appear.

     Section 1026.8--Identifying Transactions on Periodic Statements

                            8(a) Sale Credit

    1. Sale credit. The term ``sale credit'' refers to a purchase in 
which the consumer uses a credit card or otherwise directly accesses an 
open-end line of credit (see comment 8(b)-1 if access is by means of a 
check) to obtain goods or services from a merchant, whether or not the 
merchant is the card issuer or creditor. ``Sale credit'' includes:
    i. The purchase of funds-transfer services (such as a wire transfer) 
from an intermediary.
    ii. The purchase of services from the card issuer or creditor. For 
the purchase of services that are costs imposed as part of the plan 
under Sec. 1026.6(b)(3), card issuers and creditors comply with the 
requirements for identifying transactions under this section by 
disclosing the fees in accordance with the requirements of Sec. 
1026.7(b)(6). For the purchases of services that are not costs imposed 
as part of the plan, card issuers and creditors may, at their option, 
identify transactions under this section or in accordance with the 
requirements of Sec. 1026.7(b)(6).
    2. Amount--transactions not billed in full. If sale transactions are 
not billed in full on any single statement, but are billed periodically 
in precomputed installments, the first periodic statement reflecting the 
transaction must show either the full amount of the transaction together 
with the date the transaction actually took place; or the amount of the 
first installment that was debited to the account together with the date 
of the transaction or the date on which the first installment was 
debited to the account. In any event, subsequent periodic statements 
should reflect each installment due, together with either any other 
identifying information required by Sec. 1026.8(a) (such as the 
seller's name and address in a three-party situation) or other 
appropriate identifying information relating the transaction to the 
first billing. The debiting date for the particular installment, or the 
date the transaction took place, may be used as the date of the 
transaction on these subsequent statements.
    3. Date--when a transaction takes place. i. If the consumer conducts 
the transaction in person, the date of the transaction is the calendar 
date on which the consumer made the purchase or order, or secured the 
advance.
    ii. For transactions billed to the account on an ongoing basis 
(other than installments to pay a precomputed amount), the date of the 
transaction is the date on which the amount is debited to the account. 
This might include, for example, monthly insurance premiums.
    iii. For mail, Internet, or telephone orders, a creditor may 
disclose as the transaction date either the invoice date, the debiting 
date, or the date the order was placed by telephone or via the Internet.
    iv. In a foreign transaction, the debiting date may be considered 
the transaction date.
    4. Date--sufficiency of description. i. If the creditor discloses 
only the date of the transaction, the creditor need not identify it as 
the ``transaction date.'' If the creditor discloses more than one date 
(for example, the transaction date and the posting date), the creditor 
must identify each.
    ii. The month and day sufficiently identify the transaction date, 
unless the posting of the transaction is delayed so long that the year 
is needed for a clear disclosure to the consumer.
    5. Same or related persons. i. For purposes of identifying 
transactions, the term same or related persons refers to, for example:
    A. Franchised or licensed sellers of a creditor's product or 
service.

[[Page 792]]

    B. Sellers who assign or sell open-end sales accounts to a creditor 
or arrange for such credit under a plan that allows the consumer to use 
the credit only in transactions with that seller.
    ii. A seller is not related to the creditor merely because the 
seller and the creditor have an agreement authorizing the seller to 
honor the creditor's credit card.
    6. Brief identification--sufficiency of description. The ``brief 
identification'' provision in Sec. 1026.8(a)(1)(i) requires a 
designation that will enable the consumer to reconcile the periodic 
statement with the consumer's own records. In determining the 
sufficiency of the description, the following rules apply:
    i. While item-by-item descriptions are not necessary, reasonable 
precision is required. For example, ``merchandise,'' ``miscellaneous,'' 
``second-hand goods,'' or ``promotional items'' would not suffice.
    ii. A reference to a department in a sales establishment that 
accurately conveys the identification of the types of property or 
services available in the department is sufficient--for example, 
``jewelry,'' or ``sporting goods.''
    iii. A number or symbol that is related to an identification list 
printed elsewhere on the statement that reasonably identifies the 
transaction with the creditor is sufficient.
    7. Seller's name--sufficiency of description. The requirement 
contemplates that the seller's name will appear on the periodic 
statement in essentially the same form as it appears on transaction 
documents provided to the consumer at the time of the sale. The seller's 
name may also be disclosed as, for example:
    i. A more complete spelling of the name that was alphabetically 
abbreviated on the receipt or other credit document.
    ii. An alphabetical abbreviation of the name on the periodic 
statement even if the name appears in a more complete spelling on the 
receipt or other credit document. Terms that merely indicate the form of 
a business entity, such as ``Inc.,'' ``Co.,'' or ``Ltd.,'' may always be 
omitted.
    8. Location of transaction. i. If the seller has multiple stores or 
branches within a city, the creditor need not identify the specific 
branch at which the sale occurred.
    ii. When no meaningful address is available because the consumer did 
not make the purchase at any fixed location of the seller, the creditor 
may omit the address, or may provide some other identifying designation, 
such as ``aboard plane,'' ``ABC Airways Flight,'' ``customer's home,'' 
``telephone order,'' ``internet order'' or ``mail order.''
    8(b) Nonsale credit.
    1. Nonsale credit. The term ``nonsale credit'' refers to any form of 
loan credit including, for example:
    i. A cash advance.
    ii. An advance on a credit plan that is accessed by overdrafts on a 
checking account.
    iii. The use of a ``supplemental credit device'' in the form of a 
check or draft or the use of the overdraft credit plan accessed by a 
debit card, even if such use is in connection with a purchase of goods 
or services.
    iv. Miscellaneous debits to remedy mispostings, returned checks, and 
similar entries.
    2. Amount--overdraft credit plans. If credit is extended under an 
overdraft credit plan tied to a checking account or by means of a debit 
card tied to an overdraft credit plan:
    i. The amount to be disclosed is that of the credit extension, not 
the face amount of the check or the total amount of the debit/credit 
transaction.
    ii. The creditor may disclose the amount of the credit extensions on 
a cumulative daily basis, rather than the amount attributable to each 
check or each use of the debit card that accesses the credit plan.
    3. Date of transaction. See comment 8(a)-4.
    4. Nonsale transaction--sufficiency of identification. The creditor 
sufficiently identifies a nonsale transaction by describing the type of 
advance it represents, such as cash advance, loan, overdraft loan, or 
any readily understandable trade name for the credit program.

           Section 1026.9--Subsequent Disclosure Requirements

               9(a) Furnishing Statement of Billing Rights

                        9(a)(1) Annual Statement

    1. General. The creditor may provide the annual billing rights 
statement:
    i. By sending it in one billing period per year to each consumer 
that gets a periodic statement for that period; or
    ii. By sending a copy to all of its accountholders sometime during 
the calendar year but not necessarily all in one billing period (for 
example, sending the annual notice in connection with renewal cards or 
when imposing annual membership fees).
    2. Substantially similar. See the commentary to Model Forms G-3 and 
G-3(A) in Appendix G to part 1026.

                  9(a)(2) Alternative Summary Statement

    1. Changing from long-form to short form statement and vice versa. 
If the creditor has been sending the long-form annual statement, and 
subsequently decides to use the alternative summary statement, the first 
summary statement must be sent no later than 12 months after the last 
long-form statement was sent. Conversely, if the creditor wants to 
switch to the long-form, the first long-form statement must be sent no 
later than 12 months after the last summary statement.

[[Page 793]]

    2. Substantially similar. See the commentary to Model Forms G-4 and 
G-4(A) in Appendix G to part 1026.

 9(b) Disclosures for Supplemental Credit Access Devices and Additional 
                                Features

    1. Credit access device--examples. Credit access device includes, 
for example, a blank check, payee-designated check, blank draft or 
order, or authorization form for issuance of a check; it does not 
include a check issued payable to a consumer representing loan proceeds 
or the disbursement of a cash advance.
    2. Credit account feature--examples. A new credit account feature 
would include, for example:
    i. The addition of overdraft checking to an existing account 
(although the regular checks that could trigger the overdraft feature 
are not themselves ``devices'').
    ii. The option to use an existing credit card to secure cash 
advances, when previously the card could only be used for purchases.

                            Paragraph 9(b)(2)

    1. Different finance charge terms. Except as provided in Sec. 
1026.9(b)(3) for checks that access a credit card account, if the 
finance charge terms are different from those previously disclosed, the 
creditor may satisfy the requirement to give the finance charge terms 
either by giving a complete set of new account-opening disclosures 
reflecting the terms of the added device or feature or by giving only 
the finance charge disclosures for the added device or feature.

            9(b)(3) Checks That Access a Credit Card Account

                         9(b)(3)(i) Disclosures

    1. Front of the page containing the checks. The following would 
comply with the requirement that the tabular disclosures provided 
pursuant to Sec. 1026.9(b)(3) appear on the front of the page 
containing the checks:
    i. Providing the tabular disclosure on the front of the first page 
on which checks appear, for an offer where checks are provided on 
multiple pages;
    ii. Providing the tabular disclosure on the front of a mini-book or 
accordion booklet containing the checks; or
    iii. Providing the tabular disclosure on the front of the 
solicitation letter, when the checks are printed on the front of the 
same page as the solicitation letter even if the checks can be separated 
by the consumer from the solicitation letter using perforations.
    2. Combined disclosures for checks and other transactions subject to 
the same terms. A card issuer may include in the tabular disclosure 
provided pursuant to Sec. 1026.9(b)(3) disclosures regarding the terms 
offered on non-check transactions, provided that such transactions are 
subject to the same terms that are required to be disclosed pursuant to 
Sec. 1026.9(b)(3)(i) for the checks that access a credit card account. 
However, a card issuer may not include in the table information 
regarding additional terms that are not required disclosures for checks 
that access a credit card account pursuant to Sec. 1026.9(b)(3).

                         Paragraph 9(b)(3)(i)(D)

    1. Grace period. A creditor may not disclose under Sec. 
1026.9(b)(3)(i)(D) the limitations on the imposition of finance charges 
as a result of a loss of a grace period in Sec. 1026.54, or the impact 
of payment allocation on whether interest is charged on transactions as 
a result of a loss of a grace period. Some creditors may offer a grace 
period on credit extended by the use of an access check under which 
interest will not be charged on the check transactions if the consumer 
pays the outstanding balance shown on a periodic statement in full by 
the due date shown on that statement for one or more billing cycles. In 
these circumstances, Sec. 1026.9(b)(3)(i)(D) requires that the creditor 
disclose the grace period using the following language, or substantially 
similar language, as applicable: ``Your due date is [at least] ---- days 
after the close of each billing cycle. We will not charge you any 
interest on check transactions if you pay your entire balance by the due 
date each month.'' However, other creditors may offer a grace period on 
check transactions under which interest may be charged on check 
transactions even if the consumer pays the outstanding balance shown on 
a periodic statement in full by the due date shown on that statement 
each billing cycle. In these circumstances, Sec. 1026.9(b)(3)(i)(D) 
requires the creditor to amend the above disclosure language to describe 
accurately the conditions on the applicability of the grace period. 
Creditors may use the following language to describe that no grace 
period on check transactions is offered, as applicable: ``We will begin 
charging interest on these checks on the transaction date.''

                          9(c) Change in Terms

                9(c)(1) Rules Affecting Home-Equity Plans

    1. Changes initially disclosed. No notice of a change in terms need 
be given if the specific change is set forth initially, such as: rate 
increases under a properly disclosed variable-rate plan, a rate increase 
that occurs when an employee has been under a preferential rate 
agreement and terminates employment, or an increase that occurs when the 
consumer has been under an agreement to maintain a certain balance in a 
savings account in order to keep a particular rate and the account 
balance falls below the specified minimum. The rules in Sec. 1026.40(f) 
relating to

[[Page 794]]

home-equity plans limit the ability of a creditor to change the terms of 
such plans.
    2. State law issues. Examples of issues not addressed by Sec. 
1026.9(c) because they are controlled by state or other applicable law 
include:
    i. The types of changes a creditor may make. (But see Sec. 
1026.40(f))
    ii. How changed terms affect existing balances, such as when a 
periodic rate is changed and the consumer does not pay off the entire 
existing balance before the new rate takes effect.
    3. Change in billing cycle. Whenever the creditor changes the 
consumer's billing cycle, it must give a change-in-terms notice if the 
change either affects any of the terms required to be disclosed under 
Sec. 1026.6(a) or increases the minimum payment, unless an exception 
under Sec. 1026.9(c)(1)(ii) applies; for example, the creditor must 
give advance notice if the creditor initially disclosed a 25-day grace 
period on purchases and the consumer will have fewer days during the 
billing cycle change.

                   9(c)(1)(i) Written Notice Required

    1. Affected consumers. Change-in-terms notices need only go to those 
consumers who may be affected by the change. For example, a change in 
the periodic rate for check overdraft credit need not be disclosed to 
consumers who do not have that feature on their accounts.
    2. Timing--effective date of change. The rule that the notice of the 
change in terms be provided at least 15 days before the change takes 
effect permits mid-cycle changes when there is clearly no retroactive 
effect, such as the imposition of a transaction fee. Any change in the 
balance computation method, in contrast, would need to be disclosed at 
least 15 days prior to the billing cycle in which the change is to be 
implemented.
    3. Timing--advance notice not required. Advance notice of 15 days is 
not necessary--that is, a notice of change in terms is required, but it 
may be mailed or delivered as late as the effective date of the change--
in two circumstances:
    i. If there is an increased periodic rate or any other finance 
charge attributable to the consumer's delinquency or default.
    ii. If the consumer agrees to the particular change. This provision 
is 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, such as the 
consumer's providing additional security or paying an increased minimum 
payment amount. Therefore, the following are not ``agreements'' between 
the consumer and the creditor for purposes of Sec. 1026.9(c)(1)(i): The 
consumer's general acceptance of the creditor's contract reservation of 
the right to change terms; the consumer's use of the account (which 
might imply acceptance of its terms under state law); and the consumer's 
acceptance of a unilateral term change that is not particular to that 
consumer, but rather is of general applicability to consumers with that 
type of account.
    4. Form of change-in-terms notice. A complete new set of the initial 
disclosures containing the changed term complies with Sec. 
1026.9(c)(1)(i) if the change is highlighted in some way on the 
disclosure statement, or if the disclosure statement is accompanied by a 
letter or some other insert that indicates or draws attention to the 
term change.
    5. Security interest change--form of notice. A copy of the security 
agreement that describes the collateral securing the consumer's account 
may be used as the notice, when the term change is the addition of a 
security interest or the addition or substitution of collateral.
    6. Changes to home-equity plans entered into on or after November 7, 
1989. Section 1026.9(c)(1) applies when, by written agreement under 
Sec. 1026.40(f)(3)(iii), a creditor changes the terms of a home-equity 
plan--entered into on or after November 7, 1989--at or before its 
scheduled expiration, for example, by renewing a plan on terms different 
from those of the original plan. In disclosing the change:
    i. If the index is changed, the maximum annual percentage rate is 
increased (to the limited extent permitted by Sec. 1026.30), or a 
variable-rate feature is added to a fixed-rate plan, the creditor must 
include the disclosures required by Sec. 1026.40(d)(12)(x) and 
(d)(12)(xi), unless these disclosures are unchanged from those given 
earlier.
    ii. If the minimum payment requirement is changed, the creditor must 
include the disclosures required by Sec. 1026.40(d)(5)(iii) (and, in 
variable-rate plans, the disclosures required by Sec. 1026.40(d)(12)(x) 
and (d)(12)(xi)) unless the disclosures given earlier contained 
representative examples covering the new minimum payment requirement. 
(See the commentary to Sec. 1026.40(d)(5)(iii), (d)(12)(x) and 
(d)(12)(xi) for a discussion of representative examples.)
    iii. When the terms are changed pursuant to a written agreement as 
described in Sec. 1026.40(f)(3)(iii), the advance-notice requirement 
does not apply.

                     9(c)(1)(ii) Notice not Required

    1. Changes not requiring notice. The following are examples of 
changes that do not require a change-in-terms notice:
    i. A change in the consumer's credit limit.
    ii. A change in the name of the credit card or credit card plan.
    iii. The substitution of one insurer for another.
    iv. A termination or suspension of credit privileges. (But see Sec. 
1026.40(f).)

[[Page 795]]

    v. Changes arising merely by operation of law; for example, if the 
creditor's security interest in a consumer's car automatically extends 
to the proceeds when the consumer sells the car.
    2. Skip features. If a credit program allows consumers to skip or 
reduce one or more payments during the year, or involves temporary 
reductions in finance charges, no notice of the change in terms is 
required either prior to the reduction or upon resumption of the higher 
rates or payments if these features are explained on the initial 
disclosure statement (including an explanation of the terms upon 
resumption). For example, a merchant may allow consumers to skip the 
December payment to encourage holiday shopping, or a teachers' credit 
union may not require payments during summer vacation. Otherwise, the 
creditor must give notice prior to resuming the original schedule or 
rate, even though no notice is required prior to the reduction. The 
change-in-terms notice may be combined with the notice offering the 
reduction. For example, the periodic statement reflecting the reduction 
or skip feature may also be used to notify the consumer of the 
resumption of the original schedule or rate, either by stating 
explicitly when the higher payment or charges resume, or by indicating 
the duration of the skip option. Language such as ``You may skip your 
October payment,'' or ``We will waive your finance charges for 
January,'' may serve as the change-in-terms notice.

                 9(c)(1)(iii) Notice to Restrict Credit

    1. Written request for reinstatement. If a creditor requires the 
request for reinstatement of credit privileges to be in writing, the 
notice under Sec. 1026.9(c)(1)(iii) must state that fact.
    2. Notice not required. A creditor need not provide a notice under 
this paragraph if, pursuant to the commentary to Sec. 1026.40(f)(2), a 
creditor freezes a line or reduces a credit line rather than terminating 
a plan and accelerating the balance.

        9(c)(2) Rules Affecting Open-End (Not Home-Secured) Plans

    1. Changes initially disclosed. Except as provided in Sec. 
1026.9(g)(1), no notice of a change in terms need be given if the 
specific change is set forth initially consistent with any applicable 
requirements, such as rate or fee increases upon expiration of a 
specific period of time that were disclosed in accordance with Sec. 
1026.9(c)(2)(v)(B) or rate increases under a properly disclosed 
variable-rate plan in accordance with Sec. 1026.9(c)(2)(v)(C). In 
contrast, notice must be given if the contract allows the creditor to 
increase a rate or fee at its discretion.
    2. State law issues. Some issues are not addressed by Sec. 
1026.9(c)(2) because they are controlled by state or other applicable 
laws. These issues include the types of changes a creditor may make, to 
the extent otherwise permitted by this part.
    3. Change in billing cycle. Whenever the creditor changes the 
consumer's billing cycle, it must give a change-in-terms notice if the 
change affects any of the terms described in Sec. 1026.9(c)(2)(i), 
unless an exception under Sec. 1026.9(c)(2)(v) applies; for example, 
the creditor must give advance notice if the creditor initially 
disclosed a 28-day grace period on purchases and the consumer will have 
fewer days during the billing cycle change. See also Sec. 
1026.7(b)(11)(i)(A) regarding the general requirement that the payment 
due date for a credit card account under an open-end (not home-secured) 
consumer credit plan must be the same day each month.
    4. Relationship to Sec. 1026.9(b). If a creditor adds a feature to 
the account on the type of terms otherwise required to be disclosed 
under Sec. 1026.6, the creditor must satisfy: The requirement to 
provide the finance charge disclosures for the added feature under Sec. 
1026.9(b); and any applicable requirement to provide a change-in-terms 
notice under Sec. 1026.9(c), including any advance notice that must be 
provided. For example, if a creditor adds a balance transfer feature to 
an account more than 30 days after account-opening disclosures are 
provided, it must give the finance charge disclosures for the balance 
transfer feature under Sec. 1026.9(b) as well as comply with the 
change-in-terms notice requirements under Sec. 1026.9(c), including 
providing notice of the change at least 45 days prior to the effective 
date of the change. Similarly, if a creditor makes a balance transfer 
offer on finance charge terms that are higher than those previously 
disclosed for balance transfers, it would also generally be required to 
provide a change-in-terms notice at least 45 days in advance of the 
effective date of the change. A creditor may provide a single notice 
under Sec. 1026.9(c) to satisfy the notice requirements of both 
paragraphs (b) and (c) of Sec. 1026.9. For checks that access a credit 
card account subject to the disclosure requirements in Sec. 
1026.9(b)(3), a creditor is not subject to the notice requirements under 
Sec. 1026.9(c) even if the applicable rate or fee is higher than those 
previously disclosed for such checks. Thus, for example, the creditor 
need not wait 45 days before applying the new rate or fee for 
transactions made using such checks, but the creditor must make the 
required disclosures on or with the checks in accordance with Sec. 
1026.9(b)(3).

       9(c)(2)(i) Changes Where Written Advance Notice is Required

    1. Affected consumers. Change-in-terms notices need only go to those 
consumers who may be affected by the change. For example,

[[Page 796]]

a change in the periodic rate for check overdraft credit need not be 
disclosed to consumers who do not have that feature on their accounts. 
If a single credit account involves multiple consumers that may be 
affected by the change, the creditor should refer to Sec. 1026.5(d) to 
determine the number of notices that must be given.
    2. Timing--effective date of change. The rule that the notice of the 
change in terms be provided at least 45 days before the change takes 
effect permits mid-cycle changes when there is clearly no retroactive 
effect, such as the imposition of a transaction fee. Any change in the 
balance computation method, in contrast, would need to be disclosed at 
least 45 days prior to the billing cycle in which the change is to be 
implemented.
    3. Changes agreed to by the consumer. See also comment 5(b)(1)(i)-6.
    4. Form of change-in-terms notice. Except if Sec. 1026.9(c)(2)(iv) 
applies, a complete new set of the initial disclosures containing the 
changed term complies with Sec. 1026.9(c)(2)(i) if the change is 
highlighted on the disclosure statement, or if the disclosure statement 
is accompanied by a letter or some other insert that indicates or draws 
attention to the term being changed.
    5. Security interest change--form of notice. A creditor must provide 
a description of any security interest it is acquiring under Sec. 
1026.9(c)(2)(iv). A copy of the security agreement that describes the 
collateral securing the consumer's account may also be used as the 
notice, when the term change is the addition of a security interest or 
the addition or substitution of collateral.
    6. Examples. See comment 55(a)-1 and 55(b)-3 for examples of how a 
card issuer that is subject to Sec. 1026.55 may comply with the timing 
requirements for notices required by Sec. 1026.9(c)(2)(i).

    9(c)(2)(iii) Charges not Covered by Sec. 1026.6(b)(1) and (b)(2)

    1. Applicability. Generally, if a creditor increases any component 
of a charge, or introduces a new charge, that is imposed as part of the 
plan under Sec. 1026.6(b)(3) but is not required to be disclosed as 
part of the account-opening summary table under Sec. 1026.6(b)(1) and 
(b)(2), the creditor must either, at its option (i) provide at least 45 
days' written advance notice before the change becomes effective to 
comply with the requirements of Sec. 1026.9(c)(2)(i), or (ii) provide 
notice orally or in writing, or electronically if the consumer requests 
the service electronically, of the amount of the charge to an affected 
consumer before the consumer agrees to or becomes obligated to pay the 
charge, at a time and in a manner that a consumer would be likely to 
notice the disclosure. (See the commentary under Sec. 1026.5(a)(1)(iii) 
regarding disclosure of such changes in electronic form.) For example, a 
fee for expedited delivery of a credit card is a charge imposed as part 
of the plan under Sec. 1026.6(b)(3) but is not required to be disclosed 
in the account-opening summary table under Sec. 1026.6(b)(1) and 
(b)(2). If a creditor changes the amount of that expedited delivery fee, 
the creditor may provide written advance notice of the change to 
affected consumers at least 45 days before the change becomes effective. 
Alternatively, the creditor may provide oral or written notice, or 
electronic notice if the consumer requests the service electronically, 
of the amount of the charge to an affected consumer before the consumer 
agrees to or becomes obligated to pay the charge, at a time and in a 
manner that the consumer would be likely to notice the disclosure. (See 
comment 5(b)(1)(ii)-1 for examples of disclosures given at a time and in 
a manner that the consumer would be likely to notice them.)

                   9(c)(2)(iv) Disclosure Requirements

    1. Changing margin for calculating a variable rate. If a creditor is 
changing a margin used to calculate a variable rate, the creditor must 
disclose the amount of the new rate (as calculated using the new margin) 
in the table described in Sec. 1026.9(c)(2)(iv), and include a reminder 
that the rate is a variable rate. For example, if a creditor is changing 
the margin for a variable rate that uses the prime rate as an index, the 
creditor must disclose in the table the new rate (as calculated using 
the new margin) and indicate that the rate varies with the market based 
on the prime rate.
    2. Changing index for calculating a variable rate. If a creditor is 
changing the index used to calculate a variable rate, the creditor must 
disclose the amount of the new rate (as calculated using the new index) 
and indicate that the rate varies and how the rate is determined, as 
explained in Sec. 1026.6(b)(2)(i)(A). For example, if a creditor is 
changing from using a prime rate to using the LIBOR in calculating a 
variable rate, the creditor would disclose in the table the new rate 
(using the new index) and indicate that the rate varies with the market 
based on the LIBOR.
    3. Changing from a variable rate to a non-variable rate. If a 
creditor is changing a rate applicable to a consumer's account from a 
variable rate to a non-variable rate, the creditor generally must 
provide a notice as otherwise required under Sec. 1026.9(c) even if the 
variable rate at the time of the change is higher than the non-variable 
rate. However, a creditor is not required to provide a notice under 
Sec. 1026.9(c) if the creditor provides the disclosures required by 
Sec. 1026.9(c)(2)(v)(B) or (c)(2)(v)(D) in connection with changing a 
variable rate to a lower non-variable rate. Similarly, a creditor is not 
required to provide a notice under Sec. 1026.9(c) when changing a 
variable rate to a lower non-variable rate

[[Page 797]]

in order to comply with 50 U.S.C. app. 527 or a similar Federal or state 
statute or regulation. Finally, a creditor is not required to provide a 
notice under Sec. 1026.9(c) when changing a variable rate to a lower 
non-variable rate in order to comply with Sec. 1026.55(b)(4).
    4. Changing from a non-variable rate to a variable rate. If a 
creditor is changing a rate applicable to a consumer's account from a 
non-variable rate to a variable rate, the creditor generally must 
provide a notice as otherwise required under Sec. 1026.9(c) even if the 
non-variable rate is higher than the variable rate at the time of the 
change. However, a creditor is not required to provide a notice under 
Sec. 1026.9(c) if the creditor provides the disclosures required by 
Sec. 1026.9(c)(2)(v)(B) or (c)(2)(v)(D) in connection with changing a 
non-variable rate to a lower variable rate. Similarly, a creditor is not 
required to provide a notice under Sec. 1026.9(c) when changing a non-
variable rate to a lower variable rate in order to comply with 50 U.S.C. 
app. 527 or a similar Federal or state statute or regulation. Finally, a 
creditor is not required to provide a notice under Sec. 1026.9(c) when 
changing a non-variable rate to a lower variable rate in order to comply 
with Sec. 1026.55(b)(4). See comment 55(b)(2)-4 regarding the 
limitations in Sec. 1026.55(b)(2) on changing the rate that applies to 
a protected balance from a non-variable rate to a variable rate.
    5. Changes in the penalty rate, the triggers for the penalty rate, 
or how long the penalty rate applies. If a creditor is changing the 
amount of the penalty rate, the creditor must also redisclose the 
triggers for the penalty rate and the information about how long the 
penalty rate applies even if those terms are not changing. Likewise, if 
a creditor is changing the triggers for the penalty rate, the creditor 
must redisclose the amount of the penalty rate and information about how 
long the penalty rate applies. If a creditor is changing how long the 
penalty rate applies, the creditor must redisclose the amount of the 
penalty rate and the triggers for the penalty rate, even if they are not 
changing.
    6. Changes in fees. If a creditor is changing part of how a fee that 
is disclosed in a tabular format under Sec. 1026.6(b)(1) and (b)(2) is 
determined, the creditor must redisclose all relevant information 
related to that fee regardless of whether this other information is 
changing. For example, if a creditor currently charges a cash advance 
fee of ``Either $5 or 3% of the transaction amount, whichever is 
greater(Max: $100),'' and the creditor is only changing the minimum 
dollar amount from $5 to $10, the issuer must redisclose the other 
information related to how the fee is determined. For example, the 
creditor in this example would disclose the following: ``Either $10 or 
3% of the transaction amount, whichever is greater (Max: $100).''
    7. Combining a notice described in Sec. 1026.9(c)(2)(iv) with a 
notice described in Sec. 1026.9(g)(3). If a creditor is required to 
provide a notice described in Sec. 1026.9(c)(2)(iv) and a notice 
described in Sec. 1026.9(g)(3) to a consumer, the creditor may combine 
the two notices. This would occur if penalty pricing has been triggered, 
and other terms are changing on the consumer's account at the same time.
    8. Content. Sample G-20 contains an example of how to comply with 
the requirements in Sec. 1026.9(c)(2)(iv) when a variable rate is being 
changed to a non-variable rate on a 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 contains 
an example of how to comply with the requirements in Sec. 
1026.9(c)(2)(iv) when the late payment fee on a credit card account is 
being increased, and the returned payment fee is also being increased. 
The sample discloses the consumer's right to reject the changes in 
accordance with Sec. 1026.9(h).
    9. Clear and conspicuous standard. See comment 5(a)(1)-1 for the 
clear and conspicuous standard applicable to disclosures required under 
Sec. 1026.9(c)(2)(iv)(A)(1).
    10. Terminology. See Sec. 1026.5(a)(2) for terminology requirements 
applicable to disclosures required under Sec. 1026.9(c)(2)(iv)(A)(1).
    11. Reasons for increase. i. In general. Section 
1026.9(c)(2)(iv)(A)(8) requires card issuers to disclose the principal 
reason(s) for increasing an annual percentage rate applicable to a 
credit card account under an open-end (not home-secured) consumer credit 
plan. The regulation does not mandate a minimum number of reasons that 
must be disclosed. However, the specific reasons disclosed under Sec. 
1026.9(c)(2)(iv)(A)(8) are required to relate to and accurately describe 
the principal factors actually considered by the card issuer in 
increasing the rate. A card issuer may describe the reasons for the 
increase in general terms. For example, the notice of a rate increase 
triggered by a decrease of 100 points in a consumer's credit score may 
state that the increase is due to ``a decline in your creditworthiness'' 
or ``a decline in your credit score.'' Similarly, a notice of a rate 
increase triggered by a 10% increase in the card issuer's cost of funds 
may be disclosed as ``a change in market conditions.'' In some 
circumstances, it may be appropriate for a card issuer to combine the 
disclosure of several reasons in one statement. However, Sec. 
1026.9(c)(2)(iv)(A)(8) requires that the notice specifically disclose 
any violation of the terms of the account on which the rate is being 
increased, such as a late payment or a returned payment, if such 
violation of the account terms is one of the four principal reasons for 
the rate increase.
    ii. Example. Assume that a consumer made a late payment on the 
credit card account on which the rate increase is being imposed,

[[Page 798]]

made a late payment on a credit card account with another card issuer, 
and the consumer's credit score decreased, in part due to such late 
payments. The card issuer may disclose the reasons for the rate increase 
as a decline in the consumer's credit score and the consumer's late 
payment on the account subject to the increase. Because the late payment 
on the credit card account with the other issuer also likely contributed 
to the decline in the consumer's credit score, it is not required to be 
separately disclosed. However, the late payment on the credit card 
account on which the rate increase is being imposed must be specifically 
disclosed even if that late payment also contributed to the decline in 
the consumer's credit score.

                     9(c)(2)(v) Notice not Required

    1. Changes not requiring notice. The following are examples of 
changes that do not require a change-in-terms notice:
    i. A change in the consumer's credit limit except as otherwise 
required by Sec. 1026.9(c)(2)(vi).
    ii. A change in the name of the credit card or credit card plan.
    iii. The substitution of one insurer for another.
    iv. A termination or suspension of credit privileges.
    v. Changes arising merely by operation of law; for example, if the 
creditor's security interest in a consumer's car automatically extends 
to the proceeds when the consumer sells the car.
    2. Skip features. i. Skipped or reduced payments. If a credit 
program allows consumers to skip or reduce one or more payments during 
the year, no notice of the change in terms is required either prior to 
the reduction in payments or upon resumption of the higher payments if 
these features are explained on the account-opening disclosure statement 
(including an explanation of the terms upon resumption). For example, a 
merchant may allow consumers to skip the December payment to encourage 
holiday shopping, or a teacher's credit union may not require payments 
during summer vacation. Otherwise, the creditor must give notice prior 
to resuming the original payment schedule, even though no notice is 
required prior to the reduction. The change-in-terms notice may be 
combined with the notice offering the reduction. For example, the 
periodic statement reflecting the skip feature may also be used to 
notify the consumer of the resumption of the original payment schedule, 
either by stating explicitly when the higher resumes or by indicating 
the duration of the skip option. Language such as ``You may skip your 
October payment'' may serve as the change-in-terms notice.
    ii. Temporary reductions in interest rates or fees. If a credit 
program involves temporary reductions in an interest rate or fee, no 
notice of the change in terms is required either prior to the reduction 
or upon resumption of the original rate or fee if these features are 
disclosed in advance in accordance with the requirements of Sec. 
1026.9(c)(2)(v)(B). Otherwise, the creditor must give notice prior to 
resuming the original rate or fee, even though no notice is required 
prior to the reduction. The notice provided prior to resuming the 
original rate or fee must comply with the timing requirements of Sec. 
1026.9(c)(2)(i) and the content and format requirements of Sec. 
1026.9(c)(2)(iv)(A), (B) (if applicable), (C) (if applicable), and (D). 
See comment 55(b)-3 for guidance regarding the application of Sec. 
1026.55 in these circumstances.
    3. Changing from a variable rate to a non-variable rate. See comment 
9(c)(2)(iv)-3.
    4. Changing from a non-variable rate to a variable rate. See comment 
9(c)(2)(iv)-4.
    5. Temporary rate or fee reductions offered by telephone. The timing 
requirements of Sec. 1026.9(c)(2)(v)(B) are deemed to have been met, 
and written disclosures required by Sec. 1026.9(c)(2)(v)(B) may be 
provided as soon as reasonably practicable after the first transaction 
subject to a rate that will be in effect for a specified period of time 
(a temporary rate) or the imposition of a fee that will be in effect for 
a specified period of time (a temporary fee) if:
    i. The consumer accepts the offer of the temporary rate or temporary 
fee by telephone;
    ii. The creditor permits the consumer to reject the temporary rate 
or temporary fee offer and have the rate or rates or fee that previously 
applied to the consumer's balances reinstated for 45 days after the 
creditor mails or delivers the written disclosures required by Sec. 
1026.9(c)(2)(v)(B), except that the creditor need not permit the 
consumer to reject a temporary rate or temporary fee offer if the rate 
or rates or fee that will apply following expiration of the temporary 
rate do not exceed the rate or rates or fee that applied immediately 
prior to commencement of the temporary rate or temporary fee; and
    iii. The disclosures required by Sec. 1026.9(c)(2)(v)(B) and the 
consumer's right to reject the temporary rate or temporary fee offer and 
have the rate or rates or fee that previously applied to the consumer's 
account reinstated, if applicable, are disclosed to the consumer as part 
of the temporary rate or temporary fee offer.
    6. First listing. The disclosures required by Sec. 
1026.9(c)(2)(v)(B)(1) are only required to be provided in close 
proximity and in equal prominence to the first listing of the temporary 
rate or fee in the disclosure provided to the consumer. For purposes of 
Sec. 1026.9(c)(2)(v)(B), the first statement of the temporary rate or 
fee is the most prominent listing on the front side of the first page of 
the disclosure. If the temporary rate or fee

[[Page 799]]

does not appear on the front side of the first page of the disclosure, 
then the first listing of the temporary rate or fee is the most 
prominent listing of the temporary rate on the subsequent pages of the 
disclosure. For advertising requirements for promotional rates, see 
Sec. 1026.16(g).
    7. Close proximity--point of sale. Creditors providing the 
disclosures required by Sec. 1026.9(c)(2)(v)(B) of this section in 
person in connection with financing the purchase of goods or services 
may, at the creditor's option, disclose the annual percentage rate or 
fee that would apply after expiration of the period on a separate page 
or document from the temporary rate or fee and the length of the period, 
provided that the disclosure of the annual percentage rate or fee 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 or fee and length of the period.
    8. Disclosure of annual percentage rates. If a rate disclosed 
pursuant to Sec. 1026.9(c)(2)(v)(B) or (c)(2)(v)(D) is a variable rate, 
the creditor must disclose the fact that the rate may vary and how the 
rate is determined. For example, a creditor could state ``After October 
1, 2009, your APR will be 14.99%. This APR will vary with the market 
based on the Prime Rate.''
    9. Deferred interest or similar programs. If the applicable 
conditions are met, the exception in Sec. 1026.9(c)(2)(v)(B) applies to 
deferred interest or similar promotional 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. For purposes of this comment and Sec. 
1026.9(c)(2)(v)(B), ``deferred interest'' has the same meaning as in 
Sec. 1026.16(h)(2) and associated commentary. For such programs, a 
creditor must disclose pursuant to Sec. 1026.9(c)(2)(v)(B)(1) the 
length of the deferred interest 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 deferred interest period. 
Examples of language that a creditor may use to make the required 
disclosures under Sec. 1026.9(c)(2)(v)(B)(1) include:
    i. ``No interest if paid in full in 6 months. If the balance is not 
paid in full in 6 months, interest will be imposed from the date of 
purchase at a rate of 15.99%.''
    ii. ``No interest if paid in full by December 31, 2010. If the 
balance is not paid in full by that date, interest will be imposed from 
the transaction date at a rate of 15%.''
    10. Relationship between Sec. Sec. 1026.9(c)(2)(v)(B) and 
1026.6(b). A disclosure of the information described in Sec. 
1026.9(c)(2)(v)(B)(1) provided in the account-opening table in 
accordance with Sec. 1026.6(b) complies with the requirements of Sec. 
1026.9(c)(2)(v)(B)(2), if the listing of the introductory rate in such 
tabular disclosure also is the first listing as described in comment 
9(c)(2)(v)-6.
    11. Disclosure of the terms of a workout or temporary hardship 
arrangement. In order for the exception in Sec. 1026.9(c)(2)(v)(D) to 
apply, the disclosure provided to the consumer pursuant to Sec. 
1026.9(c)(2)(v)(D)(2) must set forth:
    i. The annual percentage rate that will apply to balances subject to 
the workout or temporary hardship arrangement;
    ii. The annual percentage rate that will apply to such balances if 
the consumer completes or fails to comply with the terms of, the workout 
or temporary hardship arrangement;
    iii. Any reduced fee or charge of a type required to be disclosed 
under Sec. 1026.6(b)(2)(ii), (b)(2)(iii), (b)(2)(viii), (b)(2)(ix), 
(b)(2)(xi), or (b)(2)(xii) that will apply to balances subject to the 
workout or temporary hardship arrangement, as well as the fee or charge 
that will apply if the consumer completes or fails to comply with the 
terms of the workout or temporary hardship arrangement;
    iv. Any reduced minimum periodic payment that will apply to balances 
subject to the workout or temporary hardship arrangement, as well as the 
minimum periodic payment that will apply if the consumer completes or 
fails to comply with the terms of the workout or temporary hardship 
arrangement; and
    v. If applicable, that the consumer must make timely minimum 
payments in order to remain eligible for the workout or temporary 
hardship arrangement.
    12. Index not under creditor's control. See comment 55(b)(2)-2 for 
guidance on when an index is deemed to be under a creditor's control.
    13. Temporary rates--relationship to Sec. 1026.59. i. General. 
Section 1026.59 requires a card issuer to review rate increases imposed 
due to the revocation of a temporary rate. In some circumstances, Sec. 
1026.59 may require an issuer to reinstate a reduced temporary rate 
based on that review. If, based on a review required by Sec. 1026.59, a 
creditor reinstates a temporary rate that had been revoked, the card 
issuer is not required to provide an additional notice to the consumer 
when the reinstated temporary rate expires, if the card issuer provided 
the disclosures required by Sec. 1026.9(c)(2)(v)(B) prior to the 
original commencement of the temporary rate. See Sec. 1026.55 and the 
associated commentary for guidance on the permissibility and 
applicability of rate increases.
    ii. Example. A consumer opens a new credit card account under an 
open-end (not home-secured) consumer credit plan on January 1, 2011. The 
annual percentage rate applicable to purchases is 18%. The card issuer 
offers the consumer a 15% rate on purchases made between January 1, 2012 
and January 1, 2014. Prior to January 1, 2012, the card issuer 
discloses, in accordance with Sec. 1026.9(c)(2)(v)(B),

[[Page 800]]

that the rate on purchases made during that period will increase to the 
standard 18% rate on January 1, 2014. In March 2012, the consumer makes 
a payment that is ten days late. The card issuer, upon providing 45 
days' advance notice of the change under Sec. 1026.9(g), increases the 
rate on new purchases to 18% effective as of June 1, 2012. On December 
1, 2012, the issuer performs a review of the consumer's account in 
accordance with Sec. 1026.59. Based on that review, the card issuer is 
required to reduce the rate to the original 15% temporary rate as of 
January 15, 2013. On January 1, 2014, the card issuer may increase the 
rate on purchases to 18%, as previously disclosed prior to January 1, 
2012, without providing an additional notice to the consumer.

           9(d) Finance Charge Imposed at Time of Transaction

    1. Disclosure prior to imposition. A person imposing a finance 
charge at the time of honoring a consumer's credit card must disclose 
the amount of the charge, or an explanation of how the charge will be 
determined, prior to its imposition. This must be disclosed before the 
consumer becomes obligated for property or services that may be paid for 
by use of a credit card. For example, disclosure must be given before 
the consumer has dinner at a restaurant, stays overnight at a hotel, or 
makes a deposit guaranteeing the purchase of property or services.

         9(e) Disclosures Upon Renewal of Credit or Charge Card

    1. Coverage. This paragraph applies to credit and charge card 
accounts of the type subject to Sec. 1026.60. (See Sec. 1026.60(a)(5) 
and the accompanying commentary for discussion of the types of accounts 
subject to Sec. 1026.60.) The disclosure requirements are triggered 
when a card issuer imposes any annual or other periodic fee on such an 
account or if the card issuer has changed or amended any term of a 
cardholder's account required to be disclosed under Sec. 1026.6(b)(1) 
and (b)(2) that has not previously been disclosed to the consumer, 
whether or not the card issuer originally was required to provide the 
application and solicitation disclosures described in Sec. 1026.60.
    2. Form. The disclosures under this paragraph must be clear and 
conspicuous, but need not appear in a tabular format or in a prominent 
location. The disclosures need not be in a form the cardholder can 
retain.
    3. Terms at renewal. Renewal notices must reflect the terms actually 
in effect at the time of renewal. For example, a card issuer that offers 
a preferential annual percentage rate to employees during their 
employment must send a renewal notice to employees disclosing the lower 
rate actually charged to employees (although the card issuer also may 
show the rate charged to the general public).
    4. Variable rate. If the card issuer cannot determine the rate that 
will be in effect if the cardholder chooses to renew a variable-rate 
account, the card issuer may disclose the rate in effect at the time of 
mailing or delivery of the renewal notice. Alternatively, the card 
issuer may use the rate as of a specified date within the last 30 days 
before the disclosure is provided.
    5. Renewals more frequent than annual. If a renewal fee is billed 
more often than annually, the renewal notice should be provided each 
time the fee is billed. In this instance, the fee need not be disclosed 
as an annualized amount. Alternatively, the card issuer may provide the 
notice no less than once every 12 months if the notice explains the 
amount and frequency of the fee that will be billed during the time 
period covered by the disclosure, and also discloses the fee as an 
annualized amount. The notice under this alternative also must state the 
consequences of a cardholder's decision to terminate the account after 
the renewal-notice period has expired. For example, if a $2 fee is 
billed monthly but the notice is given annually, the notice must inform 
the cardholder that the monthly charge is $2, the annualized fee is $24, 
and $2 will be billed to the account each month for the coming year 
unless the cardholder notifies the card issuer. If the cardholder is 
obligated to pay an amount equal to the remaining unpaid monthly charges 
if the cardholder terminates the account during the coming year but 
after the first month, the notice must disclose the fact.
    6. Terminating credit availability. Card issuers have some 
flexibility in determining the procedures for how and when an account 
may be terminated. However, the card issuer must clearly disclose the 
time by which the cardholder must act to terminate the account to avoid 
paying a renewal fee, if applicable. State and other applicable law 
govern whether the card issuer may impose requirements such as 
specifying that the cardholder's response be in writing or that the 
outstanding balance be repaid in full upon termination.
    7. Timing of termination by cardholder. When a card issuer provides 
notice under Sec. 1026.9(e)(1), a cardholder must be given at least 30 
days or one billing cycle, whichever is less, from the date the notice 
is mailed or delivered to make a decision whether to terminate an 
account.
    8. Timing of notices. A renewal notice is deemed to be provided when 
mailed or delivered. Similarly, notice of termination is deemed to be 
given when mailed or delivered.
    9. Prompt reversal of renewal fee upon termination. In a situation 
where a cardholder has provided timely notice of termination and a 
renewal fee has been billed to a cardholder's

[[Page 801]]

account, the card issuer must reverse or otherwise withdraw the fee 
promptly. Once a cardholder has terminated an account, no additional 
action by the cardholder may be required.
    10. Disclosure of changes in terms required to be disclosed pursuant 
to Sec. 1026.6(b)(1) and (b)(2). 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. 1026.9(e)(1). Card issuers should refer to 
Sec. 1026.9(c)(2) for additional timing, content, and formatting 
requirements that apply to certain changes in terms under that 
paragraph.

               9(e)(2) Notification on Periodic Statements

    1. Combined disclosures. If a single disclosure is used to comply 
with both Sec. Sec. 1026.9(e) and 1026.7, the periodic statement must 
comply with the rules in Sec. Sec. 1026.60 and 1026.7. For example, a 
description substantially similar to the heading describing the grace 
period required by Sec. 1026.60(b)(5) must be used and the name of the 
balance-calculation method must be identified (if listed in Sec. 
1026.60(g)) to comply with the requirements of Sec. 1026.60. A card 
issuer may include some of the renewal disclosures on a periodic 
statement and others on a separate document so long as there is some 
reference indicating that the disclosures relate to one another. All 
renewal disclosures must be provided to a cardholder at the same time.
    2. Preprinted notices on periodic statements. A card issuer may 
preprint the required information on its periodic statements. A card 
issuer that does so, however, must make clear on the periodic statement 
when the preprinted renewal disclosures are applicable. For example, the 
card issuer could include a special notice (not preprinted) at the 
appropriate time that the renewal fee will be billed in the following 
billing cycle, or could show the renewal date as a regular (preprinted) 
entry on all periodic statements.

          9(f) Change in Credit Card Account Insurance Provider

    1. Coverage. This paragraph applies to credit card accounts of the 
type subject to Sec. 1026.60 if credit insurance (typically life, 
disability, and unemployment insurance) is offered on the outstanding 
balance of such an account. (Credit card accounts subject to Sec. 
1026.9(f) are the same as those subject to Sec. 1026.9(e); see comment 
9(e)-1.) Charge card accounts are not covered by this paragraph. In 
addition, the disclosure requirements of this paragraph apply only where 
the card issuer initiates the change in insurance provider. For example, 
if the card issuer's current insurance provider is merged into or 
acquired by another company, these disclosures would not be required. 
Disclosures also need not be given in cases where card issuers pay for 
credit insurance themselves and do not separately charge the cardholder.
    2. No increase in rate or decrease in coverage. The requirement to 
provide the disclosure arises when the card issuer changes the provider 
of insurance, even if there will be no increase in the premium rate 
charged to the consumer and no decrease in coverage under the insurance 
policy.
    3. Form of notice. If a substantial decrease in coverage will result 
from the change in provider, the card issuer either must explain the 
decrease or refer to an accompanying copy of the policy or group 
certificate for details of the new terms of coverage. (See the 
commentary to AppendixG-13 to part 1026.)
    4. Discontinuation of insurance. In addition to stating that the 
cardholder may cancel the insurance, the card issuer may explain the 
effect the cancellation would have on the consumer's credit card plan.
    5. Mailing by third party. Although the card issuer is responsible 
for the disclosures, the insurance provider or another third party may 
furnish the disclosures on the card issuer's behalf.

                9(f)(3) Substantial Decrease in Coverage

    1. Determination. Whether a substantial decrease in coverage will 
result from the change in provider is determined by the two-part test in 
Sec. 1026.9(f)(3): First, whether the decrease is in a significant term 
of coverage; and second, whether the decrease might reasonably be 
expected to affect a cardholder's decision to continue the insurance. If 
both conditions are met, the decrease must be disclosed in the notice.

  9(g) Increase in Rates Due to Delinquency or Default or as a Penalty

    1. Relationship between Sec. 1026.9(c) and (g) and Sec. 1026.55--
examples. Card issuers subject to Sec. 1026.55 are prohibited from 
increasing the annual percentage rate for a category of transactions on 
any consumer credit card account unless specifically permitted by one of 
the exceptions in Sec. 1026.55(b). See comments 55(a)-1 and 55(b)-3 and 
the commentary to Sec. 1026.55(b)(4) for examples that illustrate the 
relationship between the notice requirements of Sec. 1026.9(c) and (g) 
and Sec. 1026.55.
    2. Affected consumers. If a single credit account involves multiple 
consumers that may be affected by the change, the creditor should refer 
to Sec. 1026.5(d) to determine the number of notices that must be 
given.
    3. Combining a notice described in Sec. 1026.9(g)(3) with a notice 
described in Sec. 1026.9(c)(2)(iv). If a creditor is required to 
provide notices pursuant to both Sec. 1026.9(c)(2)(iv) and (g)(3) to a 
consumer, the creditor may combine the two notices. This would occur 
when penalty pricing has been

[[Page 802]]

triggered, and other terms are changing on the consumer's account at the 
same time.
    4. Content. Sample G-22 contains an example of how to comply with 
the requirements in Sec. 1026.9(g)(3)(i) when the rate on a consumer's 
credit card account is being increased to a penalty rate as described in 
Sec. 1026.9(g)(1)(ii), based on a late payment that is not more than 60 
days late. Sample G-23 contains an example of how to comply with the 
requirements in Sec. 1026.9(g)(3)(i) when the rate increase is 
triggered by a delinquency of more than 60 days.
    5. Clear and conspicuous standard. See comment 5(a)(1)-1 for the 
clear and conspicuous standard applicable to disclosures required under 
Sec. 1026.9(g).
    6. Terminology. See Sec. 1026.5(a)(2) for terminology requirements 
applicable to disclosures required under Sec. 1026.9(g).
    7. Reasons for increase. See comment 9(c)(2)(iv)-11 for guidance on 
disclosure of the reasons for a rate increase for a credit card account 
under an open-end (not home-secured) consumer credit plan.

             9(g)(4) Exception for Decrease in Credit Limit

    1. The following illustrates the requirements of Sec. 1026.9(g)(4). 
Assume that a creditor decreased the credit limit applicable to a 
consumer's account and sent a notice pursuant to Sec. 1026.9(g)(4) on 
January 1, stating among other things that the penalty rate would apply 
if the consumer's balance exceeded the new credit limit as of February 
16. If the consumer's balance exceeded the credit limit on February 16, 
the creditor could impose the penalty rate on that date. However, a 
creditor could not apply the penalty rate if the consumer's balance did 
not exceed the new credit limit on February 16, even if the consumer's 
balance had exceeded the new credit limit on several dates between 
January 1 and February 15. If the consumer's balance did not exceed the 
new credit limit on February 16 but the consumer conducted a transaction 
on February 17 that caused the balance to exceed the new credit limit, 
the general rule in Sec. 1026.9(g)(1)(ii) would apply and the creditor 
would be required to give an additional 45 days' notice prior to 
imposition of the penalty rate (but under these circumstances the 
consumer would have no ability to cure the over-the-limit balance in 
order to avoid penalty pricing).

     9(h) Consumer Rejection of Certain Significant Changes in Terms

    1. Circumstances in which Sec. 1026.9(h) does not apply. Section 
1026.9(h) applies when Sec. 1026.9(c)(2)(iv)(B) requires disclosure of 
the consumer's right to reject a significant change to an account term. 
Thus, for example, Sec. 1026.9(h) does not apply to changes to the 
terms of home equity plans subject to the requirements of Sec. 1026.40 
that are accessible by a credit or charge card because Sec. 
1026.9(c)(2) does not apply to such plans. Similarly, Sec. 1026.9(h) 
does not apply in the following circumstances because Sec. 
1026.9(c)(2)(iv)(B) does not require disclosure of the right to reject 
in those circumstances: (i) An increase in the required minimum periodic 
payment; (ii) a change in an annual percentage rate applicable to a 
consumer's account (such as changing the margin or index for calculating 
a variable rate, changing from a variable rate to a non-variable rate, 
or changing from a non-variable rate to a variable rate); (iii) a change 
in the balance computation method necessary to comply with Sec. 
1026.54; and (iv) when the change results from the creditor not 
receiving the consumer's required minimum periodic payment within 60 
days after the due date for that payment.

                         9(h)(1) Right To Reject

    1. Reasonable requirements for submission of rejections. A creditor 
may establish reasonable requirements for the submission of rejections 
pursuant to Sec. 1026.9(h)(1). For example:
    i. It would be reasonable for a creditor to require that rejections 
be made by the primary account holder and that the consumer identify the 
account number.
    ii. It would be reasonable for a creditor to require that rejections 
be made only using the toll-free telephone number disclosed pursuant to 
Sec. 1026.9(c). It would also be reasonable for a creditor to designate 
additional channels for the submission of rejections (such as an address 
for rejections submitted by mail) so long as the creditor does not 
require that rejections be submitted through such additional channels.
    iii. It would be reasonable for a creditor to require that 
rejections be received before the effective date disclosed pursuant to 
Sec. 1026.9(c) and to treat the account as not subject to Sec. 
1026.9(h) if a rejection is received on or after that date. It would 
not, however, be reasonable to require that rejections be submitted 
earlier than the day before the effective date. If a creditor is unable 
to process all rejections received before the effective date, the 
creditor may delay implementation of the change in terms until all 
rejections have been processed. In the alternative, the creditor could 
implement the change on the effective date and then, on any account for 
which a timely rejection was received, reverse the change and remove or 
credit any interest charges or fees imposed as a result of the change. 
For example, if the effective date for a change in terms is June 15 and 
the creditor cannot process all rejections received by telephone on June 
14 until June 16, the creditor may delay imposition of the change until 
June 17. Alternatively, the

[[Page 803]]

creditor could implement the change for all affected accounts on June 15 
and then, once all rejections have been processed, return any account 
for which a timely rejection was received to the prior terms and ensure 
that the account is not assessed any additional interest or fees as a 
result of the change or that the account is credited for such interest 
or fees.
    2. Use of account following provision of notice. A consumer does not 
waive or forfeit the right to reject a significant change in terms by 
using the account for transactions prior to the effective date of the 
change. Similarly, a consumer does not revoke a rejection by using the 
account for transactions after the rejection is received.

                          Paragraph 9(h)(2)(ii)

    1. Termination or suspension of credit availability. Section 
1026.9(h)(2)(ii) does not prohibit a creditor from terminating or 
suspending credit availability as a result of the consumer's rejection 
of a significant change in terms.
    2. Solely as a result of rejection. A creditor is prohibited from 
imposing a fee or charge or treating an account as in default solely as 
a result of the consumer's rejection of a significant change in terms. 
For example, if credit availability is terminated or suspended as a 
result of the consumer's rejection of a significant change in terms, 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). 
See also comment 55(d)-1. However, regardless of whether credit 
availability is terminated or suspended as a result of the consumer's 
rejection, a creditor is not prohibited from continuing to charge a 
periodic fee that was charged before the rejection. Similarly, a 
creditor that charged a fee for late payment before a change was 
rejected is not prohibited from charging that fee after rejection of the 
change.

                         Paragraph 9(h)(2)(iii)

    1. Relevant date for repayment methods. Once a consumer has rejected 
a significant change in terms, Sec. 1026.9(h)(2)(iii) prohibits the 
creditor from requiring repayment of the balance on the account using a 
method that is less beneficial to the consumer than one of the methods 
listed in Sec. 1026.55(c)(2). When applying the methods listed in Sec. 
1026.55(c)(2) pursuant to Sec. 1026.9(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, assume that on April 16 a 
creditor provides a notice pursuant to Sec. 1026.9(c) informing the 
consumer that the monthly maintenance fee for the account will increase 
effective June 1. The notice also states that the consumer may reject 
the increase by calling a specified toll-free telephone number before 
June 1 but that, if the consumer does so, credit availability for the 
account will be terminated. On May 5, the consumer calls the toll-free 
number and exercises the right to reject. If the creditor chooses to 
establish a five-year amortization period for the balance on the account 
consistent with Sec. 1026.55(c)(2)(ii), that period may begin no 
earlier than the date on which the creditor was notified of the 
rejection (May 5). However, the creditor may also begin the amortization 
period on the date on which the change would have gone into effect but 
for the rejection (June 1).
    2. Balance on the account. i. In general. When applying the methods 
listed in Sec. 1026.55(c)(2) pursuant to Sec. 1026.9(h)(2)(iii), the 
provisions in Sec. 1026.55(c)(2) and the guidance in the commentary to 
Sec. 1026.55(c)(2) regarding protected balances also apply to a balance 
on the account subject to Sec. 1026.9(h)(2)(iii). 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 
that is subject to Sec. 1026.9(h)(2)(iii) is the balance at the end of 
the day on which credit availability is terminated or suspended. 
However, if a creditor does not terminate or suspend credit availability 
based on the consumer's rejection, the balance on the account subject to 
Sec. 1026.9(h)(2)(iii) is the balance at the end of the day on which 
the creditor was notified of the rejection or, at the creditor's option, 
a later date.
    ii. Example. Assume that on June 16 a creditor provides a notice 
pursuant to Sec. 1026.9(c) informing the consumer that the annual fee 
for the account will increase effective August 1. The notice also states 
that the consumer may reject the increase by calling a specified toll-
free telephone number before August 1 but that, if the consumer does so, 
credit availability for the account will be terminated. On July 20, the 
account has a purchase balance of $1,000 and the consumer calls the 
toll-free number and exercises the right to reject. On July 22, a $200 
purchase is charged to the account. If the creditor terminates credit 
availability on July 25 as a result of the rejection, the balance 
subject to the repayment limitations in Sec. 1026.9(h)(2)(iii) is the 
$1,200 purchase balance at the end of the day on July 25. However, if 
the creditor does not terminate credit availability as a result of the 
rejection, the balance subject to the repayment limitations in Sec. 
1026.9(h)(2)(iii) is the $1,000 purchase balance at the end of the day 
on the date the creditor was notified of the rejection (July 20), 
although the creditor may, at its option, treat the $200 purchase as 
part of the balance subject to Sec. 1026.9(h)(2)(iii).

[[Page 804]]

                            9(h)(3) Exception

    1. Examples. Section 1026.9(h)(3) provides that Sec. 1026.9(h) does 
not apply when the creditor has not received the consumer's required 
minimum periodic payment within 60 days after the due date for that 
payment. The following examples illustrate the application of this 
exception:
    i. Account becomes more than 60 days delinquent before notice 
provided. Assume that a credit card account is opened on January 1 of 
year one and that the payment due date for the account is the fifteenth 
day of the month. On June 20 of year two, the creditor has not received 
the required minimum periodic payments due on April 15, May 15, and June 
15. On June 20, the creditor provides a notice pursuant to Sec. 
1026.9(c) informing the consumer that a monthly maintenance fee of $10 
will be charged beginning on August 4. However, Sec. 
1026.9(c)(2)(iv)(B) does not require the creditor to notify the consumer 
of the right to reject because the creditor has not received the April 
15 minimum payment within 60 days after the due date. Furthermore, the 
exception in Sec. 1026.9(h)(3) applies and the consumer may not reject 
the fee.
    ii. Account becomes more than 60 days delinquent after rejection. 
Assume that a credit card account is opened on January 1 of year one and 
that the payment due date for the account is the fifteenth day of the 
month. On April 20 of year two, the creditor has not received the 
required minimum periodic payment due on April 15. On April 20, the 
creditor provides a notice pursuant to Sec. 1026.9(c) informing the 
consumer that an annual fee of $100 will be charged beginning on June 4. 
The notice further states that the consumer may reject the fee by 
calling a specified toll-free telephone number before June 4 but that, 
if the consumer does so, credit availability for the account will be 
terminated. On May 5, the consumer calls the toll-free telephone number 
and rejects the fee. Section 1026.9(h)(2)(i) prohibits the creditor from 
charging the $100 fee to the account. If, however, the creditor does not 
receive the minimum payments due on April 15 and May 15 by June 15, 
Sec. 1026.9(h)(3) permits the creditor to charge the $100 fee. The 
creditor must provide a second notice of the fee pursuant to Sec. 
1026.9(c), but Sec. 1026.9(c)(2)(iv)(B) does not require the creditor 
to disclose the right to reject and Sec. 1026.9(h)(3) does not allow 
the consumer to reject the fee. Similarly, the restrictions in Sec. 
1026.9(h)(2)(ii) and (iii) no longer apply.

                        Section 1026.10--Payments

                           10(a) General Rule.

    1. Crediting date. Section 1026.10(a) does not require the creditor 
to post the payment to the consumer's account on a particular date; the 
creditor is only required to credit the payment as of the date of 
receipt.
    2. Date of receipt. The ``date of receipt'' is the date that the 
payment instrument or other means of completing the payment reaches the 
creditor. For example:
    i. Payment by check is received when the creditor gets it, not when 
the funds are collected.
    ii. In a payroll deduction plan in which funds are deposited to an 
asset account held by the creditor, and from which payments are made 
periodically to an open-end credit account, payment is received on the 
date when it is debited to the asset account (rather than on the date of 
the deposit), provided the payroll deduction method is voluntary and the 
consumer retains use of the funds until the contractual payment date.
    iii. If the consumer elects to have payment made by a third party 
payor such as a financial institution, through a preauthorized payment 
or telephone bill-payment arrangement, payment is received when the 
creditor gets the third party payor's check or other transfer medium, 
such as an electronic fund transfer, as long as the payment meets the 
creditor's requirements as specified under Sec. 1026.10(b).
    iv. Payment made via the creditor's Web site is received on the date 
on which the consumer authorizes the creditor to effect the payment, 
even if the consumer gives the instruction authorizing that payment in 
advance of the date on which the creditor is authorized to effect the 
payment. If the consumer authorizes the creditor to effect the payment 
immediately, but the consumer's instruction is received after 5 p.m. or 
any later cut-off time specified by the creditor, the date on which the 
consumer authorizes the creditor to effect the payment is deemed to be 
the next business day.

                10(b) Specific Requirements for Payments

    1. Payment by electronic fund transfer. A creditor may be prohibited 
from specifying payment by preauthorized electronic fund transfer. (See 
Section 913 of the Electronic Fund Transfer Act.)
    2. Payment methods promoted by creditor. If a creditor promotes a 
specific payment method, any payments made via that method (prior to any 
cut-off time specified by the creditor, to the extent permitted by Sec. 
1026.10(b)(2)) are generally conforming payments for purposes of Sec. 
1026.10(b). For example:
    i. If a creditor promotes electronic payment via its Web site (such 
as by disclosing on the Web site itself that payments may be made via 
the Web site), any payments made via the creditor's Web site prior to 
the creditor's specified cut-off time, if any, would generally be 
conforming payments for purposes of Sec. 1026.10(b).

[[Page 805]]

    ii. If a creditor promotes payment by telephone (for example, by 
including the option to pay by telephone in a menu of options provided 
to consumers at a toll-free number disclosed on its periodic statement), 
payments made by telephone would generally be conforming payments for 
purposes of Sec. 1026.10(b).
    iii. If a creditor promotes in-person payments, for example by 
stating in an advertisement that payments may be made in person at its 
branch locations, such in-person payments made at a branch or office of 
the creditor generally would be conforming payments for purposes of 
Sec. 1026.10(b).
    iv. If a creditor promotes that payments may be made through an 
unaffiliated third party, such as by disclosing the Web site address of 
that third party on the periodic statement, payments made via that third 
party's Web site generally would be conforming payments for purposes of 
Sec. 1026.10(b). In contrast, if a customer service representative of 
the creditor confirms to a consumer that payments may be made via an 
unaffiliated third party, but the creditor does not otherwise promote 
that method of payment, Sec. 1026.10(b) permits the creditor to treat 
payments made via such third party as nonconforming payments in 
accordance with Sec. 1026.10(b)(4).
    3. Acceptance of nonconforming payments. If the creditor accepts a 
nonconforming payment (for example, payment mailed to a branch office, 
when the creditor had specified that payment be sent to a different 
location), finance charges may accrue for the period between receipt and 
crediting of payments.
    4. Implied guidelines for payments. In the absence of specified 
requirements for making payments (see Sec. 1026.10(b)):
    i. Payments may be made at any location where the creditor conducts 
business.
    ii. Payments may be made any time during the creditor's normal 
business hours.
    iii. Payment may be by cash, money order, draft, or other similar 
instrument in properly negotiable form, or by electronic fund transfer 
if the creditor and consumer have so agreed.
    5. Payments made at point of sale. If a card issuer that is a 
financial institution issues a credit card under an open-end (not home-
secured) consumer credit plan that can be used only for transactions 
with a particular merchant or merchants or a credit card that is 
cobranded with the name of 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 card issuer for purposes 
of Sec. 1026.10(b)(3).
    6. In-person payments on credit card accounts. For purposes of Sec. 
1026.10(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. 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. 1026.10(b)(3).
    7. In-person payments at affiliate of card issuer. 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. 1026.10(b)(3).

  10(d) Crediting of Payments When Creditor Does Not Receive or Accept 
                          Payments on Due Date

    1. Example. A day on which the creditor does not receive or accept 
payments by mail may occur, for example, if the U.S. Postal Service does 
not deliver mail on that date.
    2. Treating a payment as late for any purpose. See comment 
5(b)(2)(ii)-2 for guidance on treating a payment as late for any 
purpose. 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.

         10(e) Limitations on Fees Related to Method of Payment

    1. Separate fee to allow consumers to make a payment. For purposes 
of Sec. 1026.10(e), the term ``separate fee'' means a fee imposed on a 
consumer for making a payment to the consumer's account. A fee or other 
charge imposed if payment is made after the due date, such as a late fee 
or finance charge, is not a separate fee to allow consumers to make a 
payment for purposes of Sec. 1026.10(e).
    2. Expedited. For purposes of Sec. 1026.10(e), the term 
``expedited'' means crediting a payment the same day or, if the payment 
is received after any cut-off time established by the creditor, the next 
business day.
    3. Service by a customer service representative. Service by a 
customer service representative of a creditor means any payment made to 
the consumer's account with the assistance of a live representative or 
agent of the creditor, including those made in person, on the telephone, 
or by electronic means. A customer service representative does not 
include automated means of making payment that do not involve a live 
representative or agent of the creditor, such as a voice response unit 
or interactive voice response system. Service by a customer service 
representative includes any payment transaction which involves the 
assistance of a live representative or agent of the creditor, even if an 
automated system is required for a portion of the transaction.

[[Page 806]]

    4. Creditor. For purposes of Sec. 1026.10(e), the term ``creditor'' 
includes a third party that collects, receives, or processes payments on 
behalf of a creditor. For example:
    i. Assume that a creditor uses a service provider to receive, 
collect, or process on the creditor's behalf payments made through the 
creditor's Web site or made through an automated telephone payment 
service. In these circumstances, the service provider would be 
considered a creditor for purposes of paragraph (e).
    ii. Assume that a consumer pays a fee to a money transfer or payment 
service in order to transmit a payment to the creditor on the consumer's 
behalf. In these circumstances, the money transfer or payment service 
would not be considered a creditor for purposes of paragraph (e).
    iii. Assume that a consumer has a checking account at a depository 
institution. The consumer makes a payment to the creditor from the 
checking account using a bill payment service provided by the depository 
institution. In these circumstances, the depository institution would 
not be considered a creditor for purposes of paragraph (e).

                      10(f) Changes by Card Issuer

    1. Address for receiving payment. For purposes of Sec. 1026.10(f), 
``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.
    2. Materiality. For purposes of Sec. 1026.10(f), a ``material 
change'' means any change in the address for receiving payment or 
procedures for handling cardholder payments which causes a material 
delay in the crediting of a payment. ``Material delay'' means any delay 
in crediting payment to a consumer's account which would result in a 
late payment and the imposition of a late fee or finance charge. A delay 
in crediting a payment which does not result in a late fee or finance 
charge would be immaterial.
    3. Safe harbor. i. General. 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 be expected to cause 
a material delay in crediting of a payment to the consumer's account. 
For purposes of Sec. 1026.10(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.
    ii. Retail location. For a material change in the address of a 
retail location or procedures for handling cardholder payments at a 
retail location, a card issuer may impose a late fee or finance charge 
on a consumer's account for a late payment during the 60-day period 
following the date on which the change took effect. 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 the 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.
    4. Examples. i. A card issuer changes the mailing address for 
receiving payments by mail from a five-digit postal zip code to a nine-
digit postal zip code. A consumer mails a payment using the five-digit 
postal zip code. The change in mailing address is immaterial and it does 
not cause a delay. Therefore, a card issuer may impose a late fee or 
finance charge for a late payment on the account.
    ii. A card issuer changes the mailing address for receiving payments 
by mail from one post office box number to another post office box 
number. For a 60-day period following the change, the card issuer 
continues to use both post office box numbers for the collection of 
payments received by mail. The change in mailing address would not cause 
a material delay in crediting a payment because payments would be 
received and credited at both addresses. Therefore, a card issuer may 
impose a late fee or finance charge for a late payment on the account 
during the 60-day period following the date on which the change took 
effect.
    iii. Same facts as paragraph ii above, except the prior post office 
box number is no longer valid and mail sent to that address during the 
60-day period following the change would be returned to sender. The 
change in mailing address is material and the change could cause a 
material delay in the crediting of a payment because a payment sent to 
the old address could be delayed past the due date. If, as a result, a 
consumer makes a late payment on the account during the 60-day period 
following the date on which the change took effect, a card issuer may 
not impose any late fee or finance charge for the late payment.
    iv. A card issuer permanently closes a local branch office at which 
payments are accepted on credit card accounts. The permanent closing of 
the local branch office is a material change in address for receiving 
payment. Relying on the safe harbor, the card issuer elects not to 
impose a late fee or finance charge for the 60-day period following the 
local branch closing for late payments on consumer accounts which the 
issuer reasonably determines are associated with the local branch and 
which could reasonably be expected to have been caused by the branch 
closing.

[[Page 807]]

    v. A consumer has elected to make payments automatically to a credit 
card account, such as through a payroll deduction plan or a third party 
payor's preauthorized payment arrangement. A card issuer changes the 
procedures for handling such payments and as a result, a payment is 
delayed and not credited to the consumer's account before the due date. 
In these circumstances, a card issuer may not impose any late fee or 
finance charge during the 60-day period following the date on which the 
change took effect for a late payment on the account.
    vi. A card issuer no longer accepts payments in person at a retail 
location as a conforming method of payment, which is a material change 
in the procedures for handling cardholder payment. In the 60-day period 
following the date on which the change took effect, a consumer attempts 
to make a payment in person at a retail location of a card issuer. As a 
result, the consumer makes a late payment and the issuer charges a late 
fee on the consumer's account. The consumer notifies the card issuer of 
the late fee for the late payment which was caused by the material 
change. In order to comply with Sec. 1026.10(f), the card issuer must 
waive or remove the late fee or finance charge, or credit the consumer's 
account in an amount equal to the late fee or finance charge.
    5. Finance charge due to periodic interest rate. 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. 1026.10(f).

   Section 1026.11--Treatment of Credit Balances; Account Termination

                          11(a) Credit Balances

    1. Timing of refund. The creditor may also fulfill its obligations 
under Sec. 1026.11 by:
    i. Refunding any credit balance to the consumer immediately.
    ii. Refunding any credit balance prior to receiving a written 
request (under Sec. 1026.11(a)(2)) from the consumer.
    iii. Refunding any credit balance upon the consumer's oral or 
electronic request.
    iv. Making a good faith effort to refund any credit balance before 6 
months have passed. If that attempt is unsuccessful, the creditor need 
not try again to refund the credit balance at the end of the 6-month 
period.
    2. Amount of refund. The phrases any part of the remaining credit 
balance in Sec. 1026.11(a)(2) and any part of the credit balance 
remaining in the account in Sec. 1026.11(a)(3) mean the amount of the 
credit balance at the time the creditor is required to make the refund. 
The creditor may take into consideration intervening purchases or other 
debits to the consumer's account (including those that have not yet been 
reflected on a periodic statement) that decrease or eliminate the credit 
balance.

                           Paragraph 11(a)(2)

    1. Written requests--standing orders. The creditor is not required 
to honor standing orders requesting refunds of any credit balance that 
may be created on the consumer's account.

                           Paragraph 11(a)(3)

    1. Good faith effort to refund. The creditor must take positive 
steps to return any credit balance that has remained in the account for 
over 6 months. This includes, if necessary, attempts to trace the 
consumer through the consumer's last known address or telephone number, 
or both.
    2. Good faith effort unsuccessful. Section 1026.11 imposes no 
further duties on the creditor if a good faith effort to return the 
balance is unsuccessful. The ultimate disposition of the credit balance 
(or any credit balance of $1 or less) is to be determined under other 
applicable law.

                        11(b) Account Termination

                           Paragraph 11(b)(1)

    1. Expiration date. The credit agreement determines whether or not 
an open-end plan has a stated expiration (maturity) date. Creditors that 
offer accounts with no stated expiration date are prohibited from 
terminating those accounts solely because a consumer does not incur a 
finance charge, even if credit cards or other access devices associated 
with the account expire after a stated period. Creditors may still 
terminate such accounts for inactivity consistent with Sec. 
1026.11(b)(2).

                 11(c) Timely Settlement of Estate Debts

    1. Administrator of an estate. For purposes of Sec. 1026.11(c), the 
term ``administrator'' means an administrator, executor, or any personal 
representative of an estate who is authorized to act on behalf of the 
estate.
    2. Examples. The following are examples of reasonable procedures 
that satisfy this rule:
    i. A card issuer may decline future transactions and terminate the 
account upon receiving reasonable notice of the consumer's death.
    ii. A card issuer may credit the account for fees and charges 
imposed after the date of receiving reasonable notice of the consumer's 
death.
    iii. A card issuer may waive the estate's liability for all charges 
made to the account after receiving reasonable notice of the consumer's 
death.
    iv. A card issuer may authorize an agent to handle matters in 
accordance with the requirements of this rule.

[[Page 808]]

    v. A card issuer may require administrators of an estate to provide 
documentation indicating authority to act on behalf of the estate.
    vi. A card issuer may establish or designate a department, business 
unit, or communication channel for administrators, such as a specific 
mailing address or toll-free number, to handle matters in accordance 
with the requirements of this rule.
    vii. A card issuer may direct administrators, who call a general 
customer service toll-free number or who send correspondence by mail to 
an address for general correspondence, to an appropriate customer 
service representative, department, business unit, or communication 
channel to handle matters in accordance with the requirements of this 
rule.
    2. Request by an administrator of an estate. A card issuer may 
receive a request for the amount of the balance on a deceased consumer's 
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 on the date the card issuer receives the correspondence.
    3. Timely statement of balance. A card issuer must disclose the 
balance on a deceased consumer's account, upon request by the 
administrator of the decedent's estate. A card issuer may provide the 
amount, if any, by a written statement or by telephone. This does not 
preclude a card issuer from providing the balance amount to appropriate 
persons, other than the administrator, such as the spouse or a relative 
of the decedent, who indicate that they may pay any balance. This 
provision does not relieve card issuers of the requirements to provide a 
periodic statement, under Sec. 1026.5(b)(2). A periodic statement, 
under Sec. 1026.5(b)(2), may satisfy the requirements of Sec. 
1026.11(c)(2), if provided within 30 days of receiving a request by an 
administrator of the estate.
    4. Imposition of fees and interest charges. Section 1026.11(c)(3) 
does not prohibit a card issuer from imposing fees and finance charges 
due to a periodic interest rate based on balances for days that precede 
the date on which the card issuer receives a request pursuant to Sec. 
1026.11(c)(2). For example, if the last day of the billing cycle is June 
30 and the card issuer receives a request pursuant to Sec. 
1026.11(c)(2) on June 25, the card issuer may charge interest that 
accrued prior to June 25.
    5. Example. A card issuer receives a request from an administrator 
for the amount of the balance on a deceased consumer's account on March 
1. The card issuer discloses to the administrator on March 25 that the 
balance is $1,000. If the card issuer receives payment in full of the 
$1,000 on April 24, the card issuer must waive or rebate any additional 
interest that accrued on the $1,000 balance between March 25 and April 
24. If the card issuer receives a payment of $1,000 on April 25, the 
card issuer is not required to waive or rebate interest charges on the 
$1,000 balance in respect of the period between March 25 and April 25. 
If the card issuer receives a partial payment of $500 on April 24, the 
card issuer is not required to waive or rebate interest charges on the 
$1,000 balance in respect of the period between March 25 and April 25.
    6. Application to joint accounts. A card issuer may impose fees and 
charges on an account of a deceased consumer if a joint accountholder 
remains on the account. If only an authorized user remains on the 
account of a deceased consumer, however, then a card issuer may not 
impose fees and charges.

             Section 1026.12--Special Credit Card Provisions

    1. Scope. Sections 1026.12(a) and (b) deal with the issuance and 
liability rules for credit cards, whether the card is intended for 
consumer, business, or any other purposes. Sections 1026.12(a) and (b) 
are exceptions to the general rule that the regulation applies only to 
consumer credit. (See Sec. Sec. 1026.1 and 1026.3.)
    2. Definition of ``accepted credit card''. For purposes of this 
section, ``accepted credit card'' means any credit card that a 
cardholder has requested or applied for and received, or has signed, 
used, or authorized another person to use to obtain credit. Any credit 
card issued as a renewal or substitute in accordance with Sec. 
1026.12(a) becomes an accepted credit card when received by the 
cardholder.

                     12(a) Issuance of Credit Cards

                           Paragraph 12(a)(1)

    1. Explicit request. A request or application for a card must be 
explicit. For example, a request for an overdraft plan tied to a 
checking account does not constitute an application for a credit card 
with overdraft checking features.
    2. Addition of credit features. If the consumer has a non-credit 
card, the addition of credit features to the card (for example, the 
granting of overdraft privileges on a checking account when the consumer 
already has a check guarantee card) constitutes issuance of a credit 
card.
    3. Variance of card from request. The request or application need 
not correspond exactly to the card that is issued. For example:
    i. The name of the card requested may be different when issued.
    ii. The card may have features in addition to those reflected in the 
request or application.
    4. Permissible form of request. The request or application may be 
oral (in response to a telephone solicitation by a card issuer, for 
example) or written.

[[Page 809]]

    5. Time of issuance. A credit card may be issued in response to a 
request made before any cards are ready for issuance (for example, if a 
new program is established), even if there is some delay in issuance.
    6. Persons to whom cards may be issued. A card issuer may issue a 
credit card to the person who requests it, and to anyone else for whom 
that person requests a card and who will be an authorized user on the 
requester's account. In other words, cards may be sent to consumer A on 
A's request, and also (on A's request) to consumers B and C, who will be 
authorized users on A's account. In these circumstances, the following 
rules apply:
    i. The additional cards may be imprinted in either A's name or in 
the names of B and C.
    ii. No liability for unauthorized use (by persons other than B and 
C), not even the $50, may be imposed on B or C since they are merely 
users and not cardholders as that term is defined in Sec. 1026.2 and 
used in Sec. 1026.12(b); of course, liability of up to $50 for 
unauthorized use of B's and C's cards may be imposed on A.
    iii. Whether B and C may be held liable for their own use, or on the 
account generally, is a matter of state or other applicable law.
    7. Issuance of non-credit cards. i. General. Under Sec. 
1026.12(a)(1), a credit card cannot be issued except in response to a 
request or an application. (See comment 2(a)(15)-2 for examples of cards 
or devices that are and are not credit cards.) A non-credit card may be 
sent on an unsolicited basis by an issuer that does not propose to 
connect the card to any credit plan; a credit feature may be added to a 
previously issued non-credit card only upon the consumer's specific 
request.
    ii. Examples. A purchase-price discount card may be sent on an 
unsolicited basis by an issuer that does not propose to connect the card 
to any credit plan. An issuer demonstrates that it proposes to connect 
the card to a credit plan by, for example, including promotional 
materials about credit features or account agreements and disclosures 
required by Sec. 1026.6. The issuer will violate the rule against 
unsolicited issuance if, for example, at the time the card is sent a 
credit plan can be accessed by the card or the recipient of the 
unsolicited card has been preapproved for credit that the recipient can 
access by contacting the issuer and activating the card.
    8. Unsolicited issuance of PINs. A card issuer may issue personal 
identification numbers (PINs) to existing credit cardholders without a 
specific request from the cardholders, provided the PINs cannot be used 
alone to obtain credit. For example, the PINs may be necessary if 
consumers wish to use their existing credit cards at automated teller 
machines or at merchant locations with point of sale terminals that 
require PINs.

                           Paragraph 12(a)(2)

    1. Renewal. Renewal generally contemplates the regular replacement 
of existing cards because of, for example, security reasons or new 
technology or systems. It also includes the re-issuance of cards that 
have been suspended temporarily, but does not include the opening of a 
new account after a previous account was closed.
    2. Substitution--examples. Substitution encompasses the replacement 
of one card with another because the underlying account relationship has 
changed in some way--such as when the card issuer has:
    i. Changed its name.
    ii. Changed the name of the card.
    iii. Changed the credit or other features available on the account. 
For example, the original card could be used to make purchases and 
obtain cash advances at teller windows. The substitute card might be 
usable, in addition, for obtaining cash advances through automated 
teller machines. (If the substitute card constitutes an access device, 
as defined in Regulation E, then the Regulation E issuance rules would 
have to be followed.) The substitution of one card with another on an 
unsolicited basis is not permissible, however, where in conjunction with 
the substitution an additional credit card account is opened and the 
consumer is able to make new purchases or advances under both the 
original and the new account with the new card. For example, if a retail 
card issuer replaces its credit card with a combined retailer/bank card, 
each of the creditors maintains a separate account, and both accounts 
can be accessed for new transactions by use of the new credit card, the 
card cannot be provided to a consumer without solicitation.
    iv. Substituted a card user's name on the substitute card for the 
cardholder's name appearing on the original card.
    v. Changed the merchant base, provided that the new card is honored 
by at least one of the persons that honored the original card. However, 
unless the change in the merchant base is the addition of an affiliate 
of the existing merchant base, the substitution of a new card for 
another on an unsolicited basis is not permissible where the account is 
inactive. A credit card cannot be issued in these circumstances without 
a request or application. For purposes of Sec. 1026.12(a), an account 
is inactive if no credit has been extended and if the account has no 
outstanding balance for the prior 24 months. (See Sec. 1026.11(b)(2).)
    3. Substitution--successor card issuer. Substitution also occurs 
when a successor card issuer replaces the original card issuer (for 
example, when a new card issuer purchases the accounts of the original 
issuer and issues its own card to replace the original one). A 
permissible substitution exists even if the

[[Page 810]]

original issuer retains the existing receivables and the new card issuer 
acquires the right only to future receivables, provided use of the 
original card is cut off when use of the new card becomes possible.
    4. Substitution--non-credit-card plan. A credit card that replaces a 
retailer's open-end credit plan not involving a credit card is not 
considered a substitute for the retailer's plan--even if the consumer 
used the retailer's plan. A credit card cannot be issued in these 
circumstances without a request or application.
    5. One-for-one rule. An accepted card may be replaced by no more 
than one renewal or substitute card. For example, the card issuer may 
not replace a credit card permitting purchases and cash advances with 
two cards, one for the purchases and another for the cash advances.
    6. One-for-one rule--exceptions. The regulation does not prohibit 
the card issuer from:
    i. Replacing a debit/credit card with a credit card and another card 
with only debit functions (or debit functions plus an associated 
overdraft capability), since the latter card could be issued on an 
unsolicited basis under Regulation E.
    ii. Replacing an accepted card with more than one renewal or 
substitute card, provided that:
    A. No replacement card accesses any account not accessed by the 
accepted card;
    B. For terms and conditions required to be disclosed under Sec. 
1026.6, all replacement cards are issued subject to the same terms and 
conditions, except that a creditor may vary terms for which no change in 
terms notice is required under Sec. 1026.9(c); and
    C. Under the account's terms the consumer's total liability for 
unauthorized use with respect to the account does not increase.
    7. Methods of terminating replaced card. The card issuer need not 
physically retrieve the original card, provided the old card is voided 
in some way, for example:
    i. The issuer includes with the new card a notification that the 
existing card is no longer valid and should be destroyed immediately.
    ii. The original card contained an expiration date.
    iii. The card issuer, in order to preclude use of the card, 
reprograms computers or issues instructions to authorization centers.
    8. Incomplete replacement. If a consumer has duplicate credit cards 
on the same account (Card A--one type of bank credit card, for example), 
the card issuer may not replace the duplicate cards with one Card A and 
one Card B (Card B--another type of bank credit card) unless the 
consumer requests Card B.
    9. Multiple entities. Where multiple entities share responsibilities 
with respect to a credit card issued by one of them, the entity that 
issued the card may replace it on an unsolicited basis, if that entity 
terminates the original card by voiding it in some way, as described in 
comment 12(a)(2)-7. The other entity or entities may not issue a card on 
an unsolicited basis in these circumstances.

           12(b) Liability of Cardholder for Unauthorized Use

    1. Meaning of cardholder. For purposes of this provision, cardholder 
includes any person (including organizations) to whom a credit card is 
issued for any purpose, including business. When a corporation is the 
cardholder, required disclosures should be provided to the corporation 
(as opposed to an employee user).
    2. Imposing liability. A card issuer is not required to impose 
liability on a cardholder for the unauthorized use of a credit card; if 
the card issuer does not seek to impose liability, the issuer need not 
conduct any investigation of the cardholder's claim.
    3. Reasonable investigation. If a card issuer seeks to impose 
liability when a claim of unauthorized use is made by a cardholder, the 
card issuer must conduct a reasonable investigation of the claim. In 
conducting its investigation, the card issuer may reasonably request the 
cardholder's cooperation. The card issuer may not automatically deny a 
claim based solely on the cardholder's failure or refusal to comply with 
a particular request, including providing an affidavit or filing a 
police report; however, if the card issuer otherwise has no knowledge of 
facts confirming the unauthorized use, the lack of information resulting 
from the cardholder's failure or refusal to comply with a particular 
request may lead the card issuer reasonably to terminate the 
investigation. The procedures involved in investigating claims may 
differ, but actions such as the following represent steps that a card 
issuer may take, as appropriate, in conducting a reasonable 
investigation:
    i. Reviewing the types or amounts of purchases made in relation to 
the cardholder's previous purchasing pattern.
    ii. Reviewing where the purchases were delivered in relation to the 
cardholder's residence or place of business.
    iii. Reviewing where the purchases were made in relation to where 
the cardholder resides or has normally shopped.
    iv. Comparing any signature on credit slips for the purchases to the 
signature of the cardholder or an authorized user in the card issuer's 
records, including other credit slips.
    v. Requesting documentation to assist in the verification of the 
claim.
    vi. Requiring a written, signed statement from the cardholder or 
authorized user. For example, the creditor may include a signature line 
on a billing rights form that the cardholder may send in to provide 
notice of the claim. However, a creditor may not require the cardholder 
to provide an affidavit

[[Page 811]]

or signed statement under penalty of perjury as part of a reasonable 
investigation.
    vii. Requesting a copy of a police report, if one was filed.
    viii. Requesting information regarding the cardholder's knowledge of 
the person who allegedly used the card or of that person's authority to 
do so.
    4. Checks that access a credit card account. The liability 
provisions for unauthorized use under Sec. 1026.12(b)(1) only apply to 
transactions involving the use of a credit card, and not if an 
unauthorized transaction is made using a check accessing the credit card 
account. However, the billing error provisions in Sec. 1026.13 apply to 
both of these types of transactions.

                    12(b)(1)(ii) Limitation on Amount

    1. Meaning of authority. Section 1026.12(b)(1)(i) defines 
unauthorized use in terms of whether the user has actual, implied, or 
apparent authority. Whether such authority exists must be determined 
under state or other applicable law.
    2. Liability limits--dollar amounts. As a general rule, the 
cardholder's liability for a series of unauthorized uses cannot exceed 
either $50 or the value obtained through the unauthorized use before the 
card issuer is notified, whichever is less.
    3. Implied or apparent authority. If a cardholder furnishes a credit 
card and grants authority to make credit transactions to a person (such 
as a family member or coworker) who exceeds the authority given, the 
cardholder is liable for the transaction(s) unless the cardholder has 
notified the creditor that use of the credit card by that person is no 
longer authorized.
    4. Credit card obtained through robbery or fraud. An unauthorized 
use includes, but is not limited to, a transaction initiated by a person 
who has obtained the credit card from the consumer, or otherwise 
initiated the transaction, through fraud or robbery.

                    12(b)(2) Conditions of Liability

    1. Issuer's option not to comply. A card issuer that chooses not to 
impose any liability on cardholders for unauthorized use need not comply 
with the disclosure and identification requirements discussed in Sec. 
1026.12(b)(2).

                         Paragraph 12(b)(2)(ii)

    1. Disclosure of liability and means of notifying issuer. The 
disclosures referred to in Sec. 1026.12(b)(2)(ii) may be given, for 
example, with the initial disclosures under Sec. 1026.6, on the credit 
card itself, or on periodic statements. They may be given at any time 
preceding the unauthorized use of the card.
    2. Meaning of ``adequate notice.'' For purposes of this provision, 
``adequate notice'' means a printed notice to a cardholder that sets 
forth clearly the pertinent facts so that the cardholder may reasonably 
be expected to have noticed it and understood its meaning. The notice 
may be given by any means reasonably assuring receipt by the cardholder.

                         Paragraph 12(b)(2)(iii)

    1. Means of identifying cardholder or user. To fulfill the condition 
set forth in Sec. 1026.12(b)(2)(iii), the issuer must provide some 
method whereby the cardholder or the authorized user can be identified. 
This could include, for example, a signature, photograph, or fingerprint 
on the card or other biometric means, or electronic or mechanical 
confirmation.
    2. Identification by magnetic strip. Unless a magnetic strip (or 
similar device not readable without physical aids) must be used in 
conjunction with a secret code or the like, it would not constitute 
sufficient means of identification. Sufficient identification also does 
not exist if a ``pool'' or group card, issued to a corporation and 
signed by a corporate agent who will not be a user of the card, is 
intended to be used by another employee for whom no means of 
identification is provided.
    3. Transactions not involving card. The cardholder may not be held 
liable under Sec. 1026.12(b) when the card itself (or some other 
sufficient means of identification of the cardholder) is not presented. 
Since the issuer has not provided a means to identify the user under 
these circumstances, the issuer has not fulfilled one of the conditions 
for imposing liability. For example, when merchandise is ordered by 
telephone or the Internet by a person without authority to do so, using 
a credit card account number by itself or with other information that 
appears on the card (for example, the card expiration date and a 3- or 
4-digit cardholder identification number), no liability may be imposed 
on the cardholder.

                  12(b)(3) Notification to Card Issuer

    1. How notice must be provided. Notice given in a normal business 
manner--for example, by mail, telephone, or personal visit--is effective 
even though it is not given to, or does not reach, some particular 
person within the issuer's organization. Notice also may be effective 
even though it is not given at the address or phone number disclosed by 
the card issuer under Sec. 1026.12(b)(2)(ii).
    2. Who must provide notice. Notice of loss, theft, or possible 
unauthorized use need not be initiated by the cardholder. Notice is 
sufficient so long as it gives the ``pertinent information'' which would 
include the name or card number of the cardholder and an indication that 
unauthorized use has or may have occurred.
    3. Relationship to Sec. 1026.13. The liability protections afforded 
to cardholders in Sec. 1026.12

[[Page 812]]

do not depend upon the cardholder's following the error resolution 
procedures in Sec. 1026.13. For example, the written notification and 
time limit requirements of Sec. 1026.13 do not affect the Sec. 1026.12 
protections. (See also comment 12(b)-4.)

                  12(b)(5) Business Use of Credit Cards

    1. Agreement for higher liability for business use cards. The card 
issuer may not rely on Sec. 1026.12(b)(5) if the business is clearly 
not in a position to provide 10 or more cards to employees (for example, 
if the business has only 3 employees). On the other hand, the issuer 
need not monitor the personnel practices of the business to make sure 
that it has at least 10 employees at all times.
    2. Unauthorized use by employee. The protection afforded to an 
employee against liability for unauthorized use in excess of the limits 
set in Sec. 1026.12(b) applies only to unauthorized use by someone 
other than the employee. If the employee uses the card in an 
unauthorized manner, the regulation sets no restriction on the 
employee's potential liability for such use.

  12(c) Right of Cardholder To Assert Claims or Defenses Against Card 
                                 Issuer

    1. Relationship to Sec. 1026.13. The Sec. 1026.12(c) credit card 
``holder in due course'' provision deals with the consumer's right to 
assert against the card issuer a claim or defense concerning property or 
services purchased with a credit card, if the merchant has been 
unwilling to resolve the dispute. Even though certain merchandise 
disputes, such as non-delivery of goods, may also constitute ``billing 
errors'' under Sec. 1026.13, that section operates independently of 
Sec. 1026.12(c). The cardholder whose asserted billing error involves 
undelivered goods may institute the error resolution procedures of Sec. 
1026.13; but whether or not the cardholder has done so, the cardholder 
may assert claims or defenses under Sec. 1026.12(c). Conversely, the 
consumer may pay a disputed balance and thus have no further right to 
assert claims and defenses, but still may assert a billing error if 
notice of that billing error is given in the proper time and manner. An 
assertion that a particular transaction resulted from unauthorized use 
of the card could also be both a ``defense'' and a billing error.
    2. Claims and defenses assertible. Section 1026.12(c) merely 
preserves the consumer's right to assert against the card issuer any 
claims or defenses that can be asserted against the merchant. It does 
not determine what claims or defenses are valid as to the merchant; this 
determination must be made under state or other applicable law.
    3. Transactions excluded. Section 1026.12(c) does not apply to the 
use of a check guarantee card or a debit card in connection with an 
overdraft credit plan, or to a check guarantee card used in connection 
with cash-advance checks.
    4. Method of calculating the amount of credit outstanding. The 
amount of the claim or defense that the cardholder may assert shall not 
exceed the amount of credit outstanding for the disputed transaction at 
the time the cardholder first notifies the card issuer or the person 
honoring the credit card of the existence of the claim or defense. 
However, when a consumer has asserted a claim or defense against a 
creditor pursuant to Sec. 1026.12(c), the creditor must apply any 
payment or other credit in a manner that avoids or minimizes any 
reduction in the amount subject to that claim or defense. Accordingly, 
to determine the amount of credit outstanding for purposes of this 
section, payments and other credits must be applied first to amounts 
other than the disputed transaction.
    i. For examples of how to comply with Sec. Sec. 1026.12 and 1026.53 
for credit card accounts under an open-end (not home-secured) consumer 
credit plan, see comment 53-3.
    ii. For other types of credit card accounts, creditors may, at their 
option, apply payments consistent with Sec. 1026.53 and comment 53-3. 
In the alternative, payments and other credits may be applied to: Late 
charges in the order of entry to the account; then to finance charges in 
the order of entry to the account; and then to any debits other than the 
transaction subject to the claim or defense in the order of entry to the 
account. In these circumstances, if more than one item is included in a 
single extension of credit, credits are to be distributed pro rata 
according to prices and applicable taxes.

                          12(c)(1) General Rule

    1. Situations excluded and included. The consumer may assert claims 
or defenses only when the goods or services are ``purchased with the 
credit card.'' This could include mail, the Internet or telephone 
orders, if the purchase is charged to the credit card account. But it 
would exclude:
    i. Use of a credit card to obtain a cash advance, even if the 
consumer then uses the money to purchase goods or services. Such a 
transaction would not involve ``property or services purchased with the 
credit card.''
    ii. The purchase of goods or services by use of a check accessing an 
overdraft account and a credit card used solely for identification of 
the consumer. (On the other hand, if the credit card is used to make 
partial payment for the purchase and not merely for identification, the 
right to assert claims or defenses would apply to credit extended via 
the credit card, although not to the credit extended on the overdraft 
line.)
    iii. Purchases made by use of a check guarantee card in conjunction 
with a cash advance check (or by cash advance checks alone). (See 
comment 12(c)-3.) A cash advance

[[Page 813]]

check is a check that, when written, does not draw on an asset account; 
instead, it is charged entirely to an open-end credit account.
    iv. Purchases effected by use of either a check guarantee card or a 
debit card when used to draw on overdraft credit plans. (See comment 
12(c)-3.) The debit card exemption applies whether the card accesses an 
asset account via point of sale terminals, automated teller machines, or 
in any other way, and whether the card qualifies as an ``access device'' 
under Regulation E or is only a paper based debit card. If a card serves 
both as an ordinary credit card and also as check guarantee or debit 
card, a transaction will be subject to this rule on asserting claims and 
defenses when used as an ordinary credit card, but not when used as a 
check guarantee or debit card.

               12(c)(2) Adverse Credit Reports Prohibited

    1. Scope of prohibition. Although an amount in dispute may not be 
reported as delinquent until the matter is resolved:
    i. That amount may be reported as disputed.
    ii. Nothing in this provision prohibits the card issuer from 
undertaking its normal collection activities for the delinquent and 
undisputed portion of the account.
    2. Settlement of dispute. A card issuer may not consider a dispute 
settled and report an amount disputed as delinquent or begin collection 
of the disputed amount until it has completed a reasonable investigation 
of the cardholder's claim. A reasonable investigation requires an 
independent assessment of the cardholder's claim based on information 
obtained from both the cardholder and the merchant, if possible. In 
conducting an investigation, the card issuer may request the 
cardholder's reasonable cooperation. The card issuer may not 
automatically consider a dispute settled if the cardholder fails or 
refuses to comply with a particular request. However, if the card issuer 
otherwise has no means of obtaining information necessary to resolve the 
dispute, the lack of information resulting from the cardholder's failure 
or refusal to comply with a particular request may lead the card issuer 
reasonably to terminate the investigation.

                          12(c)(3) Limitations

                        Paragraph 12(c)(3)(i)(A)

    1. Resolution with merchant. The consumer must have tried to resolve 
the dispute with the merchant. This does not require any special 
procedures or correspondence between them, and is a matter for factual 
determination in each case. The consumer is not required to seek 
satisfaction from the manufacturer of the goods involved. When the 
merchant is in bankruptcy proceedings, the consumer is not required to 
file a claim in those proceedings, and may instead file a claim for the 
property or service purchased with the credit card with the card issuer 
directly.

                        Paragraph 12(c)(3)(i)(B)

    1. Geographic limitation. The question of where a transaction occurs 
(as in the case of mail, Internet, or telephone orders, for example) is 
to be determined under state or other applicable law.

                         12(c)(3)(ii) Exclusion

    1. Merchant honoring card. The exceptions (stated in Sec. 
1026.12(c)(3)(ii)) to the amount and geographic limitations in Sec. 
1026.12(c)(3)(i)(B) do not apply if the merchant merely honors, or 
indicates through signs or advertising that it honors, a particular 
credit card.

                 12(d) Offsets by Card Issuer Prohibited

                           Paragraph 12(d)(1)

    1. Holds on accounts. ``Freezing'' or placing a hold on funds in the 
cardholder's deposit account is the functional equivalent of an offset 
and would contravene the prohibition in Sec. 1026.12(d)(1), unless done 
in the context of one of the exceptions specified in Sec. 
1026.12(d)(2). For example, if the terms of a security agreement 
permitted the card issuer to place a hold on the funds, the hold would 
not violate the offset prohibition. Similarly, if an order of a 
bankruptcy court required the card issuer to turn over deposit account 
funds to the trustee in bankruptcy, the issuer would not violate the 
regulation by placing a hold on the funds in order to comply with the 
court order.
    2. Funds intended as deposits. If the consumer tenders funds as a 
deposit (to a checking account, for example), the card issuer may not 
apply the funds to repay indebtedness on the consumer's credit card 
account.
    3. Types of indebtedness; overdraft accounts. The offset prohibition 
applies to any indebtedness arising from transactions under a credit 
card plan, including accrued finance charges and other charges on the 
account. The prohibition also applies to balances arising from 
transactions not using the credit card itself but taking place under 
plans that involve credit cards. For example, if the consumer writes a 
check that accesses an overdraft line of credit, the resulting 
indebtedness is subject to the offset prohibition since it is incurred 
through a credit card plan, even though the consumer did not use an 
associated check guarantee or debit card.
    4. When prohibition applies in case of termination of account. The 
offset prohibition applies even after the card issuer terminates the 
cardholder's credit card privileges, if the indebtedness was incurred 
prior to termination. If the indebtedness was incurred

[[Page 814]]

after termination, the prohibition does not apply.

                           Paragraph 12(d)(2)

    1. Security interest--limitations. In order to qualify for the 
exception stated in Sec. 1026.12(d)(2), a security interest must be 
affirmatively agreed to by the consumer and must be disclosed in the 
issuer's account-opening disclosures under Sec. 1026.6. The security 
interest must not be the functional equivalent of a right of offset; as 
a result, routinely including in agreements contract language indicating 
that consumers are giving a security interest in any deposit accounts 
maintained with the issuer does not result in a security interest that 
falls within the exception in Sec. 1026.12(d)(2). For a security 
interest to qualify for the exception under Sec. 1026.12(d)(2) the 
following conditions must be met:
    i. The consumer must be aware that granting a security interest is a 
condition for the credit card account (or for more favorable account 
terms) and must specifically intend to grant a security interest in a 
deposit account. Indicia of the consumer's awareness and intent include 
at least one of the following (or a substantially similar procedure that 
evidences the consumer's awareness and intent):
    A. Separate signature or initials on the agreement indicating that a 
security interest is being given.
    B. Placement of the security agreement on a separate page, or 
otherwise separating the security interest provisions from other 
contract and disclosure provisions.
    C. Reference to a specific amount of deposited funds or to a 
specific deposit account number.
    ii. The security interest must be obtainable and enforceable by 
creditors generally. If other creditors could not obtain a security 
interest in the consumer's deposit accounts to the same extent as the 
card issuer, the security interest is prohibited by Sec. 1026.12(d)(2).
    2. Security interest--after-acquired property. As used in Sec. 
1026.12(d)(2), the term ``security interest'' does not exclude (as it 
does for other Regulation Z purposes) interests in after-acquired 
property. Thus, a consensual security interest in deposit-account funds, 
including funds deposited after the granting of the security interest 
would constitute a permissible exception to the prohibition on offsets.
    3. Court order. If the card issuer obtains a judgment against the 
cardholder, and if state and other applicable law and the terms of the 
judgment do not so prohibit, the card issuer may offset the indebtedness 
against the cardholder's deposit account.

                           Paragraph 12(d)(3)

    1. Automatic payment plans--scope of exception. With regard to 
automatic debit plans under Sec. 1026.12(d)(3), the following rules 
apply:
    i. The cardholder's authorization must be in writing and signed or 
initialed by the cardholder.
    ii. The authorizing language need not appear directly above or next 
to the cardholder's signature or initials, provided it appears on the 
same document and that it clearly spells out the terms of the automatic 
debit plan.
    iii. If the cardholder has the option to accept or reject the 
automatic debit feature (such option may be required under section 913 
of the Electronic Fund Transfer Act), the fact that the option exists 
should be clearly indicated.
    2. Automatic payment plans--additional exceptions. The following 
practices are not prohibited by Sec. 1026.12(d)(1):
    i. Automatically deducting charges for participation in a program of 
banking services (one aspect of which may be a credit card plan).
    ii. Debiting the cardholder's deposit account on the cardholder's 
specific request rather than on an automatic periodic basis (for 
example, a cardholder might check a box on the credit card bill stub, 
requesting the issuer to debit the cardholder's account to pay that 
bill).

      12(e) Prompt Notification of Returns and Crediting of Refunds

                           Paragraph 12(e)(1)

    1. Normal channels. The term normal channels refers to any network 
or interchange system used for the processing of the original charge 
slips (or equivalent information concerning the transaction).

                           Paragraph 12(e)(2)

    1. Crediting account. The card issuer need not actually post the 
refund to the consumer's account within three business days after 
receiving the credit statement, provided that it credits the account as 
of a date within that time period.

                Section 1026.13--Billing Error Resolution

    1. Creditor's failure to comply with billing error provisions. 
Failure to comply with the error resolution procedures may result in the 
forfeiture of disputed amounts as prescribed in section 161(e) of the 
Act. (Any failure to comply may also be a violation subject to the 
liability provisions of section 130 of the Act.)
    2. Charges for error resolution. If a billing error occurred, 
whether as alleged or in a different amount or manner, the creditor may 
not impose a charge related to any aspect of

[[Page 815]]

the error resolution process (including charges for documentation or 
investigation) and must credit the consumer's account if such a charge 
was assessed pending resolution. Since the Act grants the consumer error 
resolution rights, the creditor should avoid any chilling effect on the 
good faith assertion of errors that might result if charges are assessed 
when no billing error has occurred.

                    13(a) Definition of Billing Error

                           Paragraph 13(a)(1)

    1. Actual, implied, or apparent authority. Whether use of a credit 
card or open-end credit plan is authorized is determined by state or 
other applicable law. (See comment 12(b)(1)(ii)-1.)

                           Paragraph 13(a)(3)

    1. Coverage. i. Section 1026.13(a)(3) covers disputes about goods or 
services that are ``not accepted'' or ``not delivered * * * as agreed''; 
for example:
    A. The appearance on a periodic statement of a purchase, when the 
consumer refused to take delivery of goods because they did not comply 
with the contract.
    B. Delivery of property or services different from that agreed upon.
    C. Delivery of the wrong quantity.
    D. Late delivery.
    E. Delivery to the wrong location.
    ii. Section 1026.13(a)(3) does not apply to a dispute relating to 
the quality of property or services that the consumer accepts. Whether 
acceptance occurred is determined by state or other applicable law.
    2. Application to purchases made using a third-party payment 
intermediary. Section 1026.13(a)(3) generally applies to disputes about 
goods and services that are purchased using a third-party payment 
intermediary, such as a person-to-person Internet payment service, 
funded through use of a consumer's open-end credit plan when the goods 
or services are not accepted by the consumer or not delivered to the 
consumer as agreed. However, the extension of credit must be made at the 
time the consumer purchases the good or service and match the amount of 
the transaction to purchase the good or service (including ancillary 
taxes and fees). Under these circumstances, the property or service for 
which the extension of credit is made is not the payment service, but 
rather the good or service that the consumer has purchased using the 
payment service. Thus, for example, Sec. 1026.13(a)(3) would not apply 
to purchases using a third party payment intermediary that is funded 
through use of an open-end credit plan if:
    i. The extension of credit is made to fund the third-party payment 
intermediary ``account,'' but the consumer does not contemporaneously 
use those funds to purchase a good or service at that time.
    ii. The extension of credit is made to fund only a portion of the 
purchase amount, and the consumer uses other sources to fund the 
remaining amount.
    3. Notice to merchant not required. A consumer is not required to 
first notify the merchant or other payee from whom he or she has 
purchased goods or services and attempt to resolve a dispute regarding 
the good or service before providing a billing-error notice to the 
creditor under Sec. 1026.13(a)(3) asserting that the goods or services 
were not accepted or delivered as agreed.

                           Paragraph 13(a)(5)

    1. Computational errors. In periodic statements that are combined 
with other information, the error resolution procedures are triggered 
only if the consumer asserts a computational billing error in the 
credit-related portion of the periodic statement. For example, if a bank 
combines a periodic statement reflecting the consumer's credit card 
transactions with the consumer's monthly checking statement, a 
computational error in the checking account portion of the combined 
statement is not a billing error.

                           Paragraph 13(a)(6)

    1. Documentation requests. A request for documentation such as 
receipts or sales slips, unaccompanied by an allegation of an error 
under Sec. 1026.13(a) or a request for additional clarification under 
Sec. 1026.13(a)(6), does not trigger the error resolution procedures. 
For example, a request for documentation merely for purposes such as tax 
preparation or recordkeeping does not trigger the error resolution 
procedures.

                       13(b) Billing Error Notice

    1. Withdrawal of billing error notice by consumer. The creditor need 
not comply with the requirements of Sec. 1026.13(c) through (g) of this 
section if the consumer concludes that no billing error occurred and 
voluntarily withdraws the billing error notice. The consumer's 
withdrawal of a billing error notice may be oral, electronic or written.
    2. Form of written notice. The creditor may require that the written 
notice not be made on the payment medium or other material accompanying 
the periodic statement if the creditor so stipulates in the billing 
rights statement required by Sec. Sec. 1026.6(a)(5) or (b)(5)(iii), and 
1026.9(a). In addition, if the creditor stipulates in the billing rights 
statement that it accepts billing error notices submitted 
electronically, and states the means by which a consumer may 
electronically submit a billing error notice, a notice sent in such 
manner will be deemed to satisfy the written notice requirement for 
purposes of Sec. 1026.13(b).

[[Page 816]]

                           Paragraph 13(b)(1)

    1. Failure to send periodic statement--timing. If the creditor has 
failed to send a periodic statement, the 60-day period runs from the 
time the statement should have been sent. Once the statement is 
provided, the consumer has another 60 days to assert any billing errors 
reflected on it.
    2. Failure to reflect credit--timing. If the periodic statement 
fails to reflect a credit to the account, the 60-day period runs from 
transmittal of the statement on which the credit should have appeared.
    3. Transmittal. If a consumer has arranged for periodic statements 
to be held at the financial institution until called for, the statement 
is ``transmitted'' when it is first made available to the consumer.

                           Paragraph 13(b)(2)

    1. Identity of the consumer. The billing error notice need not 
specify both the name and the account number if the information supplied 
enables the creditor to identify the consumer's name and account.

              13(c) Time for Resolution; General Procedures

    1. Temporary or provisional corrections. A creditor may temporarily 
correct the consumer's account in response to a billing error notice, 
but is not excused from complying with the remaining error resolution 
procedures within the time limits for resolution.
    2. Correction without investigation. A creditor may correct a 
billing error in the manner and amount asserted by the consumer without 
the investigation or the determination normally required. The creditor 
must comply, however, with all other applicable provisions. If a 
creditor follows this procedure, no presumption is created that a 
billing error occurred.
    3. Relationship with Sec. 1026.12. The consumer's rights under the 
billing error provisions in Sec. 1026.13 are independent of the 
provisions set forth in Sec. 1026.12(b) and (c). (See comments 12(b)-4, 
12(b)(3)-3, and 12(c)-1.)

                           Paragraph 13(c)(2)

    1. Time for resolution. The phrase two complete billing cycles means 
two actual billing cycles occurring after receipt of the billing error 
notice, not a measure of time equal to two billing cycles. For example, 
if a creditor on a monthly billing cycle receives a billing error notice 
mid-cycle, it has the remainder of that cycle plus the next two full 
billing cycles to resolve the error.
    2. Finality of error resolution procedure. A creditor must comply 
with the error resolution procedures and complete its investigation to 
determine whether an error occurred within two complete billing cycles 
as set forth in Sec. 1026.13(c)(2). Thus, for example, Sec. 
1026.13(c)(2) prohibits a creditor from reversing amounts previously 
credited for an alleged billing error even if the creditor obtains 
evidence after the error resolution time period has passed indicating 
that the billing error did not occur as asserted by the consumer. 
Similarly, if a creditor fails to mail or deliver a written explanation 
setting forth the reason why the billing error did not occur as 
asserted, or otherwise fails to comply with the error resolution 
procedures set forth in Sec. 1026.13(f), the creditor generally must 
credit the disputed amount and related finance or other charges, as 
applicable, to the consumer's account. However, if a consumer receives 
more than one credit to correct the same billing error, Sec. 1026.13 
does not prevent a creditor from reversing amounts it has previously 
credited to correct that error, provided that the total amount of the 
remaining credits is equal to or more than the amount of the error and 
that the consumer does not incur any fees or other charges as a result 
of the timing of the creditor's reversal. For example, assume that a 
consumer asserts a billing error with respect to a $100 transaction and 
that the creditor posts a $100 credit to the consumer's account to 
correct that error during the time period set forth in Sec. 
1026.13(c)(2). However, following that time period, a merchant or other 
person honoring the credit card issues a $100 credit to the consumer to 
correct the same error. In these circumstances, Sec. 1026.13(c)(2) does 
not prohibit the creditor from reversing its $100 credit once the $100 
credit from the merchant or other person has posted to the consumer's 
account.

                     13(d) Rules Pending Resolution

    1. Disputed amount. Disputed amount is the dollar amount alleged by 
the consumer to be in error. When the allegation concerns the 
description or identification of the transaction (such as the date or 
the seller's name) rather than a dollar amount, the disputed amount is 
the amount of the transaction or charge that corresponds to the disputed 
transaction identification. If the consumer alleges a failure to send a 
periodic statement under Sec. 1026.13(a)(7), the disputed amount is the 
entire balance owing.

13(d)(1) Consumer's Right To Withhold Disputed Amount; Collection Action 
                               Prohibited

    1. Prohibited collection actions. During the error resolution 
period, the creditor is prohibited from trying to collect the disputed 
amount from the consumer. Prohibited collection actions include, for 
example, instituting court action, taking a lien, or instituting 
attachment proceedings.

[[Page 817]]

    2. Right to withhold payment. If the creditor reflects any disputed 
amount or related finance or other charges on the periodic statement, 
and is therefore required to make the disclosure under Sec. 
1026.13(d)(4), the creditor may comply with that disclosure requirement 
by indicating that payment of any disputed amount is not required 
pending resolution. Making a disclosure that only refers to the disputed 
amount would, of course, in no way affect the consumer's right under 
Sec. 1026.13(d)(1) to withhold related finance and other charges. The 
disclosure under Sec. 1026.13(d)(4) need not appear in any specific 
place on the periodic statement, need not state the specific amount that 
the consumer may withhold, and may be preprinted on the periodic 
statement.
    3. Imposition of additional charges on undisputed amounts. The 
consumer's withholding of a disputed amount from the total bill cannot 
subject undisputed balances (including new purchases or cash advances 
made during the present or subsequent cycles) to the imposition of 
finance or other charges. For example, if on an account with a grace 
period (that is, an account in which paying the new balance in full 
allows the consumer to avoid the imposition of additional finance 
charges), a consumer disputes a $2 item out of a total bill of $300 and 
pays $298 within the grace period, the consumer would not lose the grace 
period as to any undisputed amounts, even if the creditor determines 
later that no billing error occurred. Furthermore, finance or other 
charges may not be imposed on any new purchases or advances that, absent 
the unpaid disputed balance, would not have finance or other charges 
imposed on them. Finance or other charges that would have been incurred 
even if the consumer had paid the disputed amount would not be affected.
    4. Automatic payment plans--coverage. The coverage of this provision 
is limited to the card issuer's automatic payment plans, whether or not 
the consumer's asset account is held by the card issuer or by another 
financial institution. It does not apply to automatic or bill-payment 
plans offered by financial institutions other than the credit card 
issuer.
    5. Automatic payment plans--time of notice. While the card issuer 
does not have to restore or prevent the debiting of a disputed amount if 
the billing error notice arrives after the three-business-day cut-off, 
the card issuer must, however, prevent the automatic debit of any part 
of the disputed amount that is still outstanding and unresolved at the 
time of the next scheduled debit date.

               13(d)(2) Adverse Credit Reports Prohibited

    1. Report of dispute. Although the creditor must not issue an 
adverse credit report because the consumer fails to pay the disputed 
amount or any related charges, the creditor may report that the amount 
or the account is in dispute. Also, the creditor may report the account 
as delinquent if undisputed amounts remain unpaid.
    2. Person. During the error resolution period, the creditor is 
prohibited from making an adverse credit report about the disputed 
amount to any person--including employers, insurance companies, other 
creditors, and credit bureaus.
    3. Creditor's agent. Whether an agency relationship exists between a 
creditor and an issuer of an adverse credit report is determined by 
state or other applicable law.

         13(e) Procedures If Billing Error Occurred as Asserted

    1. Correction of error. The phrase as applicable means that the 
necessary corrections vary with the type of billing error that occurred. 
For example, a misidentified transaction (or a transaction that is 
identified by one of the alternative methods in Sec. 1026.8) is cured 
by properly identifying the transaction and crediting related finance 
and any other charges imposed. The creditor is not required to cancel 
the amount of the underlying obligation incurred by the consumer.
    2. Form of correction notice. The written correction notice may take 
a variety of forms. It may be sent separately, or it may be included on 
or with a periodic statement that is mailed within the time for 
resolution. If the periodic statement is used, the amount of the billing 
error must be specifically identified. If a separate billing error 
correction notice is provided, the accompanying or subsequent periodic 
statement reflecting the corrected amount may simply identify it as 
credit.
    3. Discovery of information after investigation period. See comment 
13(c)(2)-2.

13(f) Procedures If Different Billing Error or No Billing Error Occurred

    1. Different billing error. Examples of a different billing error 
include:
    i. Differences in the amount of an error (for example, the customer 
asserts a $55.00 error but the error was only $53.00).
    ii. Differences in other particulars asserted by the consumer (such 
as when a consumer asserts that a particular transaction never occurred, 
but the creditor determines that only the seller's name was disclosed 
incorrectly).
    2. Form of creditor's explanation. The written explanation (which 
also may notify the consumer of corrections to the account) may take a 
variety of forms. It may be sent separately, or it may be included on or 
with a periodic statement that is mailed within the time for resolution. 
If the creditor uses the periodic statement for the explanation and 
correction(s), the corrections must be specifically identified. If a 
separate explanation,

[[Page 818]]

including the correction notice, is provided, the enclosed or subsequent 
periodic statement reflecting the corrected amount may simply identify 
it as a credit. The explanation may be combined with the creditor's 
notice to the consumer of amounts still owing, which is required under 
Sec. 1026.13(g)(1), provided it is sent within the time limit for 
resolution. (See commentary to Sec. 1026.13(e).)
    3. Reasonable investigation. A creditor must conduct a reasonable 
investigation before it determines that no billing error occurred or 
that a different billing error occurred from that asserted. In 
conducting its investigation of an allegation of a billing error, the 
creditor may reasonably request the consumer's cooperation. The creditor 
may not automatically deny a claim based solely on the consumer's 
failure or refusal to comply with a particular request, including 
providing an affidavit or filing a police report. However, if the 
creditor otherwise has no knowledge of facts confirming the billing 
error, the lack of information resulting from the consumer's failure or 
refusal to comply with a particular request may lead the creditor 
reasonably to terminate the investigation. The procedures involved in 
investigating alleged billing errors may differ depending on the billing 
error type.
    i. Unauthorized transaction. In conducting an investigation of a 
notice of billing error alleging an unauthorized transaction under Sec. 
1026.13(a)(1), actions such as the following represent steps that a 
creditor may take, as appropriate, in conducting a reasonable 
investigation:
    A. Reviewing the types or amounts of purchases made in relation to 
the consumer's previous purchasing pattern.
    B. Reviewing where the purchases were delivered in relation to the 
consumer's residence or place of business.
    C. Reviewing where the purchases were made in relation to where the 
consumer resides or has normally shopped.
    D. Comparing any signature on credit slips for the purchases to the 
signature of the consumer (or an authorized user in the case of a credit 
card account) in the creditor's records, including other credit slips.
    E. Requesting documentation to assist in the verification of the 
claim.
    F. Requiring a written, signed statement from the consumer (or 
authorized user, in the case of a credit card account). For example, the 
creditor may include a signature line on a billing rights form that the 
consumer may send in to provide notice of the claim. However, a creditor 
may not require the consumer to provide an affidavit or signed statement 
under penalty of perjury as a part of a reasonable investigation.
    G. Requesting a copy of a police report, if one was filed.
    H. Requesting information regarding the consumer's knowledge of the 
person who allegedly obtained an extension of credit on the account or 
of that person's authority to do so.
    ii. Nondelivery of property or services. In conducting an 
investigation of a billing error notice alleging the nondelivery of 
property or services under Sec. 1026.13(a)(3), the creditor shall not 
deny the assertion unless it conducts a reasonable investigation and 
determines that the property or services were actually delivered, 
mailed, or sent as agreed.
    iii. Incorrect information. In conducting an investigation of a 
billing error notice alleging that information appearing on a periodic 
statement is incorrect because a person honoring the consumer's credit 
card or otherwise accepting an access device for an open-end plan has 
made an incorrect report to the creditor, the creditor shall not deny 
the assertion unless it conducts a reasonable investigation and 
determines that the information was correct.

           13(g) Creditor's Rights and Duties After Resolution

                           Paragraph 13(g)(1)

    1. Amounts owed by consumer. Amounts the consumer still owes may 
include both minimum periodic payments and related finance and other 
charges that accrued during the resolution period. As explained in the 
commentary to Sec. 1026.13(d)(1), even if the creditor later determines 
that no billing error occurred, the creditor may not include finance or 
other charges that are imposed on undisputed balances solely as a result 
of a consumer's withholding payment of a disputed amount.
    2. Time of notice. The creditor need not send the notice of amount 
owed within the time period for resolution, although it is under a duty 
to send the notice promptly after resolution of the alleged error. If 
the creditor combines the notice of the amount owed with the explanation 
required under Sec. 1026.13(f)(1), the combined notice must be provided 
within the time limit for resolution.

                           Paragraph 13(g)(2)

    1. Grace period if no error occurred. If the creditor determines, 
after a reasonable investigation, that a billing error did not occur as 
asserted, and the consumer was entitled to a grace period at the time 
the consumer provided the billing error notice, the consumer must be 
given a period of time equal to the grace period disclosed under Sec. 
1026.6(a)(1) or (b)(2) and Sec. 1026.7(a)(8) or (b)(8) to pay any 
disputed amounts due without incurring additional finance or other 
charges. However, the creditor need not allow a grace period disclosed 
under the above-mentioned sections to pay the amount due under Sec. 
1026.13(g)(1) if no error occurred and the consumer was not entitled to 
a grace period

[[Page 819]]

at the time the consumer asserted the error. For example, assume that a 
creditor provides a consumer a grace period of 20 days to pay a new 
balance to avoid finance charges, and that the consumer did not carry an 
outstanding balance from the prior month. If the consumer subsequently 
asserts a billing error for the current statement period within the 20-
day grace period, and the creditor determines that no billing error in 
fact occurred, the consumer must be given at least 20 days (i.e., the 
full disclosed grace period) to pay the amount due without incurring 
additional finance charges. Conversely, if the consumer was not entitled 
to a grace period at the time the consumer asserted the billing error, 
for example, if the consumer did not pay the previous monthly balance of 
undisputed charges in full, the creditor may assess finance charges on 
the disputed balance for the entire period the item was in dispute.

                           Paragraph 13(g)(3)

    1. Time for payment. The consumer has a minimum of 10 days to pay 
(measured from the time the consumer could reasonably be expected to 
have received notice of the amount owed) before the creditor may issue 
an adverse credit report; if an initially disclosed grace period allows 
the consumer a longer time in which to pay, the consumer has the benefit 
of that longer period.

                           Paragraph 13(g)(4)

    1. Credit reporting. Under Sec. 1026.13(g)(4)(i) and (iii) the 
creditor's additional credit reporting responsibilities must be 
accomplished promptly. The creditor need not establish costly procedures 
to fulfill this requirement. For example, a creditor that reports to a 
credit bureau on scheduled updates need not transmit corrective 
information by an unscheduled computer or magnetic tape; it may provide 
the credit bureau with the correct information by letter or other 
commercially reasonable means when using the scheduled update would not 
be ``prompt.'' The creditor is not responsible for ensuring that the 
credit bureau corrects its information immediately.
    2. Adverse report to credit bureau. If a creditor made an adverse 
report to a credit bureau that disseminated the information to other 
creditors, the creditor fulfills its Sec. 1026.13(g)(4)(ii) obligations 
by providing the consumer with the name and address of the credit 
bureau.

     13(i) Relation to Electronic Fund Transfer Act and Regulation E

    1. Coverage. Credit extended directly from a non-overdraft credit 
line is governed solely by Regulation Z, even though a combined credit 
card/access device is used to obtain the extension.
    2. Incidental credit under agreement. Credit extended incident to an 
electronic fund transfer under an agreement between the consumer and the 
financial institution is governed by Sec. 1026.13(i), which provides 
that certain error resolution procedures in both this part and 
Regulation E apply. Incidental credit that is not extended under an 
agreement between the consumer and the financial institution is governed 
solely by the error resolution procedures in Regulation E. For example, 
credit inadvertently extended incident to an electronic fund-transfer, 
such as under an overdraft service not subject to Regulation Z, is 
governed solely by the Regulation E error resolution procedures, if the 
bank and the consumer do not have an agreement to extend credit when the 
consumer's account is overdrawn.
    3. Application to debit/credit transactions-examples. If a consumer 
withdraws money at an automated teller machine and activates an 
overdraft credit feature on the checking account:
    i. An error asserted with respect to the transaction is subject, for 
error resolution purposes, to the applicable Regulation E (12 CFR Part 
1005) provisions (such as timing and notice) for the entire transaction.
    ii. The creditor need not provisionally credit the consumer's 
account, under 12 CFR 1005.11(c)(2)(i), for any portion of the unpaid 
extension of credit.
    iii. The creditor must credit the consumer's account under Sec. 
1005.11(c) with any finance or other charges incurred as a result of the 
alleged error.
    iv. The provisions of Sec. Sec. 1026.13(d) and (g) apply only to 
the credit portion of the transaction.

        Section 1026.14--Determination of Annual Percentage Rate

                           14(a) General Rule

    1. Tolerance. The tolerance of 1/8th of 1 percentage point above or 
below the annual percentage rate applies to any required disclosure of 
the annual percentage rate. The disclosure of the annual percentage rate 
is required in Sec. Sec. 1026.60, 1026.40, 1026.6, 1026.7, 1026.9, 
1026.15, 1026.16, 1026.26, 1026.55, and 1026.56.
    2. Rounding. The regulation does not require that the annual 
percentage rate be calculated to any particular number of decimal 
places; rounding is permissible within the 1/8th of 1 percent tolerance. 
For example, an exact annual percentage rate of 14.33333% may be stated 
as 14.33% or as 14.3%, or even as 14\1/4\%; but it could not be stated 
as 14.2% or 14%, since each varies by more than the permitted tolerance.
    3. Periodic rates. No explicit tolerance exists for any periodic 
rate as such; a disclosed periodic rate may vary from precise accuracy 
(for example, due to rounding) only to

[[Page 820]]

the extent that its annualized equivalent is within the tolerance 
permitted by Sec. 1026.14(a). Further, a periodic rate need not be 
calculated to any particular number of decimal places.
    4. Finance charges. The regulation does not prohibit creditors from 
assessing finance charges on balances that include prior, unpaid finance 
charges; state or other applicable law may do so, however.
    5. Good faith reliance on faulty calculation tools. The regulation 
relieves a creditor of liability for an error in the annual percentage 
rate or finance charge that resulted from a corresponding error in a 
calculation tool used in good faith by the creditor. Whether or not the 
creditor's use of the tool was in good faith must be determined on a 
case-by-case basis, but the creditor must in any case have taken 
reasonable steps to verify the accuracy of the tool, including any 
instructions, before using it. Generally, the safe harbor from liability 
is available only for errors directly attributable to the calculation 
tool itself, including software programs; it is not intended to absolve 
a creditor of liability for its own errors, or for errors arising from 
improper use of the tool, from incorrect data entry, or from 
misapplication of the law.
    6. Effect of leap year. Any variance in the annual percentage rate 
that occurs solely by reason of the addition of February 29 in a leap 
year may be disregarded, and such a rate may be disclosed without regard 
to such variance.

                14(b) Annual Percentage Rate--In General

    1. Corresponding annual percentage rate computation. For purposes of 
Sec. Sec. 1026.60, 1026.40, 1026.6, 1026.7(a)(4) or (b)(4), 1026.9, 
1026.15, 1026.16, 1026.26, 1026.55, and 1026.56, the annual percentage 
rate is determined by multiplying the periodic rate by the number of 
periods in the year. This computation reflects the fact that, in such 
disclosures, the rate (known as the corresponding annual percentage 
rate) is prospective and does not involve any particular finance charge 
or periodic balance.

14(c) Optional Effective Annual Percentage Rate for Periodic Statements 
  for Creditors Offering Open-End Credit Plans Secured by a Consumer's 
                                Dwelling

    1. General rule. The periodic statement may reflect (under Sec. 
1026.7(a)(7)) the annualized equivalent of the rate actually applied 
during a particular cycle; this rate may differ from the corresponding 
annual percentage rate because of the inclusion of, for example, fixed, 
minimum, or transaction charges. Sections 1026.14(c)(1) through (c)(4) 
state the computation rules for the effective rate.
    2. Charges related to opening, renewing, or continuing an account. 
Sections 1026.14(c)(2) and (c)(3) exclude from the calculation of the 
effective annual percentage rate finance charges that are imposed during 
the billing cycle such as a loan fee, points, or similar charge that 
relates to opening, renewing, or continuing an account. The charges 
involved here do not relate to a specific transaction or to specific 
activity on the account, but relate solely to the opening, renewing, or 
continuing of the account. For example, an annual fee to renew an open-
end credit account that is a percentage of the credit limit on the 
account, or that is charged only to consumers that have not used their 
credit card for a certain dollar amount in transactions during the 
preceding year, would not be included in the calculation of the annual 
percentage rate, even though the fee may not be excluded from the 
finance charge under Sec. 1026.4(c)(4). (See comment 4(c)(4)-2.) This 
rule applies even if the loan fee, points, or similar charges are billed 
on a subsequent periodic statement or withheld from the proceeds of the 
first advance on the account.
    3. Classification of charges. If the finance charge includes a 
charge not due to the application of a periodic rate, the creditor must 
use the annual percentage rate computation method that corresponds to 
the type of charge imposed. If the charge is tied to a specific 
transaction (for example, 3 percent of the amount of each transaction), 
then the method in Sec. 1026.14(c)(3) must be used. If a fixed or 
minimum charge is applied, that is, one not tied to any specific 
transaction, then the formula in Sec. 1026.14(c)(2) is appropriate.
    4. Small finance charges. Section 1026.14(c)(4) gives the creditor 
an alternative to Sec. 1026.14(c)(2) and (c)(3) if small finance 
charges (50 cents or less) are involved; that is, if the finance charge 
includes minimum or fixed fees not due to the application of a periodic 
rate and the total finance charge for the cycle does not exceed 50 
cents. For example, while a monthly activity fee of 50 cents on a 
balance of $20 would produce an annual percentage rate of 30 percent 
under the rule in Sec. 1026.14(c)(2), the creditor may disclose an 
annual percentage rate of 18 percent if the periodic rate generally 
applicable to all balances is 1 and \1/2\ percent per month.
    5. Prior-cycle adjustments. i. The annual percentage rate reflects 
the finance charges imposed during the billing cycle. However, finance 
charges imposed during the billing cycle may relate to activity in a 
prior cycle. Examples of circumstances when this may occur are:
    A. A cash advance occurs on the last day of a billing cycle on an 
account that uses the transaction date to figure finance charges, and it 
is impracticable to post the transaction until the following cycle.
    B. An adjustment to the finance charge is made following the 
resolution of a billing error dispute.

[[Page 821]]

    C. A consumer fails to pay the purchase balance under a deferred 
payment feature by the payment due date, and finance charges are imposed 
from the date of purchase.
    ii. Finance charges relating to activity in prior cycles should be 
reflected on the periodic statement as follows:
    A. If a finance charge imposed in the current billing cycle is 
attributable to periodic rates applicable to prior billing cycles (such 
as when a deferred payment balance was not paid in full by the payment 
due date and finance charges from the date of purchase are now being 
debited to the account, or when a cash advance occurs on the last day of 
a billing cycle on an account that uses the transaction date to figure 
finance charges and it is impracticable to post the transaction until 
the following cycle), and the creditor uses the quotient method to 
calculate the annual percentage rate, the numerator would include the 
amount of any transaction charges plus any other finance charges posted 
during the billing cycle. At the creditor's option, balances relating to 
the finance charge adjustment may be included in the denominator if 
permitted by the legal obligation, if it was impracticable to post the 
transaction in the previous cycle because of timing, or if the 
adjustment is covered by comment 14(c)-5.ii.B.
    B. If a finance charge that is posted to the account relates to 
activity for which a finance charge was debited or credited to the 
account in a previous billing cycle (for example, if the finance charge 
relates to an adjustment such as the resolution of a billing error 
dispute, or an unintentional posting error, or a payment by check that 
was later returned unpaid for insufficient funds or other reasons), the 
creditor shall at its option:
    1. Calculate the annual percentage rate in accordance with ii.A of 
this paragraph, or
    2. Disclose the finance charge adjustment on the periodic statement 
and calculate the annual percentage rate for the current billing cycle 
without including the finance charge adjustment in the numerator and 
balances associated with the finance charge adjustment in the 
denominator.

                 14(c)(1) Solely Periodic Rates Imposed

    1. Periodic rates. Section 1026.14(c)(1) applies if the only finance 
charge imposed is due to the application of a periodic rate to a 
balance. The creditor may compute the annual percentage rate either:
    i. By multiplying each periodic rate by the number of periods in the 
year; or
    ii. By the ``quotient'' method. This method refers to a composite 
annual percentage rate when different periodic rates apply to different 
balances. For example, a particular plan may involve a periodic rate of 
\1/2\ percent on balances up to $500, and 1 percent on balances over 
$500. If, in a given cycle, the consumer has a balance of $800, the 
finance charge would consist of $7.50 (500 x .015) plus $3.00 (300 x 
.01), for a total finance charge of $10.50. The annual percentage rate 
for this period may be disclosed either as 18% on $500 and 12 percent on 
$300, or as 15.75 percent on a balance of $800 (the quotient of $10.50 
divided by $800, multiplied by 12).

  14(c)(2) Minimum or Fixed Charge, But Not Transaction Charge, Imposed

    1. Certain charges not based on periodic rates. Section 
1026.14(c)(2) specifies use of the quotient method to determine the 
annual percentage rate if the finance charge imposed includes a certain 
charge not due to the application of a periodic rate (other than a 
charge relating to a specific transaction). For example, if the creditor 
imposes a minimum $1 finance charge on all balances below $50, and the 
consumer's balance was $40 in a particular cycle, the creditor would 
disclose an annual percentage rate of 30 percent (1/40 x 12).
    2. No balance. If there is no balance to which the finance charge is 
applicable, an annual percentage rate cannot be determined under Sec. 
1026.14(c)(2). This could occur not only when minimum charges are 
imposed on an account with no balance, but also when a periodic rate is 
applied to advances from the date of the transaction. For example, if on 
May 19 the consumer pays the new balance in full from a statement dated 
May 1, and has no further transactions reflected on the June 1 
statement, that statement would reflect a finance charge with no account 
balance.

                   14(c)(3) Transaction Charge Imposed

    1. Transaction charges. i. Section 1026.14(c)(3) transaction charges 
include, for example:
    A. A loan fee of $10 imposed on a particular advance.
    B. A charge of 3 percent of the amount of each transaction.
    ii. The reference to avoiding duplication in the computation 
requires that the amounts of transactions on which transaction charges 
were imposed not be included both in the amount of total balances and in 
the ``other amounts on which a finance charge was imposed'' figure. In a 
multifeatured plan, creditors may consider each bona fide feature 
separately in the calculation of the denominator. A creditor has 
considerable flexibility in defining features for open-end plans, as 
long as the creditor has a reasonable basis for the distinctions. For 
further explanation and examples of how to determine the components of 
this formula, see Appendix F to part 1026.
    2. Daily rate with specific transaction charge. Section 
1026.14(c)(3) sets forth an acceptable

[[Page 822]]

method for calculating the annual percentage rate if the finance charge 
results from a charge relating to a specific transaction and the 
application of a daily periodic rate. This section includes the 
requirement that the creditor follow the rules in Appendix F to part 
1026 in calculating the annual percentage rate, especially the provision 
in the introductory section of Appendix F which addresses the daily 
rate/transaction charge situation by providing that the ``average of 
daily balances'' shall be used instead of the ``sum of the balances.''

          14(d) Calculations Where Daily Periodic Rate Applied

    1. Quotient method. Section 1026.14(d) addresses use of a daily 
periodic rate(s) to determine some or all of the finance charge and use 
of the quotient method to determine the annual percentage rate. Since 
the quotient formula in Sec. 1026.14(c)(1)(ii) and (c)(2) cannot be 
used when a daily rate is being applied to a series of daily balances, 
Sec. 1026.14(d) provides two alternative ways to calculate the annual 
percentage rate--either of which satisfies the provisions of Sec. 
1026.7(a)(7).
    2. Daily rate with specific transaction charge. If the finance 
charge results from a charge relating to a specific transaction and the 
application of a daily periodic rate, see comment 14(c)(3)-2 for 
guidance on an appropriate calculation method.

                  Section 1026.15--Right of Rescission

    1. Transactions not covered. Credit extensions that are not subject 
to the regulation are not covered by Sec. 1026.15 even if the 
customer's principal dwelling is the collateral securing the credit. For 
this purpose, credit extensions also would include the occurrences 
listed in comment 15(a)(1)-1. For example, the right of rescission does 
not apply to the opening of a business-purpose credit line, even though 
the loan is secured by the customer's principal dwelling.

                    15(a) Consumer's Right To Rescind

                           Paragraph 15(a)(1)

    1. Occurrences subject to right. Under an open-end credit plan 
secured by the consumer's principal dwelling, the right of rescission 
generally arises with each of the following occurrences:
    i. Opening the account.
    ii. Each credit extension.
    iii. Increasing the credit limit.
    iv. Adding to an existing account a security interest in the 
consumer's principal dwelling.
    v. Increasing the dollar amount of the security interest taken in 
the dwelling to secure the plan. For example, a consumer may open an 
account with a $10,000 credit limit, $5,000 of which is initially 
secured by the consumer's principal dwelling. The consumer has the right 
to rescind at that time and (except as noted in Sec. 1026.15(a)(1)(ii)) 
with each extension on the account. Later, if the creditor decides that 
it wants the credit line fully secured, and increases the amount of its 
interest in the consumer's dwelling, the consumer has the right to 
rescind the increase.
    2. Exceptions. Although the consumer generally has the right to 
rescind with each transaction on the account, Section 125(e) of the Act 
provides an exception: the creditor need not provide the right to 
rescind at the time of each credit extension made under an open-end 
credit plan secured by the consumer's principal dwelling to the extent 
that the credit extended is in accordance with a previously established 
credit limit for the plan. This limited rescission option is available 
whether or not the plan existed prior to the effective date of the Act.
    3. Security interest arising from transaction. i. In order for the 
right of rescission to apply, the security interest must be retained as 
part of the credit transaction. For example:
    A. A security interest that is acquired by a contractor who is also 
extending the credit in the transaction.
    B. A mechanic's or materialman's lien that is retained by a 
subcontractor or supplier of a contractor-creditor, even when the latter 
has waived its own security interest in the consumer's home.
    ii. The security interest is not part of the credit transaction, and 
therefore the transaction is not subject to the right of rescission 
when, for example:
    A. A mechanic's or materialman's lien is obtained by a contractor 
who is not a party to the credit transaction but merely is paid with the 
proceeds of the consumer's cash advance.
    B. All security interests that may arise in connection with the 
credit transaction are validly waived.
    C. The creditor obtains a lien and completion bond that in effect 
satisfies all liens against the consumer's principal dwelling as a 
result of the credit transaction.
    iii. Although liens arising by operation of law are not considered 
security interests for purposes of disclosure under Sec. 1026.2, that 
section specifically includes them in the definition for purposes of the 
right of rescission. Thus, even though an interest in the consumer's 
principal dwelling is not a required disclosure under Sec. 1026.6(c), 
it may still give rise to the right of rescission.
    4. Consumer. To be a consumer within the meaning of Sec. 1026.2, 
that person must at least have an ownership interest in the dwelling 
that is encumbered by the creditor's security interest, although that 
person need not be a

[[Page 823]]

signatory to the credit agreement. For example, if only one spouse 
enters into a secured plan, the other spouse is a consumer if the 
ownership interest of that spouse is subject to the security interest.
    5. Principal dwelling. A consumer can only have one principal 
dwelling at a time. (But see comment 15(a)(1)-6.) A vacation or other 
second home would not be a principal dwelling. A transaction secured by 
a second home (such as a vacation home) that is not currently being used 
as the consumer's principal dwelling is not rescindable, even if the 
consumer intends to reside there in the future. When a consumer buys or 
builds a new dwelling that will become the consumer's principal dwelling 
within one year or upon completion of construction, the new dwelling is 
considered the principal dwelling if it secures the open-end credit 
line. In that case, the transaction secured by the new dwelling is a 
residential mortgage transaction and is not rescindable. For example, if 
a consumer whose principal dwelling is currently A builds B, to be 
occupied by the consumer upon completion of construction, an advance on 
an open-end line to finance B and secured by B is a residential mortgage 
transaction. Dwelling, as defined in Sec. 1026.2, includes structures 
that are classified as personalty under state law. For example, a 
transaction secured by a mobile home, trailer, or houseboat used as the 
consumer's principal dwelling may be rescindable.
    6. Special rule for principal dwelling. Notwithstanding the general 
rule that consumers may have only one principal dwelling, when the 
consumer is acquiring or constructing a new principal dwelling, a credit 
plan or extension that is subject to Regulation Z and is secured by the 
equity in the consumer's current principal dwelling is subject to the 
right of rescission regardless of the purpose of that loan (for example, 
an advance to be used as a bridge loan). For example, if a consumer 
whose principal dwelling is currently A builds B, to be occupied by the 
consumer upon completion of construction, a loan to finance B and 
secured by A is subject to the right of rescission. Moreover, a loan 
secured by both A and B is, likewise, rescindable.

                           Paragraph 15(a)(2)

    1. Consumer's exercise of right. The consumer must exercise the 
right of rescission in writing but not necessarily on the notice 
supplied under Sec. 1026.15(b). Whatever the means of sending the 
notification of rescission--mail, telegram or other written means--the 
time period for the creditor's performance under Sec. 1026.15(d)(2) 
does not begin to run until the notification has been received. The 
creditor may designate an agent to receive the notification so long as 
the agent's name and address appear on the notice provided to the 
consumer under Sec. 1026.15(b). Where the creditor fails to provide the 
consumer with a designated address for sending the notification of 
rescission, delivery of the notification to the person or address to 
which the consumer has been directed to send payments constitutes 
delivery to the creditor or assignee. State law determines whether 
delivery of the notification to a third party other than the person to 
whom payments are made is delivery to the creditor or assignee, in the 
case where the creditor fails to designate an address for sending the 
notification of rescission.

                           Paragraph 15(a)(3)

    1. Rescission period. i. The period within which the consumer may 
exercise the right to rescind runs for 3 business days from the last of 
3 events:
    A. The occurrence that gives rise to the right of rescission.
    B. Delivery of all material disclosures that are relevant to the 
plan.
    C. Delivery to the consumer of the required rescission notice.
    ii. For example, an account is opened on Friday, June 1, and the 
disclosures and notice of the right to rescind were given on Thursday, 
May 31; the rescission period will expire at midnight of the third 
business day after June 1--that is, Tuesday June 5. In another example, 
if the disclosures are given and the account is opened on Friday, June 
1, and the rescission notice is given on Monday, June 4, the rescission 
period expires at midnight of the third business day after June 4--that 
is Thursday, June 7. The consumer must place the rescission notice in 
the mail, file it for telegraphic transmission, or deliver it to the 
creditor's place of business within that period in order to exercise the 
right.
    2. Material disclosures. Section 1026.15(a)(3) sets forth the 
material disclosures that must be provided before the rescission period 
can begin to run. The creditor must provide sufficient information to 
satisfy the requirements of Sec. 1026.6 for these disclosures. A 
creditor may satisfy this requirement by giving an initial disclosure 
statement that complies with the regulation. Failure to give the other 
required initial disclosures (such as the billing rights statement) or 
the information required under Sec. 1026.40 does not prevent the 
running of the rescission period, although that failure may result in 
civil liability or administrative sanctions. The payment terms set forth 
in Sec. 1026.15(a)(3) apply to any repayment phase set forth in the 
agreement. Thus, the payment terms described in Sec. 1026.6(e)(2) for 
any repayment phase as well as for the draw period are ``material 
disclosures.''
    3. Material disclosures--variable rate program. For a variable rate 
program, the material disclosures also include the disclosures listed in 
Sec. 1026.6(a)(1)(ii): the circumstances

[[Page 824]]

under which the rate may increase; the limitations on the increase; and 
the effect of an increase. The disclosures listed in Sec. 
1026.6(a)(1)(ii) for any repayment phase also are material disclosures 
for variable-rate programs.
    4. Unexpired right of rescission. i. When the creditor has failed to 
take the action necessary to start the three-day rescission period 
running the right to rescind automatically lapses on the occurrence of 
the earliest of the following three events:
    A. The expiration of three years after the occurrence giving rise to 
the right of rescission.
    B. Transfer of all the consumer's interest in the property.
    C. Sale of the consumer's interest in the property, including a 
transaction in which the consumer sells the dwelling and takes back a 
purchase money note and mortgage or retains legal title through a device 
such as an installment sale contract.
    ii. Transfer of all the consumer's interest includes such transfers 
as bequests and gifts. A sale or transfer of the property need not be 
voluntary to terminate the right to rescind. For example, a foreclosure 
sale would terminate an unexpired right to rescind. As provided in 
section 125 of the Act, the three-year limit may be extended by an 
administrative proceeding to enforce the provisions of Sec. 1026.15. A 
partial transfer of the consumer's interest, such as a transfer 
bestowing co-ownership on a spouse, does not terminate the right of 
rescission.

                           Paragraph 15(a)(4)

    1. Joint owners. When more than one consumer has the right to 
rescind a transaction, any one of them may exercise that right and 
cancel the transaction on behalf of all. For example, if both a husband 
and wife have the right to rescind a transaction, either spouse acting 
alone may exercise the right and both are bound by the rescission.

                    15(b) Notice of Right To Rescind

    1. Who receives notice. Each consumer entitled to rescind must be 
given two copies of the rescission notice and the material 
disclosures.In a transaction involving joint owners, both of whom are 
entitled to rescind, both must receive the notice of the right to 
rescind and disclosures. For example, if both spouses are entitled to 
rescind a transaction, each must receive two copies of the rescission 
notice (one copy to each if the notice is provided in electronic form in 
accordance with the consumer consent and other applicable provisions of 
the E-Sign Act) and one copy of the disclosures.
    2. Format. The rescission notice may be physically separated from 
the material disclosures or combined with the material disclosures, so 
long as the information required to be included on the notice is set 
forth in a clear and conspicuous manner. See the model notices in 
Appendix G.
    3. Content. The notice must include all of the information outlined 
in Sec. 1026.15(b)(1) through (5). The requirement in Sec. 1026.15(b) 
that the transaction or occurrence be identified may be met by providing 
the date of the transaction or occurrence. The notice may include 
additional information related to the required information, such as:
    i. A description of the property subject to the security interest.
    ii. A statement that joint owners may have the right to rescind and 
that a rescission by one is effective for all.
    iii. The name and address of an agent of the creditor to receive 
notice of rescission.
    4. Time of providing notice. The notice required by Sec. 1026.15(b) 
need not be given before the occurrence giving rise to the right of 
rescission. The creditor may deliver the notice after the occurrence, 
but the rescission period will not begin to run until the notice is 
given. For example, if the creditor provides the notice on May 15, but 
disclosures were given and the credit limit was raised on May 10, the 3-
business-day rescission period will run from May 15.

                  15(c) Delay of Creditor's Performance

    1. General rule. i. Until the rescission period has expired and the 
creditor is reasonably satisfied that the consumer has not rescinded, 
the creditor must not, either directly or through a third party:
    A. Disburse advances to the consumer.
    B. Begin performing services for the consumer.
    C. Deliver materials to the consumer.
    ii. A creditor may, however, continue to allow transactions under an 
existing open-end credit plan during a rescission period that results 
solely from the addition of a security interest in the consumer's 
principal dwelling. (See comment 15(c)-3 for other actions that may be 
taken during the delay period.)
    2. Escrow. The creditor may disburse advances during the rescission 
period in a valid escrow arrangement. The creditor may not, however, 
appoint the consumer as ``trustee'' or ``escrow agent'' and distribute 
funds to the consumer in that capacity during the delay period.
    3. Actions during the delay period. Section 1026.15(c) does not 
prevent the creditor from taking other steps during the delay, short of 
beginning actual performance. Unless otherwise prohibited, such as by 
state law, the creditor may, for example:
    i. Prepare the cash advance check.
    ii. Perfect the security interest.
    iii. Accrue finance charges during the delay period.
    4. Performance by third party. The creditor is relieved from 
liability for failure to delay

[[Page 825]]

performance if a third party with no knowledge that the rescission right 
has been activated provides materials or services, as long as any debt 
incurred for materials or services obtained by the consumer during the 
rescission period is not secured by the security interest in the 
consumer's dwelling. For example, if a consumer uses a bank credit card 
to purchase materials from a merchant in an amount below the floor 
limit, the merchant might not contact the card issuer for authorization 
and therefore would not know that materials should not be provided.
    5. Delay beyond rescission period. i. The creditor must wait until 
it is reasonably satisfied that the consumer has not rescinded. For 
example, the creditor may satisfy itself by doing one of the following:
    A. Waiting a reasonable time after expiration of the rescission 
period to allow for delivery of a mailed notice.
    B. Obtaining a written statement from the consumer that the right 
has not been exercised.
    ii. When more than one consumer has the right to rescind, the 
creditor cannot reasonably rely on the assurance of only one consumer, 
because other consumers may exercise the right.

                       15(d) Effects of Rescission

                           Paragraph 15(d)(1)

    1. Termination of security interest. Any security interest giving 
rise to the right of rescission becomes void when the consumer exercises 
the right of rescission. The security interest is automatically negated, 
regardless of its status and whether or not it was recorded or 
perfected. Under Sec. 1026.15(d)(2), however, the creditor must take 
any action necessary to reflect the fact that the security interest no 
longer exists.
    2. Extent of termination. The creditor's security interest is void 
to the extent that it is related to the occurrence giving rise to the 
right of rescission. For example, upon rescission:
    i. If the consumer's right to rescind is activated by the opening of 
a plan, any security interest in the principal dwelling is void.
    ii. If the right arises due to an increase in the credit limit, the 
security interest is void as to the amount of credit extensions over the 
prior limit, but the security interest in amounts up to the original 
credit limit is unaffected.
    iii. If the right arises with each individual credit extension, then 
the interest is void as to that extension, and other extensions are 
unaffected.

                           Paragraph 15(d)(2)

    1. Refunds to consumer. The consumer cannot be required to pay any 
amount in the form of money or property either to the creditor or to a 
third party as part of the occurrence subject to the right of 
rescission. Any amounts of this nature already paid by the consumer must 
be refunded. ``Any amount'' includes finance charges already accrued, as 
well as other charges such as broker fees, application and commitment 
fees, or fees for a title search or appraisal, whether paid to the 
creditor, paid by the consumer directly to a third party, or passed on 
from the creditor to the third party. It is irrelevant that these 
amounts may not represent profit to the creditor. For example:
    i. If the occurrence is the opening of the plan, the creditor must 
return any membership or application fee paid.
    ii. If the occurrence is the increase in a credit limit or the 
addition of a security interest, the creditor must return any fee 
imposed for a new credit report or filing fees.
    iii. If the occurrence is a credit extension, the creditors must 
return fees such as application, title, and appraisal or survey fees, as 
well as any finance charges related to the credit extension.
    2. Amounts not refundable to consumer. Creditors need not return any 
money given by the consumer to a third party outside of the occurrence, 
such as costs incurred for a building permit or for a zoning variance. 
Similarly, the term any amount does not apply to money or property given 
by the creditor to the consumer; those amounts must be tendered by the 
consumer to the creditor under Sec. 1026.15(d)(3).
    3. Reflection of security interest termination. The creditor must 
take whatever steps are necessary to indicate that the security interest 
is terminated. Those steps include the cancellation of documents 
creating the security interest, and the filing of release or termination 
statements in the public record. In a transaction involving 
subcontractors or suppliers that also hold security interests related to 
the occurrence rescinded by the consumer, the creditor must insure that 
the termination of their security interests is also reflected. The 20-
day period for the creditor's action refers to the time within which the 
creditor must begin the process. It does not require all necessary steps 
to have been completed within that time, but the creditor is responsible 
for seeing the process through to completion.

                           Paragraph 15(d)(3)

    1. Property exchange. Once the creditor has fulfilled its obligation 
under Sec. 1026.15(d)(2), the consumer must tender to the creditor any 
property or money the creditor has already delivered to the consumer. At 
the consumer's option, property may be tendered at the location of the 
property. For example, if fixtures or furniture have been delivered to 
the consumer's home, the consumer may tender them to the creditor by 
making them available for pick-up at the home, rather

[[Page 826]]

than physically returning them to the creditor's premises. Money already 
given to the consumer must be tendered at the creditor's place of 
business. For purpose of property exchange, the following additional 
rules apply:
    i. A cash advance is considered money for purposes of this section 
even if the creditor knows what the consumer intends to purchase with 
the money.
    ii. In a 3-party open-end credit plan (that is, if the creditor and 
seller are not the same or related persons), extensions by the creditor 
that are used by the consumer for purchases from third-party sellers are 
considered to be the same as cash advances for purposes of tendering 
value to the creditor, even though the transaction is a purchase for 
other purposes under the regulation. For example, if a consumer 
exercises the unexpired right to rescind after using a 3-party credit 
card for one year, the consumer would tender the amount of the purchase 
price for the items charged to the account, rather than tendering the 
items themselves to the creditor.
    2. Reasonable value. If returning the property would be extremely 
burdensome to the consumer, the consumer may offer the creditor its 
reasonable value rather than returning the property itself. For example, 
if building materials have already been incorporated into the consumer's 
dwelling, the consumer may pay their reasonable value.

                           Paragraph 15(d)(4)

    1. Modifications. The procedures outlined in Sec. 1026.15(d)(2) and 
(3) may be modified by a court. For example, when a consumer is in 
bankruptcy proceedings and prohibited from returning anything to the 
creditor, or when the equities dictate, a modification might be made. 
The sequence of procedures under Sec. 1026.15(d)(2) and (3), or a 
court's modification of those procedures under Sec. 1026.15(d)(4), does 
not affect a consumer's substantive right to rescind and to have the 
loan amount adjusted accordingly. Where the consumer's right to rescind 
is contested by the creditor, a court would normally determine whether 
the consumer has a right to rescind and determine the amounts owed 
before establishing the procedures for the parties to tender any money 
or property.

               15(e) Consumer's Waiver of Right To Rescind

    1. Need for waiver. To waive the right to rescind, the consumer must 
have a bona fide personal financial emergency that must be met before 
the end of the rescission period. The existence of the consumer's waiver 
will not, of itself, automatically insulate the creditor from liability 
for failing to provide the right of rescission.
    2. Procedure. To waive or modify the right to rescind, the consumer 
must give a written statement that specifically waives or modifies the 
right, and also includes a brief description of the emergency. Each 
consumer entitled to rescind must sign the waiver statement. In a 
transaction involving multiple consumers, such as a husband and wife 
using their home as collateral, the waiver must bear the signatures of 
both spouses.

                        15(f) Exempt Transactions

    1. Residential mortgage transaction. Although residential mortgage 
transactions would seldom be made on bona fide open-end credit plans 
(under which repeated transactions must be reasonably contemplated), an 
advance on an open-end plan could be for a downpayment for the purchase 
of a dwelling that would then secure the remainder of the line. In such 
a case, only the particular advance for the downpayment would be exempt 
from the rescission right.
    2. State creditors. Cities and other political subdivisions of 
states acting as creditors are not exempt from Sec. 1026.15.
    3. Spreader clause. When the creditor holds a mortgage or deed of 
trust on the consumer's principal dwelling and that mortgage or deed of 
trust contains a ``spreader clause'' (also known as a ``dragnet'' or 
cross-collateralization clause), subsequent occurrences such as the 
opening of a plan or individual credit extensions are subject to the 
right of rescission to the same degree as if the security interest were 
taken directly to secure the open-end plan, unless the creditor 
effectively waives its security interest under the spreader clause with 
respect to the subsequent open-end credit extensions.

                      Section 1026.16--Advertising

    1. Clear and conspicuous standard--general. Section 1026.16 is 
subject to the general ``clear and conspicuous'' standard for subpart B 
(see Sec. 1026.5(a)(1)) but prescribes no specific rules for the format 
of the necessary disclosures, other than the format requirements related 
to the disclosure of a promotional rate or payment under Sec. 
1026.16(d)(6), a promotional rate or promotional fee under Sec. 
1026.16(g), or a deferred interest or similar offer under Sec. 
1026.16(h). Other than the disclosure of certain terms described in 
Sec. Sec. 1026.16(d)(6), (g), or (h), the credit terms need not be 
printed in a certain type size nor need they appear in any particular 
place in the advertisement.
    2. Clear and conspicuous standard--promotional rates or payments; 
deferred interest or similar offers. i. For purposes of Sec. 
1026.16(d)(6), a clear and conspicuous disclosure means that the 
required information in Sec. 1026.16(d)(6)(ii)(A)-(C) is disclosed with 
equal prominence and in close proximity to the promotional rate or 
payment to which it applies. If the information in Sec. 
1026.16(d)(6)(ii)(A)-(C) is the same type size

[[Page 827]]

and is located immediately next to or directly above or below the 
promotional rate or payment to which it applies, without any intervening 
text or graphical displays, the disclosures would be deemed to be 
equally prominent and in close proximity. Notwithstanding the above, for 
electronic advertisements that disclose promotional rates or payments, 
compliance with the requirements of Sec. 1026.16(c) is deemed to 
satisfy the clear and conspicuous standard.
    ii. For purposes of Sec. 1026.16(g)(4) as it applies to written or 
electronic advertisements only, a clear and conspicuous disclosure means 
the required information in Sec. 1026.16(g)(4)(i) and, as applicable, 
(g)(4)(ii) and (g)(4)(iii) must be equally prominent to the promotional 
rate or promotional fee to which it applies. If the information in Sec. 
1026.16(g)(4)(i) and, as applicable, (g)(4)(ii) and (g)(4)(iii) is the 
same type size as the promotional rate or promotional fee to which it 
applies, the disclosures would be deemed to be equally prominent. For 
purposes of Sec. 1026.16(h)(3) as it applies to written or electronic 
advertisements only, a clear and conspicuous disclosure means the 
required information in Sec. 1026.16(h)(3) must be equally prominent to 
each statement of ``no interest,'' ``no payments,'' ``deferred 
interest,'' ``same as cash,'' or similar term regarding interest or 
payments during the deferred interest period. If the information 
required to be disclosed under Sec. 1026.16(h)(3) is the same type size 
as the statement of ``no interest,'' ``no payments,'' ``deferred 
interest,'' ``same as cash,'' or similar term regarding interest or 
payments during the deferred interest period, the disclosure would be 
deemed to be equally prominent.
    3. Clear and conspicuous standard--Internet advertisements for home-
equity plans. For purposes of this section, a clear and conspicuous 
disclosure for visual text advertisements on the Internet for home-
equity plans subject to the requirements of Sec. 1026.40 means that the 
required disclosures are not obscured by techniques such as graphical 
displays, shading, coloration, or other devices and comply with all 
other requirements for clear and conspicuous disclosures under Sec. 
1026.16(d). (See also comment 16(c)(1)-2.)
    4. Clear and conspicuous standard--televised advertisements for 
home-equity plans. For purposes of this section, including alternative 
disclosures as provided for by Sec. 1026.16(e), a clear and conspicuous 
disclosure in the context of visual text advertisements on television 
for home-equity plans subject to the requirements of Sec. 1026.40 means 
that the required disclosures are not obscured by techniques such as 
graphical displays, shading, coloration, or other devices, are displayed 
in a manner that allows for a consumer to read the information required 
to be disclosed, and comply with all other requirements for clear and 
conspicuous disclosures under Sec. 1026.16(d). For example, very fine 
print in a television advertisement would not meet the clear and 
conspicuous standard if consumers cannot see and read the information 
required to be disclosed.
    5. Clear and conspicuous standard--oral advertisements for home-
equity plans. For purposes of this section, including alternative 
disclosures as provided for by Sec. 1026.16(e), a clear and conspicuous 
disclosure in the context of an oral advertisement for home-equity plans 
subject to the requirements of Sec. 1026.40, whether by radio, 
television, the Internet, or other medium, means that the required 
disclosures are given at a speed and volume sufficient for a consumer to 
hear and comprehend them. For example, information stated very rapidly 
at a low volume in a radio or television advertisement would not meet 
the clear and conspicuous standard if consumers cannot hear and 
comprehend the information required to be disclosed.
    6. Expressing the annual percentage rate in abbreviated form. 
Whenever the annual percentage rate is used in an advertisement for 
open-end credit, it may be expressed using a readily understandable 
abbreviation such as APR.

                     16(a) Actually Available Terms

    1. General rule. To the extent that an advertisement mentions 
specific credit terms, it may state only those terms that the creditor 
is actually prepared to offer. For example, a creditor may not advertise 
a very low annual percentage rate that will not in fact be available at 
any time. Section 1026.16(a) is not intended to inhibit the promotion of 
new credit programs, but to bar the advertising of terms that are not 
and will not be available. For example, a creditor may advertise terms 
that will be offered for only a limited period, or terms that will 
become available at a future date.
    2. Specific credit terms. Specific credit terms is not limited to 
the disclosures required by the regulation but would include any 
specific components of a credit plan, such as the minimum periodic 
payment amount or seller's points in a plan secured by real estate.

    16(b) Advertisement of Terms That Require Additional Disclosures

                           Paragraph 16(b)(1)

    1. Triggering terms. Negative as well as affirmative references 
trigger the requirement for additional information. For example, if a 
creditor states no interest or no annual membership fee in an 
advertisement, additional information must be provided. Other examples 
of terms that trigger additional disclosures are:
    i. Small monthly service charge on the remaining balance, which 
describes how the amount of a finance charge will be determined.

[[Page 828]]

    ii. 12 percent Annual Percentage Rate or A $15 annual membership fee 
buys you $2,000 in credit, which describe required disclosures under 
Sec. 1026.6.
    2. Implicit terms. Section 1026.16(b) applies even if the triggering 
term is not stated explicitly, but may be readily determined from the 
advertisement.
    3. Membership fees. A membership fee is not a triggering term nor 
need it be disclosed under Sec. 1026.16(b)(1)(iii) if it is required 
for participation in the plan whether or not an open-end credit feature 
is attached. (See comment 6(a)(2)-1 and Sec. 1026.6(b)(3)(iii)(B).)
    4. Deferred billing and deferred payment programs. Statements such 
as ``Charge it--you won't be billed until May'' or ``You may skip your 
January payment'' are not in themselves triggering terms, since the 
timing for initial billing or for monthly payments are not terms 
required to be disclosed under Sec. 1026.6. However, a statement such 
as ``No interest charges until May'' or any other statement regarding 
when interest or finance charges begin to accrue is a triggering term, 
whether appearing alone or in conjunction with a description of a 
deferred billing or deferred payment program such as the examples above.
    5. Variable-rate plans. In disclosing the annual percentage rate in 
an advertisement for a variable-rate plan, as required by Sec. 
1026.16(b)(1)(ii), the creditor may use an insert showing the current 
rate; or may give the rate as of a specified recent date. The additional 
requirement in Sec. 1026.16(b)(1)(ii) to disclose the variable-rate 
feature may be satisfied by disclosing that the annual percentage rate 
may vary or a similar statement, but the advertisement need not include 
the information required by Sec. 1026.6(a)(1)(ii) or (b)(4)(ii).
    6. Membership fees for open-end (not home-secured) plans. For 
purposes of Sec. 1026.16(b)(1)(iii), membership fees that may be 
imposed on open-end (not home-secured) plans shall have the same meaning 
as in Sec. 1026.60(b)(2).

                           Paragraph 16(b)(2)

    1. Assumptions. In stating the total of payments and the time period 
to repay the obligation, assuming that the consumer pays only the 
periodic payment amounts advertised, as required under Sec. 
1026.16(b)(2), the following additional assumptions may be made:
    i. Payments are made timely so as not to be considered late by the 
creditor;
    ii. Payments are made each period, and no debt cancellation or 
suspension agreement, or skip payment feature applies to the account;
    iii. No interest rate changes will affect the account;
    iv. No other balances are currently carried or will be carried on 
the account;
    v. No taxes or ancillary charges are or will be added to the 
obligation;
    vi. Goods or services are delivered on a single date; and
    vii. The consumer is not currently and will not become delinquent on 
the account.
    2. Positive periodic payment amounts. Only positive periodic payment 
amounts trigger the additional disclosures under Sec. 1026.16(b)(2). 
Therefore, if the periodic payment amount advertised is not a positive 
amount (e.g., ``No payments''), the advertisement need not state the 
total of payments and the time period to repay the obligation.

    16(c) Catalogs or Other Multiple-Page Advertisements; Electronic 
                             Advertisements

    1. Definition. The multiple-page advertisements to which Sec. 
1026.16(c) refers are advertisements consisting of a series of 
sequentially numbered pages--for example, a supplement to a newspaper. A 
mailing consisting of several separate flyers or pieces of promotional 
material in a single envelope does not constitute a single multiple-page 
advertisement for purposes of Sec. 1026.16(c).

                           Paragraph 16(c)(1)

    1. General. Section 1026.16(c)(1) permits creditors to put credit 
information together in one place in a catalog or other multiple-page 
advertisement or an electronic advertisement (such as an advertisement 
appearing on an Internet Web site). The rule applies only if the 
advertisement contains one or more of the triggering terms from Sec. 
1026.16(b).
    2. Electronic advertisement. If an electronic advertisement (such as 
an advertisement appearing on an Internet Web site) contains the table 
or schedule permitted under Sec. 1026.16(c)(1), any statement of terms 
set forth in Sec. 1026.6 appearing anywhere else in the advertisement 
must clearly direct the consumer to the location where the table or 
schedule begins. For example, a term triggering additional disclosures 
may be accompanied by a link that directly takes the consumer to the 
additional information.

                           Paragraph 16(c)(2)

    1. Table or schedule if credit terms depend on outstanding balance. 
If the credit terms of a plan vary depending on the amount of the 
balance outstanding, rather than the amount of any property purchased, a 
table or schedule complies with Sec. 1026.16(c)(2) if it includes the 
required disclosures for representative balances. For example, a 
creditor would disclose that a periodic rate of 1.5% is applied to 
balances of $500 or less, and a 1% rate is applied to balances greater 
than $500.

[[Page 829]]

           16(d) Additional Requirements for Home-Equity Plans

    1. Trigger terms. Negative as well as affirmative references trigger 
the requirement for additional information. For example, if a creditor 
states no annual fee, no points, or we waive closing costs in an 
advertisement, additional information must be provided. (See comment 
16(d)-4 regarding the use of a phrase such as no closing costs.) 
Inclusion of a statement such as low fees, however, would not trigger 
the need to state additional information. References to payment terms 
include references to the draw period or any repayment period, to the 
length of the plan, to how the minimum payments are determined and to 
the timing of such payments.
    2. Fees to open the plan. Section 1026.16(d)(1)(i) requires a 
disclosure of any fees imposed by the creditor or a third party to open 
the plan. In providing the fee information required under this 
paragraph, the corresponding rules for disclosure of this information 
apply. For example, fees to open the plan may be stated as a range. 
Similarly, if property insurance is required to open the plan, a 
creditor either may estimate the cost of the insurance or provide a 
statement that such insurance is required. (See the commentary to Sec. 
1026.40(d)(7) and (d)(8).)
    3. Statements of tax deductibility. An advertisement that refers to 
deductibility for tax purposes is not misleading if it includes a 
statement such as ``consult a tax advisor regarding the deductibility of 
interest.'' An advertisement distributed in paper form or through the 
Internet (rather than by radio or television) that states that the 
advertised extension of credit may exceed the fair market value of the 
consumer's dwelling is not misleading if it clearly and conspicuously 
states the required information in Sec. Sec. 1026.16(d)(4)(i) and 
(d)(4)(ii).
    4. Misleading terms prohibited. Under Sec. 1026.16(d)(5), 
advertisements may not refer to home-equity plans as free money or use 
other misleading terms. For example, an advertisement could not state 
``no closing costs'' or ``we waive closing costs'' if consumers may be 
required to pay any closing costs, such as recordation fees. In the case 
of property insurance, however, a creditor may state, for example, ``no 
closing costs'' even if property insurance may be required, as long as 
the creditor also provides a statement that such insurance may be 
required. (See the commentary to this section regarding fees to open a 
plan.)
    5. Promotional rates and payments in advertisements for home-equity 
plans. Section 1026.16(d)(6) requires additional disclosures for 
promotional rates or payments.
    i. Variable-rate plans. In advertisements for variable-rate plans, 
if the advertised annual percentage rate is based on (or the advertised 
payment is derived from) the index and margin that will be used to make 
rate (or payment) adjustments over the term of the loan, then there is 
no promotional rate or promotional payment. If, however, the advertised 
annual percentage rate is not based on (or the advertised payment is not 
derived from) the index and margin that will be used to make rate (or 
payment) adjustments, and a reasonably current application of the index 
and margin would result in a higher annual percentage rate (or, given an 
assumed balance, a higher payment) then there is a promotional rate or 
promotional payment.
    ii. Equal prominence, close proximity. Information required to be 
disclosed in Sec. 1026.16(d)(6)(ii) that is immediately next to or 
directly above or below the promotional rate or payment (but not in a 
footnote) is deemed to be closely proximate to the listing. Information 
required to be disclosed in Sec. 1026.16(d)(6)(ii) that is in the same 
type size as the promotional rate or payment is deemed to be equally 
prominent.
    iii. Amounts and time periods of payments. Section 
1026.16(d)(6)(ii)(C) requires disclosure of the amount and time periods 
of any payments that will apply under the plan. This section may require 
disclosure of several payment amounts, including any balloon payment. 
For example, if an advertisement for a home-equity plan offers a 
$100,000 five-year line of credit and assumes that the entire line is 
drawn resulting in a minimum payment of $800 per month for the first six 
months, increasing to $1,000 per month after month six, followed by a 
$50,000 balloon payment after five years, the advertisement must 
disclose the amount and time period of each of the two monthly payment 
streams, as well as the amount and timing of the balloon payment, with 
equal prominence and in close proximity to the promotional payment. 
However, if the final payment could not be more than twice the amount of 
other minimum payments, the final payment need not be disclosed.
    iv. Plans other than variable-rate plans. For a plan other than a 
variable-rate plan, if an advertised payment is calculated in the same 
way as other payments based on an assumed balance, the fact that the 
minimum payment could increase solely if the consumer made an additional 
draw does not make the payment a promotional payment. For example, if a 
payment of $500 results from an assumed $10,000 draw, and the payment 
would increase to $1,000 if the consumer made an additional $10,000 
draw, the payment is not a promotional payment.
    v. Conversion option. Some home-equity plans permit the consumer to 
repay all or part of the balance during the draw period at a fixed rate 
(rather than a variable rate) and over a specified time period. The 
fixed-rate conversion option does not, by itself, make the rate or 
payment that would apply if the

[[Page 830]]

consumer exercised the fixed-rate conversion option a promotional rate 
or payment.
    vi. Preferred-rate provisions. Some home-equity plans contain a 
preferred-rate provision, where the rate will increase upon the 
occurrence of some event, such as the consumer-employee leaving the 
creditor's employ, the consumer closing an existing deposit account with 
the creditor, or the consumer revoking an election to make automated 
payments. A preferred-rate provision does not, by itself, make the rate 
or payment under the preferred-rate provision a promotional rate or 
payment.
    6. Reasonably current index and margin. For the purposes of this 
section, an index and margin is considered reasonably current if:
    i. For direct mail advertisements, it was in effect within 60 days 
before mailing;
    ii. For advertisements in electronic form it was in effect within 30 
days before the advertisement is sent to a consumer's email address, or 
in the case of an advertisement made on an Internet Web site, when 
viewed by the public; or
    iii. For printed advertisements made available to the general 
public, including ones contained in a catalog, magazine, or other 
generally available publication, it was in effect within 30 days before 
printing.
    7. Relation to other sections. Advertisements for home-equity plans 
must comply with all provisions in Sec. 1026.16, not solely the rules 
in Sec. 1026.16(d). If an advertisement contains information (such as 
the payment terms) that triggers the duty under Sec. 1026.16(d) to 
state the annual percentage rate, the additional disclosures in Sec. 
1026.16(b) must be provided in the advertisement. While Sec. 1026.16(d) 
does not require a statement of fees to use or maintain the plan (such 
as membership fees and transaction charges), such fees must be disclosed 
under Sec. 1026.16(b)(1)(i) and (b)(1)(iii).
    8. Inapplicability of closed-end rules. Advertisements for home-
equity plans are governed solely by the requirements in Sec. 1026.16, 
except Sec. 1026.16(g), and not by the closed-end advertising rules in 
Sec. 1026.24. Thus, if a creditor states payment information about the 
repayment phase, this will trigger the duty to provide additional 
information under Sec. 1026.16, but not under Sec. 1026.24.
    9. Balloon payment. See comment 40(d)(5)(ii)-3 for information not 
required to be stated in advertisements, and on situations in which the 
balloon payment requirement does not apply.

    16(e) Alternative Disclosures--Television or Radio Advertisements

    1. Multi-purpose telephone number. When an advertised telephone 
number provides a recording, disclosures must be provided early in the 
sequence to ensure that the consumer receives the required disclosures. 
For example, in providing several options--such as providing directions 
to the advertiser's place of business--the option allowing the consumer 
to request disclosures should be provided early in the telephone message 
to ensure that the option to request disclosures is not obscured by 
other information.
    2. Statement accompanying toll free number. Language must accompany 
a telephone number indicating that disclosures are available by calling 
the telephone number, such as ``call 1-(800) 000-0000 for details about 
credit costs and terms.''

                    16(g) Promotional Rates and Fees

    1. Rate in effect at the end of the promotional period. If the 
annual percentage rate that will be in effect at the end of the 
promotional period (i.e., the post-promotional rate) is a variable rate, 
the post-promotional rate for purposes of Sec. 1026.16(g)(2)(i) is the 
rate that would have applied at the time the promotional rate was 
advertised if the promotional rate was not offered, consistent with the 
accuracy requirements in Sec. 1026.60(c)(2) and (e)(4), as applicable.
    2. Immediate proximity. For written or electronic advertisements, 
including the term ``introductory'' or ``intro'' in the same phrase as 
the listing of the introductory rate or introductory fee is deemed to be 
in immediate proximity of the listing.
    3. Prominent location closely proximate. For written or electronic 
advertisements, information required to be disclosed in Sec. 
1026.16(g)(4)(i) and, as applicable, (g)(4)(ii) and (g)(4)(iii) that is 
in the same paragraph as the first listing of the promotional rate or 
promotional fee is deemed to be in a prominent location closely 
proximate to the listing. Information disclosed in a footnote will not 
be considered in a prominent location closely proximate to the listing.
    4. First listing. For purposes of Sec. 1026.16(g)(4) as it applies 
to written or electronic advertisements, the first listing of the 
promotional rate or promotional fee is the most prominent listing of the 
rate or fee on the front side of the first page of the principal 
promotional document. The principal promotional document is the document 
designed to be seen first by the consumer in a mailing, such as a cover 
letter or solicitation letter. If the promotional rate or promotional 
fee does not appear on the front side of the first page of the principal 
promotional document, then the first listing of the promotional rate or 
promotional fee is the most prominent listing of the rate or fee on the 
subsequent pages of the principal promotional document. If the 
promotional rate or promotional fee is not listed on the principal 
promotional document or there is no principal promotional document, the 
first listing is the most prominent listing of the rate or fee on the 
front side of the first page of each document listing the promotional 
rate or promotional fee. If the promotional rate or promotional fee does 
not appear on

[[Page 831]]

the front side of the first page of a document, then the first listing 
of the promotional rate or promotional fee is the most prominent listing 
of the rate or fee on the subsequent pages of the document. If the 
listing of the promotional rate or promotional fee with the largest type 
size on the front side of the first page (or subsequent pages if the 
promotional rate or promotional fee is not listed on the front side of 
the first page) of the principal promotional document (or each document 
listing the promotional rate or promotional fee if the promotional rate 
or promotional fee is not listed on the principal promotional document 
or there is no principal promotional document) is used as the most 
prominent listing, it will be deemed to be the first listing. Consistent 
with comment 16(c)-1, a catalog or multiple-page advertisement is 
considered one document for purposes of Sec. 1026.16(g)(4).
    5. Post-promotional rate depends on consumer's creditworthiness. For 
purposes of disclosing the rate that may apply after the end of the 
promotional rate period, at the advertiser's option, the advertisement 
may disclose the rates that may apply as either specific rates, or a 
range of rates. For example, if there are three rates that may apply 
(9.99%, 12.99% or 17.99%), an issuer may disclose these three rates as 
specific rates (9.99%, 12.99% or 17.99%) or as a range of rates (9.99%-
17.99%).

                16(h) Deferred Interest or Similar Offers

    1. Deferred interest or similar offers clarified. Deferred interest 
or similar offers do not include offers that allow a consumer to skip 
payments during a specified period of time, and under which the consumer 
is not obligated under any circumstances for any interest or other 
finance charges that could be attributable to that period. Deferred 
interest or similar offers also do not include 0% annual percentage rate 
offers where a consumer is not obligated under any circumstances for 
interest attributable to the time period the 0% annual percentage rate 
was in effect, though such offers may be considered promotional rates 
under Sec. 1026.16(g)(2)(i). Deferred interest or similar offers also 
do not include skip payment programs that have no required minimum 
payment for one or more billing cycles but where interest continues to 
accrue and is imposed during that period.
    2. Deferred interest period clarified. Although the terms of an 
advertised deferred interest or similar offer may provide that a 
creditor may charge the accrued interest if the balance is not paid in 
full by a certain date, creditors sometimes have an informal policy or 
practice that delays charging the accrued interest for payment received 
a brief period of time after the date upon which a creditor has the 
contractual right to charge the accrued interest. The advertisement need 
not include the end of an informal ``courtesy period'' in disclosing the 
deferred interest period under Sec. 1026.16(h)(3).
    3. Immediate proximity. For written or electronic advertisements, 
including the deferred interest period in the same phrase as the 
statement of ``no interest,'' ``no payments,'' ``deferred interest,'' or 
``same as cash'' or similar term regarding interest or payments during 
the deferred interest period is deemed to be in immediate proximity of 
the statement.
    4. Prominent location closely proximate. For written or electronic 
advertisements, information required to be disclosed in Sec. 
1026.16(h)(4)(i) and (ii) that is in the same paragraph as the first 
statement of ``no interest,'' ``no payments,'' ``deferred interest,'' or 
``same as cash'' or similar term regarding interest or payments during 
the deferred interest period is deemed to be in a prominent location 
closely proximate to the statement. Information disclosed in a footnote 
is not considered in a prominent location closely proximate to the 
statement.
    5. First listing. For purposes of Sec. 1026.16(h)(4) as it applies 
to written or electronic advertisements, the first statement of ``no 
interest,'' ``no payments,'' ``deferred interest,'' ``same as cash,'' or 
similar term regarding interest or payments during the deferred interest 
period is the most prominent listing of one of these statements on the 
front side of the first page of the principal promotional document. The 
principal promotional document is the document designed to be seen first 
by the consumer in a mailing, such as a cover letter or solicitation 
letter. If one of the statements does not appear on the front side of 
the first page of the principal promotional document, then the first 
listing of one of these statements is the most prominent listing of a 
statement on the subsequent pages of the principal promotional document. 
If one of the statements is not listed on the principal promotional 
document or there is no principal promotional document, the first 
listing of one of these statements is the most prominent listing of the 
statement on the front side of the first page of each document 
containing one of these statements. If one of the statements does not 
appear on the front side of the first page of a document, then the first 
listing of one of these statements is the most prominent listing of a 
statement on the subsequent pages of the document. If the listing of one 
of these statements with the largest type size on the front side of the 
first page (or subsequent pages if one of these statements is not listed 
on the front side of the first page) of the principal promotional 
document (or each document listing one of these statements if a 
statement is not listed on the principal promotional document or there 
is no principal promotional document) is

[[Page 832]]

used as the most prominent listing, it will be deemed to be the first 
listing. Consistent with comment 16(c)-1, a catalog or multiple-page 
advertisement is considered one document for purposes of Sec. 
1026.16(h)(4).
    6. Additional information. Consistent with comment 5(a)-2, the 
information required under Sec. 1026.16(h)(4) need not be segregated 
from other information regarding the deferred interest or similar offer. 
Advertisements may also be required to provide additional information 
pursuant to Sec. 1026.16(b) though such information need not be 
integrated with the information required under Sec. 1026.16(h)(4).
    7. Examples. Examples of disclosures that could be used to comply 
with the requirements of Sec. 1026.16(h)(3) include: ``no interest if 
paid in full within 6 months'' and ``no interest if paid in full by 
December 31, 2010.''

                      Subpart C--Closed-End Credit

            Section 1026.17--General Disclosure Requirements

                        17(a) Form of Disclosures

                           Paragraph 17(a)(1)

    1. Clear and conspicuous. This standard requires that disclosures be 
in a reasonably understandable form. For example, while the regulation 
requires no mathematical progression or format, the disclosures must be 
presented in a way that does not obscure the relationship of the terms 
to each other. In addition, although no minimum type size is mandated 
(except for the interest rate and payment summary for mortgage 
transactions required by Sec. 1026.18(s)), the disclosures must be 
legible, whether typewritten, handwritten, or printed by computer.
    2. Segregation of disclosures. i. The disclosures may be grouped 
together and segregated from other information in a variety of ways. For 
example, the disclosures may appear on a separate sheet of paper or may 
be set off from other information on the contract or other documents:
    A. By outlining them in a box.
    B. By bold print dividing lines.
    C. By a different color background.
    D. By a different type style.
    ii. The general segregation requirement described in this 
subparagraph does not apply to the disclosures required under Sec. Sec. 
1026.19(b) and 1026.20(c) although the disclosures must be clear and 
conspicuous.
    3. Location. The regulation imposes no specific location 
requirements on the segregated disclosures. For example:
    i. They may appear on a disclosure statement separate from all other 
material.
    ii. They may be placed on the same document with the credit contract 
or other information, so long as they are segregated from that 
information.
    iii. They may be shown on the front or back of a document.
    iv. They need not begin at the top of a page.
    v. They may be continued from one page to another.
    4. Content of segregated disclosures. Section 1026.17(a)(1) contains 
exceptions to the requirement that the disclosures under Sec. 1026.18 
be segregated from material that is not directly related to those 
disclosures. Section 1026.17(a)(1) lists the items that may be added to 
the segregated disclosures, even though not directly related to those 
disclosures. The section also lists the items required under Sec. 
1026.18 that may be deleted from the segregated disclosures and appear 
elsewhere. Any one or more of these additions or deletions may be 
combined and appear either together with or separate from the segregated 
disclosures. The itemization of the amount financed under Sec. 
1026.18(c), however, must be separate from the other segregated 
disclosures under Sec. 1026.18, except for private education loan 
disclosures made in compliance with Sec. 1026.47. If a creditor chooses 
to include the security interest charges required to be itemized under 
Sec. 1026.4(e) and Sec. 1026.18(o) in the amount financed itemization, 
it need not list these charges elsewhere.
    5. Directly related. The segregated disclosures may, at the 
creditor's option, include any information that is directly related to 
those disclosures. The following is directly related information:
    i. A description of a grace period after which a late payment charge 
will be imposed. For example, the disclosure given under Sec. 
1026.18(l) may state that a late charge will apply to ``any payment 
received more than 15 days after the due date.''
    ii. A statement that the transaction is not secured. For example, 
the creditor may add a category labeled ``unsecured'' or ``not secured'' 
to the security interest disclosures given under Sec. 1026.18(m).
    iii. The basis for any estimates used in making disclosures. For 
example, if the maturity date of a loan depends solely on the occurrence 
of a future event, the creditor may indicate that the disclosures assume 
that event will occur at a certain time.
    iv. The conditions under which a demand feature may be exercised. 
For example, in a loan subject to demand after five years, the 
disclosures may state that the loan will become payable on demand in 
five years.
    v. An explanation of the use of pronouns or other references to the 
parties to the transaction. For example, the disclosures may state, `` 
`You' refers to the customer and `we' refers to the creditor.''
    vi. Instructions to the creditor or its employees on the use of a 
multiple-purpose form. For example, the disclosures may state, ``Check 
box if applicable.''

[[Page 833]]

    vii. A statement that the borrower may pay a minimum finance charge 
upon prepayment in a simple-interest transaction. For example, when 
state law prohibits penalties, but would allow a minimum finance charge 
in the event of prepayment, the creditor may make the Sec. 
1026.18(k)(1) disclosure by stating, ``You may be charged a minimum 
finance charge.''
    viii. A brief reference to negative amortization in variable-rate 
transactions. For example, in the variable-rate disclosure, the creditor 
may include a short statement such as ``Unpaid interest will be added to 
principal.'' (See the commentary to Sec. 1026.18(f)(1)(iii).)
    ix. A brief caption identifying the disclosures. For example, the 
disclosures may bear a general title such as ``Federal Truth in Lending 
Disclosures'' or a descriptive title such as ``Real Estate Loan 
Disclosures.''
    x. A statement that a due-on-sale clause or other conditions on 
assumption are contained in the loan document. For example, the 
disclosure given under Sec. 1026.18(q) may state, ``Someone buying your 
home may, subject to conditions in the due-on-sale clause contained in 
the loan document, assume the remainder of the mortgage on the original 
terms.''
    xi. If a state or Federal law prohibits prepayment penalties and 
excludes the charging of interest after prepayment from coverage as a 
penalty, a statement that the borrower may have to pay interest for some 
period after prepayment in full. The disclosure given under Sec. 
1026.18(k) may state, for example, ``If you prepay your loan on other 
than the regular installment date, you may be assessed interest charges 
until the end of the month.''
    xii. More than one hypothetical example under Sec. 
1026.18(f)(1)(iv) in transactions with more than one variable-rate 
feature. For example, in a variable-rate transaction with an option 
permitting consumers to convert to a fixed-rate transaction, the 
disclosures may include an example illustrating the effects on the 
payment terms of an increase resulting from conversion in addition to 
the example illustrating an increase resulting from changes in the 
index.
    xiii. The disclosures set forth under Sec. 1026.18(f)(1) for 
variable-rate transactions subject to Sec. 1026.18(f)(2).
    xiv. A statement whether or not a subsequent purchaser of the 
property securing an obligation may be permitted to assume the remaining 
obligation on its original terms.
    xv. A late-payment fee disclosure under Sec. 1026.18(l) on a single 
payment loan.
    xvi. The notice set forth in Sec. 1026.19(a)(4), in a closed-end 
transaction not subject to Sec. 1026.19(a)(1)(i). In a mortgage 
transaction subject to Sec. 1026.19(a)(1)(i), the creditor must 
disclose the notice contained in Sec. 1026.19(a)(4) grouped together 
with the disclosures made under Sec. 1026.18. See comment 19(a)(4)-1.
    6. Multiple-purpose forms. The creditor may design a disclosure 
statement that can be used for more than one type of transaction, so 
long as the required disclosures for individual transactions are clear 
and conspicuous. (See the commentary to Appendices G and H for a 
discussion of the treatment of disclosures that do not apply to specific 
transactions.) Any disclosure listed in Sec. 1026.18 (except the 
itemization of the amount financed under Sec. 1026.18(c) for 
transactions other than private education loans) may be included on a 
standard disclosure statement even though not all of the creditor's 
transactions include those features. For example, the statement may 
include:
    i. The variable rate disclosure under Sec. 1026.18(f).
    ii. The demand feature disclosure under Sec. 1026.18(i).
    iii. A reference to the possibility of a security interest arising 
from a spreader clause, under Sec. 1026.18(m).
    iv. The assumption policy disclosure under Sec. 1026.18(q).
    v. The required deposit disclosure under Sec. 1026.18(r).
    7. Balloon payment financing with leasing characteristics. In 
certain credit sale or loan transactions, a consumer may reduce the 
dollar amount of the payments to be made during the course of the 
transaction by agreeing to make, at the end of the loan term, a large 
final payment based on the expected residual value of the property. The 
consumer may have a number of options with respect to the final payment, 
including, among other things, retaining the property and making the 
final payment, refinancing the final payment, or transferring the 
property to the creditor in lieu of the final payment. Such transactions 
may have some of the characteristics of lease transactions subject to 
Regulation M (12 CFR Part 1013), but are considered credit transactions 
where the consumer assumes the indicia of ownership, including the 
risks, burdens and benefits of ownership upon consummation. These 
transactions are governed by the disclosure requirements of this part 
instead of Regulation M. Creditors should not include in the segregated 
Truth in Lending disclosures additional information. Thus, disclosures 
should show the large final payment in the payment schedule and should 
not, for example, reflect the other options available to the consumer at 
maturity.

                           Paragraph 17(a)(2)

    1. When disclosures must be more conspicuous. The following rules 
apply to the requirement that the terms ``annual percentage rate'' 
(except for private education loan disclosures made in compliance with 
Sec. 1026.47) and ``finance charge'' be shown more conspicuously:

[[Page 834]]

    i. The terms must be more conspicuous only in relation to the other 
required disclosures under Sec. 1026.18. For example, when the 
disclosures are included on the contract document, those two terms need 
not be more conspicuous as compared to the heading on the contract 
document or information required by state law.
    ii. The terms need not be more conspicuous except as part of the 
finance charge and annual percentage rate disclosures under Sec. 
1026.18(d) and (e), although they may, at the creditor's option, be 
highlighted wherever used in the required disclosures. For example, the 
terms may, but need not, be highlighted when used in disclosing a 
prepayment penalty under Sec. 1026.18(k) or a required deposit under 
Sec. 1026.18(r).
    iii. The creditor's identity under Sec. 1026.18(a) may, but need 
not, be more prominently displayed than the finance charge and annual 
percentage rate.
    iv. The terms need not be more conspicuous than figures (including, 
for example, numbers, percentages, and dollar signs).
    2. Making disclosures more conspicuous. The terms ``finance charge'' 
and (except for private education loan disclosures made in compliance 
with Sec. 1026.47) ``annual percentage rate'' may be made more 
conspicuous in any way that highlights them in relation to the other 
required disclosures. For example, they may be:
    i. Capitalized when other disclosures are printed in capital and 
lower case.
    ii. Printed in larger type, bold print or different type face.
    iii. Printed in a contrasting color.
    iv. Underlined.
    v. Set off with asterisks.

                        17(b) Time of Disclosures

    1. Consummation. As a general rule, disclosures must be made before 
``consummation'' of the transaction. The disclosures need not be given 
by any particular time before consummation, except in certain mortgage 
transactions and variable-rate transactions secured by the consumer's 
principal dwelling with a term greater than one year under Sec. 
1026.19, and in private education loan transactions disclosed in 
compliance with Sec. Sec. 1026.46 and 1026.47. (See the commentary to 
Sec. 1026.2(a)(13) regarding the definition of consummation.)
    2. Converting open-end to closed-end credit. Except for home equity 
plans subject to Sec. 1026.40 in which the agreement provides for a 
repayment phase, if an open-end credit account is converted to a closed-
end transaction under a written agreement with the consumer, the 
creditor must provide a set of closed-end credit disclosures before 
consummation of the closed-end transaction. (See the commentary to Sec. 
1026.19(b) for the timing rules for additional disclosures required upon 
the conversion to a variable-rate transaction secured by a consumer's 
principal dwelling with a term greater than one year.) If consummation 
of the closed-end transaction occurs at the same time as the consumer 
enters into the open-end agreement, the closed-end credit disclosures 
may be given at the time of conversion. If disclosures are delayed until 
conversion and the closed-end transaction has a variable-rate feature, 
disclosures should be based on the rate in effect at the time of 
conversion. (See the commentary to Sec. 1026.5 regarding conversion of 
closed-end to open-end credit.)
    3. Disclosures provided on credit contracts. Creditors must give the 
required disclosures to the consumer in writing, in a form that the 
consumer may keep, before consummation of the transaction. See Sec. 
1026.17(a)(1) and (b). Sometimes the disclosures are placed on the same 
document with the credit contract. Creditors are not required to give 
the consumer two separate copies of the document before consummation, 
one for the consumer to keep and a second copy for the consumer to 
execute. The disclosure requirement is satisfied if the creditor gives a 
copy of the document containing the unexecuted credit contract and 
disclosures to the consumer to read and sign; and the consumer receives 
a copy to keep at the time the consumer becomes obligated. It is not 
sufficient for the creditor merely to show the consumer the document 
containing the disclosures before the consumer signs and becomes 
obligated. The consumer must be free to take possession of and review 
the document in its entirety before signing.
    i. Example. To illustrate, a creditor gives a consumer a multiple-
copy form containing a credit agreement and TILA disclosures. The 
consumer reviews and signs the form and returns it to the creditor, who 
separates the copies and gives one copy to the consumer to keep. The 
creditor has satisfied the disclosure requirement.

             17(c) Basis of Disclosures and Use of Estimates

                           Paragraph 17(c)(1)

    1. Legal obligation. The disclosures shall reflect the credit terms 
to which the parties are legally bound as of the outset of the 
transaction. In the case of disclosures required under Sec. 1026.20(c), 
the disclosures shall reflect the credit terms to which the parties are 
legally bound when the disclosures are provided. The legal obligation is 
determined by applicable state law or other law. (Certain transactions 
are specifically addressed in this commentary. See, for example, the 
discussion of buydown transactions elsewhere in the commentary to Sec. 
1026.17(c).) The fact that a term or contract may later be deemed 
unenforceable by a court on the basis of equity or other grounds does 
not, by itself,

[[Page 835]]

mean that disclosures based on that term or contract did not reflect the 
legal obligation.
    2. Modification of obligation. The legal obligation normally is 
presumed to be contained in the note or contract that evidences the 
agreement. But this presumption is rebutted if another agreement between 
the parties legally modifies that note or contract. If the parties 
informally agree to a modification of the legal obligation, the 
modification should not be reflected in the disclosures unless it rises 
to the level of a change in the terms of the legal obligation. For 
example:
    i. If the creditor offers a preferential rate, such as an employee 
preferred rate, the disclosures should reflect the terms of the legal 
obligation. (See the commentary to Sec. 1026.19(b) for an example of a 
preferred-rate transaction that is a variable-rate transaction.)
    ii. If the contract provides for a certain monthly payment schedule 
but payments are made on a voluntary payroll deduction plan or an 
informal principal-reduction agreement, the disclosures should reflect 
the schedule in the contract.
    iii. If the contract provides for regular monthly payments but the 
creditor informally permits the consumer to defer payments from time to 
time, for instance, to take account of holiday seasons or seasonal 
employment, the disclosures should reflect the regular monthly payments.
    3. Third-party buydowns. In certain transactions, a seller or other 
third party may pay an amount, either to the creditor or to the 
consumer, in order to reduce the consumer's payments or buy down the 
interest rate for all or a portion of the credit term. For example, a 
consumer and a bank agree to a mortgage with an interest rate of 15% and 
level payments over 25 years. By a separate agreement, the seller of the 
property agrees to subsidize the consumer's payments for the first 2 
years of the mortgage, giving the consumer an effective rate of 12% for 
that period.
    i. If the lower rate is reflected in the credit contract between the 
consumer and the bank, the disclosures must take the buydown into 
account. For example, the annual percentage rate must be a composite 
rate that takes account of both the lower initial rate and the higher 
subsequent rate, and the payment schedule disclosures must reflect the 2 
payment levels. However, the amount paid by the seller would not be 
specifically reflected in the disclosures given by the bank, since that 
amount constitutes seller's points and thus is not part of the finance 
charge.
    ii. If the lower rate is not reflected in the credit contract 
between the consumer and the bank and the consumer is legally bound to 
the 15% rate from the outset, the disclosures given by the bank must not 
reflect the seller buydown in any way. For example, the annual 
percentage rate and payment schedule would not take into account the 
reduction in the interest rate and payment level for the first 2 years 
resulting from the buydown.
    4. Consumer buydowns. In certain transactions, the consumer may pay 
an amount to the creditor to reduce the payments or obtain a lower 
interest rate on the transaction. Consumer buydowns must be reflected in 
the disclosures given for that transaction. To illustrate, in a mortgage 
transaction, the creditor and consumer agree to a note specifying a 14 
percent interest rate. However, in a separate document, the consumer 
agrees to pay an amount to the creditor at consummation in return for a 
reduction in the interest rate to 12 percent for a portion of the 
mortgage term. The amount paid by the consumer may be deposited in an 
escrow account or may be retained by the creditor. Depending upon the 
buydown plan, the consumer's prepayment of the obligation may or may not 
result in a portion of the amount being credited or refunded to the 
consumer. In the disclosures given for the mortgage, the creditor must 
reflect the terms of the buydown agreement.
    i. For example:
    A. The amount paid by the consumer is a prepaid finance charge (even 
if deposited in an escrow account).
    B. A composite annual percentage rate must be calculated, taking 
into account both interest rates, as well as the effect of the prepaid 
finance charge.
    C. The payment schedule must reflect the multiple payment levels 
resulting from the buydown.
    ii. The rules regarding consumer buydowns do not apply to 
transactions known as ``lender buydowns.'' In lender buydowns, a 
creditor pays an amount (either into an account or to the party to whom 
the obligation is sold) to reduce the consumer's payments or interest 
rate for all or a portion of the credit term. Typically, these 
transactions are structured as a buydown of the interest rate during an 
initial period of the transaction with a higher than usual rate for the 
remainder of the term. The disclosures for lender buydowns should be 
based on the terms of the legal obligation between the consumer and the 
creditor. (See comment 17(c)(1)-3 for the analogous rules concerning 
third-party buydowns.)
    5. Split buydowns. In certain transactions, a third party (such as a 
seller) and a consumer both pay an amount to the creditor to reduce the 
interest rate. The creditor must include the portion paid by the 
consumer in the finance charge and disclose the corresponding multiple 
payment levels and composite annual percentage rate. The portion paid by 
the third party and the corresponding reduction in interest rate, 
however, should not be reflected in the disclosures unless the lower 
rate is reflected in the credit contract. (See

[[Page 836]]

the discussion on third-party and consumer buydown transactions 
elsewhere in the commentary to Sec. 1026.17(c).)
    6. Wrap-around financing. Wrap-around transactions, usually loans, 
involve the creditor's wrapping the outstanding balance on an existing 
loan and advancing additional funds to the consumer. The pre-existing 
loan, which is wrapped, may be to the same consumer or to a different 
consumer. In either case, the consumer makes a single payment to the new 
creditor, who makes the payments on the pre-existing loan to the 
original creditor. Wrap-around loans or sales are considered new single-
advance transactions, with an amount financed equaling the sum of the 
new funds advanced by the wrap creditor and the remaining principal owed 
to the original creditor on the pre-existing loan. In disclosing the 
itemization of the amount financed, the creditor may use a label such as 
``the amount that will be paid to creditor X'' to describe the remaining 
principal balance on the pre-existing loan. This approach to Truth in 
Lending calculations has no effect on calculations required by other 
statutes, such as state usury laws.
    7. Wrap-around financing with balloon payments. For wrap-around 
transactions involving a large final payment of the new funds before the 
maturity of the pre-existing loan, the amount financed is the sum of the 
new funds and the remaining principal on the pre-existing loan. The 
disclosures should be based on the shorter term of the wrap loan, with a 
large final payment of both the new funds and the total remaining 
principal on the pre-existing loan (although only the wrap loan will 
actually be paid off at that time).
    8. Basis of disclosures in variable-rate transactions. The 
disclosures for a variable-rate transaction must be given for the full 
term of the transaction and must be based on the terms in effect at the 
time of consummation. Creditors should base the disclosures only on the 
initial rate and should not assume that this rate will increase. For 
example, in a loan with an initial rate of 10 percent and a 5 percentage 
points rate cap, creditors should base the disclosures on the initial 
rate and should not assume that this rate will increase 5 percentage 
points. However, in a variable-rate transaction with a seller buydown 
that is reflected in the credit contract, a consumer buydown, or a 
discounted or premium rate, disclosures should not be based solely on 
the initial terms. In those transactions, the disclosed annual 
percentage rate should be a composite rate based on the rate in effect 
during the initial period and the rate that is the basis of the 
variable-rate feature for the remainder of the term. (See the commentary 
to Sec. 1026.17(c) for a discussion of buydown, discounted, and premium 
transactions and the commentary to Sec. 1026.19(a)(2) for a discussion 
of the redisclosure in certain mortgage transactions with a variable-
rate feature.)
    9. Use of estimates in variable-rate transactions. The variable-rate 
feature does not, by itself, make the disclosures estimates.
    10. Discounted and premium variable-rate transactions. In some 
variable-rate transactions, creditors may set an initial interest rate 
that is not determined by the index or formula used to make later 
interest rate adjustments. Typically, this initial rate charged to 
consumers is lower than the rate would be if it were calculated using 
the index or formula. However, in some cases the initial rate may be 
higher. In a discounted transaction, for example, a creditor may 
calculate interest rates according to a formula using the six-month 
Treasury bill rate plus a 2 percent margin. If the Treasury bill rate at 
consummation is 10 percent, the creditor may forgo the 2 percent spread 
and charge only 10 percent for a limited time, instead of setting an 
initial rate of 12 percent.
    i. When creditors use an initial interest rate that is not 
calculated using the index or formula for later rate adjustments, the 
disclosures should reflect a composite annual percentage rate based on 
the initial rate for as long as it is charged and, for the remainder of 
the term, the rate that would have been applied using the index or 
formula at the time of consummation. The rate at consummation need not 
be used if a contract provides for a delay in the implementation of 
changes in an index value. For example, if the contract specifies that 
rate changes are based on the index value in effect 45 days before the 
change date, creditors may use any index value in effect during the 45 
day period before consummation in calculating a composite annual 
percentage rate.
    ii. The effect of the multiple rates must also be reflected in the 
calculation and disclosure of the finance charge, total of payments, and 
payment schedule.
    iii. If a loan contains a rate or payment cap that would prevent the 
initial rate or payment, at the time of the first adjustment, from 
changing to the rate determined by the index or formula at consummation, 
the effect of that rate or payment cap should be reflected in the 
disclosures.
    iv. Because these transactions involve irregular payment amounts, an 
annual percentage rate tolerance of [frac14] of 1 percent applies, in 
accordance with Sec. 1026.22(a)(3).
    v. Examples of discounted variable-rate transactions include:
    A. A 30-year loan for $100,000 with no prepaid finance charges and 
rates determined by the Treasury bill rate plus 2 percent. Rate and 
payment adjustments are made annually. Although the Treasury bill rate 
at the time of consummation is 10 percent, the creditor sets the 
interest rate for one year at 9 percent, instead of 12 percent according 
to the formula. The disclosures should reflect a

[[Page 837]]

composite annual percentage rate of 11.63 percent based on 9 percent for 
one year and 12 percent for 29 years. Reflecting those two rate levels, 
the payment schedule should show 12 payments of $804.62 and 348 payments 
of $1,025.31. The finance charge should be $266,463.32 and the total of 
payments $366,463.32.
    B. Same loan as above, except with a 2 percent rate cap on periodic 
adjustments. The disclosures should reflect a composite annual 
percentage rate of 11.53 percent based on 9 percent for the first year, 
11 percent for the second year, and 12 percent for the remaining 28 
years. Reflecting those three rate levels, the payment schedule should 
show 12 payments of $804.62, 12 payments of $950.09, and 336 payments of 
$1,024.34. The finance charge should be $265,234.76 and the total of 
payments $365,234.76.
    C. Same loan as above, except with a 7 \1/2\ percent cap on payment 
adjustments. The disclosures should reflect a composite annual 
percentage rate of 11.64 percent, based on 9 percent for one year and 12 
percent for 29 years. Because of the payment cap, five levels of 
payments should be reflected. The payment schedule should show 12 
payments of $804.62, 12 payments of $864.97, 12 payments of $929.84, 12 
payments of $999.58, and 312 payments of $1,070.04. The finance charge 
should be $277,040.60, and the total of payments $377,040.60.
    vi. A loan in which the initial interest rate is set according to 
the index or formula used for later adjustments but is not set at the 
value of the index or formula at consummation is not a discounted 
variable-rate loan. For example, if a creditor commits to an initial 
rate based on the formula on a date prior to consummation, but the index 
has moved during the period between that time and consummation, a 
creditor should base its disclosures on the initial rate.
    11. Examples of variable-rate transactions. Variable-rate 
transactions include:
    i. Renewable balloon-payment instruments where the creditor is both 
unconditionally obligated to renew the balloon-payment loan at the 
consumer's option (or is obligated to renew subject to conditions within 
the consumer's control) and has the option of increasing the interest 
rate at the time of renewal. Disclosures must be based on the payment 
amortization (unless the specified term of the obligation with renewals 
is shorter) and on the rate in effect at the time of consummation of the 
transaction. (Examples of conditions within a consumer's control include 
requirements that a consumer be current in payments or continue to 
reside in the mortgaged property. In contrast, setting a limit on the 
rate at which the creditor would be obligated to renew or reserving the 
right to change the credit standards at the time of renewal are examples 
of conditions outside a consumer's control.) If, however, a creditor is 
not obligated to renew as described above, disclosures must be based on 
the term of the balloon-payment loan. Disclosures also must be based on 
the term of the balloon-payment loan in balloon-payment instruments in 
which the legal obligation provides that the loan will be renewed by a 
``refinancing'' of the obligation, as that term is defined by Sec. 
1026.20(a). If it cannot be determined from the legal obligation that 
the loan will be renewed by a ``refinancing,'' disclosures must be based 
either on the term of the balloon-payment loan or on the payment 
amortization, depending on whether the creditor is unconditionally 
obligated to renew the loan as described above. (This discussion does 
not apply to construction loans subject to Sec. 1026.17(c)(6).)
    ii. ``Shared-equity'' or ``shared-appreciation'' mortgages that have 
a fixed rate of interest and an appreciation share based on the 
consumer's equity in the mortgaged property. The appreciation share is 
payable in a lump sum at a specified time. Disclosures must be based on 
the fixed interest rate. (As discussed in the commentary to Sec. 
1026.2, other types of shared-equity arrangements are not considered 
``credit'' and are not subject to Regulation Z.)
    iii. Preferred-rate loans where the terms of the legal obligation 
provide that the initial underlying rate is fixed but will increase upon 
the occurrence of some event, such as an employee leaving the employ of 
the creditor, and the note reflects the preferred rate. The disclosures 
are to be based on the preferred rate.
    iv. Graduated-payment mortgages and step-rate transactions without a 
variable-rate feature are not considered variable-rate transactions.
    v. ``Price level adjusted mortgages'' or other indexed mortgages 
that have a fixed rate of interest but provide for periodic adjustments 
to payments and the loan balance to reflect changes in an index 
measuring prices or inflation. Disclosures are to be based on the fixed 
interest rate.
    12. Graduated payment adjustable rate mortgages. These mortgages 
involve both a variable interest rate and scheduled variations in 
payment amounts during the loan term. For example, under these plans, a 
series of graduated payments may be scheduled before rate adjustments 
affect payment amounts, or the initial scheduled payment may remain 
constant for a set period before rate adjustments affect the payment 
amount. In any case, the initial payment amount may be insufficient to 
cover the scheduled interest, causing negative amortization from the 
outset of the transaction. In these transactions, the disclosures should 
treat these features as follows:

[[Page 838]]

    i. The finance charge includes the amount of negative amortization 
based on the assumption that the rate in effect at consummation remains 
unchanged.
    ii. The amount financed does not include the amount of negative 
amortization.
    iii. As in any variable-rate transaction, the annual percentage rate 
is based on the terms in effect at consummation.
    iv. The schedule of payments discloses the amount of any scheduled 
initial payments followed by an adjusted level of payments based on the 
initial interest rate. Since some mortgage plans contain limits on the 
amount of the payment adjustment, the payment schedule may require 
several different levels of payments, even with the assumption that the 
original interest rate does not increase.
    13. Growth-equity mortgages. i. Also referred to as payment-
escalated mortgages, these mortgage plans involve scheduled payment 
increases to prematurely amortize the loan. The initial payment amount 
is determined as for a long-term loan with a fixed interest rate. 
Payment increases are scheduled periodically, based on changes in an 
index. The larger payments result in accelerated amortization of the 
loan. In disclosing these mortgage plans, creditors may either:
    A. Estimate the amount of payment increases, based on the best 
information reasonably available; or
    B. Disclose by analogy to the variable-rate disclosures in 
1026.18(f)(1).
    ii. This discussion does not apply to growth-equity mortgages in 
which the amount of payment increases can be accurately determined at 
the time of disclosure. For these mortgages, as for graduated-payment 
mortgages, disclosures should reflect the scheduled increases in 
payments.
    14. Reverse mortgages. Reverse mortgages, also known as reverse 
annuity or home equity conversion mortgages, typically involve the 
disbursement of monthly advances to the consumer for a fixed period or 
until the occurrence of an event such as the consumer's death. Repayment 
of the loan (generally a single payment of principal and accrued 
interest) may be required to be made at the end of the disbursements or, 
for example, upon the death of the consumer. In disclosing these 
transactions, creditors must apply the following rules, as applicable:
    i. If the reverse mortgage has a specified period for disbursements 
but repayment is due only upon the occurrence of a future event such as 
the death of the consumer, the creditor must assume that disbursements 
will be made until they are scheduled to end. The creditor must assume 
repayment will occur when disbursements end (or within a period 
following the final disbursement which is not longer than the regular 
interval between disbursements). This assumption should be used even 
though repayment may occur before or after the disbursements are 
scheduled to end. In such cases, the creditor may include a statement 
such as ``The disclosures assume that you will repay the loan at the 
time our payments to you end. As provided in your agreement, your 
repayment may be required at a different time.''
    ii. If the reverse mortgage has neither a specified period for 
disbursements nor a specified repayment date and these terms will be 
determined solely by reference to future events including the consumer's 
death, the creditor may assume that the disbursements will end upon the 
consumer's death (estimated by using actuarial tables, for example) and 
that repayment will be required at the same time (or within a period 
following the date of the final disbursement which is not longer than 
the regular interval for disbursements). Alternatively, the creditor may 
base the disclosures upon another future event it estimates will be most 
likely to occur first. (If terms will be determined by reference to 
future events which do not include the consumer's death, the creditor 
must base the disclosures upon the occurrence of the event estimated to 
be most likely to occur first.)
    iii. In making the disclosures, the creditor must assume that all 
disbursements and accrued interest will be paid by the consumer. For 
example, if the note has a nonrecourse provision providing that the 
consumer is not obligated for an amount greater than the value of the 
house, the creditor must nonetheless assume that the full amount to be 
disbursed will be repaid. In this case, however, the creditor may 
include a statement such as ``The disclosures assume full repayment of 
the amount advanced plus accrued interest, although the amount you may 
be required to pay is limited by your agreement.''
    iv. Some reverse mortgages provide that some or all of the 
appreciation in the value of the property will be shared between the 
consumer and the creditor. Such loans are considered variable-rate 
mortgages, as described in comment 17(c)(1)-11, and the appreciation 
feature must be disclosed in accordance with Sec. 1026.18(f)(1). If the 
reverse mortgage has a variable interest rate, is written for a term 
greater than one year, and is secured by the consumer's principal 
dwelling, the shared appreciation feature must be described under Sec. 
1026.19(b)(2)(vii).
    15. Morris Plan transactions. When a deposit account is created for 
the sole purpose of accumulating payments and then is applied to satisfy 
entirely the consumer's obligation in the transaction, each deposit made 
into the account is considered the same as a payment on a loan for 
purposes of making disclosures.
    16. Number of transactions. Creditors have flexibility in handling 
credit extensions that may be viewed as multiple transactions. For 
example:

[[Page 839]]

    i. When a creditor finances the credit sale of a radio and a 
television on the same day, the creditor may disclose the sales as 
either 1 or 2 credit sale transactions.
    ii. When a creditor finances a loan along with a credit sale of 
health insurance, the creditor may disclose in one of several ways: a 
single credit sale transaction, a single loan transaction, or a loan and 
a credit sale transaction.
    iii. The separate financing of a downpayment in a credit sale 
transaction may, but need not, be disclosed as 2 transactions (a credit 
sale and a separate transaction for the financing of the downpayment).
    17. Special rules for tax refund anticipation loans. Tax refund 
loans, also known as refund anticipation loans (RALs), are transactions 
in which a creditor will lend up to the amount of a consumer's expected 
tax refund. RAL agreements typically require repayment upon demand, but 
also may provide that repayment is required when the refund is made. The 
agreements also typically provide that if the amount of the refund is 
less than the payment due, the consumer must pay the difference. 
Repayment often is made by a preauthorized offset to a consumer's 
account held with the creditor when the refund has been deposited by 
electronic transfer. Creditors may charge fees for RALs in addition to 
fees for filing the consumer's tax return electronically. In RAL 
transactions subject to the regulation the following special rules 
apply:
    i. If, under the terms of the legal obligation, repayment of the 
loan is required when the refund is received by the consumer (such as by 
deposit into the consumer's account), the disclosures should be based on 
the creditor's estimate of the time the refund will be delivered even if 
the loan also contains a demand clause. The practice of a creditor to 
demand repayment upon delivery of refunds does not determine whether the 
legal obligation requires that repayment be made at that time; this 
determination must be made according to applicable state or other law. 
(See comment 17(c)(5)-1 for the rules regarding disclosures if the loan 
is payable solely on demand or is payable either on demand or on an 
alternate maturity date.)
    ii. If the consumer is required to repay more than the amount 
borrowed, the difference is a finance charge unless excluded under Sec. 
1026.4. In addition, to the extent that any fees charged in connection 
with the loan (such as for filing the tax return electronically) exceed 
those fees for a comparable cash transaction (that is, filing the tax 
return electronically without a loan), the difference must be included 
in the finance charge.
    18. Pawn Transactions. When, in connection with an extension of 
credit, a consumer pledges or sells an item to a pawnbroker creditor in 
return for a sum of money and retains the right to redeem the item for a 
greater sum (the redemption price) within a specified period of time, 
disclosures are required. In addition to other disclosure requirements 
that may be applicable under Sec. 1026.18, for purposes of pawn 
transactions:
    i. The amount financed is the initial sum paid to the consumer. The 
pawnbroker creditor need not provide a separate itemization of the 
amount financed if that entire amount is paid directly to the consumer 
and the disclosed description of the amount financed is ``the amount of 
cash given directly to you'' or a similar phrase.
    ii. The finance charge is the difference between the initial sum 
paid to the consumer and the redemption price plus any other finance 
charges paid in connection with the transaction. (See Sec. 1026.4.)
    iii. The term of the transaction, for calculating the annual 
percentage rate, is the period of time agreed to by the pawnbroker 
creditor and the consumer. The term of the transaction does not include 
a grace period (including any statutory grace period) after the agreed 
redemption date.

                          Paragraph 17(c)(2)(i)

    1. Basis for estimates. Disclosures may be estimated when the exact 
information is unknown at the time disclosures are made. Information is 
unknown if it is not reasonably available to the creditor at the time 
the disclosures are made. The ``reasonably available'' standard requires 
that the creditor, acting in good faith, exercise due diligence in 
obtaining information. For example, the creditor must at a minimum 
utilize generally accepted calculation tools, but need not invest in the 
most sophisticated computer program to make a particular type of 
calculation. The creditor normally may rely on the representations of 
other parties in obtaining information. For example, the creditor might 
look to the consumer for the time of consummation, to insurance 
companies for the cost of insurance, or to realtors for taxes and escrow 
fees. The creditor may utilize estimates in making disclosures even 
though the creditor knows that more precise information will be 
available by the point of consummation. However, new disclosures may be 
required under Sec. 1026.17(f) or Sec. 1026.19.
    2. Labeling estimates. Estimates must be designated as such in the 
segregated disclosures. Even though other disclosures are based on the 
same assumption on which a specific estimated disclosure was based, the 
creditor has some flexibility in labeling the estimates. Generally, only 
the particular disclosure for which the exact information is unknown is 
labeled as an estimate. However, when several disclosures are affected 
because of the unknown information, the creditor

[[Page 840]]

has the option of labeling either every affected disclosure or only the 
disclosure primarily affected. For example, when the finance charge is 
unknown because the date of consummation is unknown, the creditor must 
label the finance charge as an estimate and may also label as estimates 
the total of payments and the payment schedule. When many disclosures 
are estimates, the creditor may use a general statement, such as ``all 
numerical disclosures except the late payment disclosure are 
estimates,'' as a method to label those disclosures as estimates.
    3. Simple-interest transactions. If consumers do not make timely 
payments in a simple-interest transaction, some of the amounts 
calculated for Truth in Lending disclosures will differ from amounts 
that consumers will actually pay over the term of the transaction. 
Creditors may label disclosures as estimates in these transactions. For 
example, because the finance charge and total of payments may be larger 
than disclosed if consumers make late payments, creditors may label the 
finance charge and total of payments as estimates. On the other hand, 
creditors may choose not to label disclosures as estimates and may base 
all disclosures on the assumption that payments will be made on time, 
disregarding any possible inaccuracies resulting from consumers' payment 
patterns.

                         Paragraph 17(c)(2)(ii)

    1. Per-diem interest. This paragraph applies to any numerical amount 
(such as the finance charge, annual percentage rate, or payment amount) 
that is affected by the amount of the per-diem interest charge that will 
be collected at consummation. If the amount of per-diem interest used in 
preparing the disclosures for consummation is based on the information 
known to the creditor at the time the disclosure document is prepared, 
the disclosures are considered accurate under this rule, and affected 
disclosures are also considered accurate, even if the disclosures are 
not labeled as estimates. For example, if the amount of per-diem 
interest used to prepare disclosures is less than the amount of per-diem 
interest charged at consummation, and as a result the finance charge is 
understated by $200, the disclosed finance charge is considered accurate 
even though the understatement is not within the $100 tolerance of Sec. 
1026.18(d)(1), and the finance charge was not labeled as an estimate. In 
this example, if in addition to the understatement related to the per-
diem interest, a $90 fee is incorrectly omitted from the finance charge, 
causing it to be understated by a total of $290, the finance charge is 
considered accurate because the $90 fee is within the tolerance in Sec. 
1026.18(d)(1).

                           Paragraph 17(c)(3)

    1. Minor variations. Section 1026.17(c)(3) allows creditors to 
disregard certain factors in calculating and making disclosures. For 
example:
    i. Creditors may ignore the effects of collecting payments in whole 
cents. Because payments cannot be collected in fractional cents, it is 
often difficult to amortize exactly an obligation with equal payments; 
the amount of the last payment may require adjustment to account for the 
rounding of the other payments to whole cents.
    ii. Creditors may base their disclosures on calculation tools that 
assume that all months have an equal number of days, even if their 
practice is to take account of the variations in months for purposes of 
collecting interest. For example, a creditor may use a calculation tool 
based on a 360-day year, when it in fact collects interest by applying a 
factor of 1/365 of the annual rate to 365 days. This rule does not, 
however, authorize creditors to ignore, for disclosure purposes, the 
effects of applying 1/360 of an annual rate to 365 days.
    2. Use of special rules. A creditor may utilize the special rules in 
Sec. 1026.17(c)(3) for purposes of calculating and making all 
disclosures for a transaction or may, at its option, use the special 
rules for some disclosures and not others.

                           Paragraph 17(c)(4)

    1. Payment schedule irregularities. When one or more payments in a 
transaction differ from the others because of a long or short first 
period, the variations may be ignored in disclosing the payment 
schedule, finance charge, annual percentage rate, and other terms. For 
example:
    i. A 36-month auto loan might be consummated on June 8 with payments 
due on July 1 and the first of each succeeding month. The creditor may 
base its calculations on a payment schedule that assumes 36 equal 
intervals and 36 equal installment payments, even though a precise 
computation would produce slightly different amounts because of the 
shorter first period.
    ii. By contrast, in the same example, if the first payment were not 
scheduled until August 1, the irregular first period would exceed the 
limits in Sec. 1026.17(c)(4); the creditor could not use the special 
rule and could not ignore the extra days in the first period in 
calculating its disclosures.
    2. Measuring odd periods. i. In determining whether a transaction 
may take advantage of the rule in Sec. 1026.17(c)(4), the creditor must 
measure the variation against a regular period. For purposes of that 
rule:
    A. The first period is the period from the date on which the finance 
charge begins to be earned to the date of the first payment.

[[Page 841]]

    B. The term is the period from the date on which the finance charge 
begins to be earned to the date of the final payment.
    C. The regular period is the most common interval between payments 
in the transaction.
    ii. In transactions involving regular periods that are monthly, 
semimonthly or multiples of a month, the length of the irregular and 
regular periods may be calculated on the basis of either the actual 
number of days or an assumed 30-day month. In other transactions, the 
length of the periods is based on the actual number of days.
    3. Use of special rules. A creditor may utilize the special rules in 
Sec. 1026.17(c)(4) for purposes of calculating and making some 
disclosures but may elect not to do so for all of the disclosures. For 
example, the variations may be ignored in calculating and disclosing the 
annual percentage rate but taken into account in calculating and 
disclosing the finance charge and payment schedule.
    4. Relation to prepaid finance charges. Prepaid finance charges, 
including ``odd-days'' or ``per-diem'' interest, paid prior to or at 
closing may not be treated as the first payment on a loan. Thus, 
creditors may not disregard an irregularity in disclosing such finance 
charges.

                           Paragraph 17(c)(5)

    1. Demand disclosures. Disclosures for demand obligations are based 
on an assumed 1-year term, unless an alternate maturity date is stated 
in the legal obligation. Whether an alternate maturity date is stated in 
the legal obligation is determined by applicable law. An alternate 
maturity date is not inferred from an informal principal reduction 
agreement or a similar understanding between the parties. However, when 
the note itself specifies a principal reduction schedule (for example, 
``payable on demand or $2,000 plus interest quarterly''), an alternate 
maturity is stated and the disclosures must reflect that date.
    2. Future event as maturity date. An obligation whose maturity date 
is determined solely by a future event, as for example, a loan payable 
only on the sale of property, is not a demand obligation. Because no 
demand feature is contained in the obligation, demand disclosures under 
Sec. 1026.18(i) are inapplicable. The disclosures should be based on 
the creditor's estimate of the time at which the specified event will 
occur, and may indicate the basis for the creditor's estimate, as noted 
in the commentary to Sec. 1026.17(a).
    3. Demand after stated period. Most demand transactions contain a 
demand feature that may be exercised at any point during the term, but 
certain transactions convert to demand status only after a fixed period. 
For example, in states prohibiting due-on-sale clauses, the Federal 
National Mortgage Association (FNMA) requires mortgages that it 
purchases to include a call option rider that may be exercised after 7 
years. These mortgages are generally written as long-term obligations, 
but contain a demand feature that may be exercised only within a 30-day 
period at 7 years. The disclosures for these transactions should be 
based upon the legally agreed-upon maturity date. Thus, if a mortgage 
containing the 7-year FNMA call option is written as a 20-year 
obligation, the disclosures should be based on the 20-year term, with 
the demand feature disclosed under Sec. 1026.18(i).
    4. Balloon mortgages. Balloon payment mortgages, with payments based 
on a long-term amortization schedule and a large final payment due after 
a shorter term, are not demand obligations unless a demand feature is 
specifically contained in the contract. For example, a mortgage with a 
term of 5 years and a payment schedule based on 20 years would not be 
treated as a mortgage with a demand feature, in the absence of any 
contractual demand provisions. In this type of mortgage, disclosures 
should be based on the 5-year term.

                           Paragraph 17(c)(6)

    1. Series of advances. Section 1026.17(c)(6)(i) deals with a series 
of advances under an agreement to extend credit up to a certain amount. 
A creditor may treat all of the advances as a single transaction or 
disclose each advance as a separate transaction. If these advances are 
treated as 1 transaction and the timing and amounts of advances are 
unknown, creditors must make disclosures based on estimates, as provided 
in Sec. 1026.17(c)(2). If the advances are disclosed separately, 
disclosures must be provided before each advance occurs, with the 
disclosures for the first advance provided by consummation.
    2. Construction loans. Section 1026.17(c)(6)(ii) provides a flexible 
rule for disclosure of construction loans that may be permanently 
financed. These transactions have 2 distinct phases, similar to 2 
separate transactions. The construction loan may be for initial 
construction or subsequent construction, such as rehabilitation or 
remodeling. The construction period usually involves several 
disbursements of funds at times and in amounts that are unknown at the 
beginning of that period, with the consumer paying only accrued interest 
until construction is completed. Unless the obligation is paid at that 
time, the loan then converts to permanent financing in which the loan 
amount is amortized just as in a standard mortgage transaction. Section 
1026.17(c)(6)(ii) permits the creditor to give either one combined 
disclosure for both the construction financing and the permanent 
financing, or a separate set of disclosures for the 2 phases. This rule 
is available whether

[[Page 842]]

the consumer is initially obligated to accept construction financing 
only or is obligated to accept both construction and permanent financing 
from the outset. If the consumer is obligated on both phases and the 
creditor chooses to give 2 sets of disclosures, both sets must be given 
to the consumer initially, because both transactions would be 
consummated at that time. (Appendix D provides a method of calculating 
the annual percentage rate and other disclosures for construction loans, 
which may be used, at the creditor's option, in disclosing construction 
financing.)
    3. Multiple-advance construction loans. Section 1026.17(c)(6)(i) and 
(ii) are not mutually exclusive. For example, in a transaction that 
finances the construction of a dwelling that may be permanently financed 
by the same creditor, the construction phase may consist of a series of 
advances under an agreement to extend credit up to a certain amount. In 
these cases, the creditor may disclose the construction phase as either 
1 or more than 1 transaction and also disclose the permanent financing 
as a separate transaction.
    4. Residential mortgage transaction. See the commentary to Sec. 
1026.2(a)(24) for a discussion of the effect of Sec. 1026.17(c)(6) on 
the definition of a residential mortgage transaction.
    5. Allocation of points. When a creditor utilizes the special rule 
in Sec. 1026.17(c)(6) to disclose credit extensions as multiple 
transactions, buyers points or similar amounts imposed on the consumer 
must be allocated for purposes of calculating disclosures. While such 
amounts should not be taken into account more than once in making 
calculations, they may be allocated between the transactions in any 
manner the creditor chooses. For example, if a construction-permanent 
loan is subject to 5 points imposed on the consumer and the creditor 
chooses to disclose the 2 phases separately, the 5 points may be 
allocated entirely to the construction loan, entirely to the permanent 
loan, or divided in any manner between the two. However, the entire 5 
points may not be applied twice, that is, to both the construction and 
the permanent phases.

              17(d) Multiple Creditors; Multiple Consumers

    1. Multiple creditors. If a credit transaction involves more than 
one creditor:
    i. The creditors must choose which of them will make the 
disclosures.
    ii. A single, complete set of disclosures must be provided, rather 
than partial disclosures from several creditors.
    iii. All disclosures for the transaction must be given, even if the 
disclosing creditor would not otherwise have been obligated to make a 
particular disclosure. For example, if one of the creditors is the 
seller, the total sale price disclosure under Sec. 1026.18(j) must be 
made, even though the disclosing creditor is not the seller.
    2. Multiple consumers. When two consumers are joint obligors with 
primary liability on an obligation, the disclosures may be given to 
either one of them. If one consumer is merely a surety or guarantor, the 
disclosures must be given to the principal debtor. In rescindable 
transactions, however, separate disclosures must be given to each 
consumer who has the right to rescind under Sec. 1026.23, although the 
disclosures required under Sec. 1026.19(b) need only be provided to the 
consumer who expresses an interest in a variable-rate loan program.

                    17(e) Effect of Subsequent Events

    1. Events causing inaccuracies. Inaccuracies in disclosures are not 
violations if attributable to events occurring after the disclosures are 
made. For example, when the consumer fails to fulfill a prior commitment 
to keep the collateral insured and the creditor then provides the 
coverage and charges the consumer for it, such a change does not make 
the original disclosures inaccurate. The creditor may, however, be 
required to make new disclosures under Sec. 1026.17(f) or Sec. 1026.19 
if the events occurred between disclosure and consummation or under 
Sec. 1026.20 if the events occurred after consummation.

                         17(f) Early Disclosures

    1. Change in rate or other terms. Redisclosure is required for 
changes that occur between the time disclosures are made and 
consummation if the annual percentage rate in the consummated 
transaction exceeds the limits prescribed in this section, even if the 
initial disclosures would be considered accurate under the tolerances in 
Sec. 1026.18(d) or 1026.22(a). To illustrate:
    i. General. A. If disclosures are made in a regular transaction on 
July 1, the transaction is consummated on July 15, and the actual annual 
percentage rate varies by more than \1/8\ of 1 percentage point from the 
disclosed annual percentage rate, the creditor must either redisclose 
the changed terms or furnish a complete set of new disclosures before 
consummation. Redisclosure is required even if the disclosures made on 
July 1 are based on estimates and marked as such.
    B. In a regular transaction, if early disclosures are marked as 
estimates and the disclosed annual percentage rate is within \1/8\ of 1 
percentage point of the rate at consummation, the creditor need not 
redisclose the changed terms (including the annual percentage rate).
    ii. Nonmortgage loan. If disclosures are made on July 1, the 
transaction is consummated on July 15, and the finance charge increased 
by $35 but the disclosed annual percentage rate is within the permitted 
tolerance, the creditor must at least redisclose

[[Page 843]]

the changed terms that were not marked as estimates. (See Sec. 
1026.18(d)(2) of this part.)
    iii. Mortgage loan. At the time TILA disclosures are prepared in 
July, the loan closing is scheduled for July 31 and the creditor does 
not plan to collect per-diem interest at consummation. Consummation 
actually occurs on August 5, and per-diem interest for the remainder of 
August is collected as a prepaid finance charge. Assuming there were no 
other changes requiring redisclosure, the creditor may rely on the 
disclosures prepared in July that were accurate when they were prepared. 
However, if the creditor prepares new disclosures in August that will be 
provided at consummation, the new disclosures must take into account the 
amount of the per-diem interest known to the creditor at that time.
    2. Variable rate. The addition of a variable rate feature to the 
credit terms, after early disclosures are given, requires new 
disclosures.
    3. Content of new disclosures. If redisclosure is required, the 
creditor has the option of either providing a complete set of new 
disclosures, or providing disclosures of only the terms that vary from 
those originally disclosed. (See the commentary to Sec. 1026.19(a)(2).)
    4. Special rules. In mortgage transactions subject to Sec. 1026.19, 
the creditor must redisclose if, between the delivery of the required 
early disclosures and consummation, the annual percentage rate changes 
by more than a stated tolerance. When subsequent events occur after 
consummation, new disclosures are required only if there is a 
refinancing or an assumption within the meaning of Sec. 1026.20.

                           Paragraph 17(f)(2)

    1. Irregular transactions. For purposes of this paragraph, a 
transaction is deemed to be ``irregular'' according to the definition in 
Sec. 1026.22(a)(3).

          17(g) Mail or Telephone Orders--Delay in Disclosures

    1. Conditions for use. When the creditor receives a mail or 
telephone request for credit, the creditor may delay making the 
disclosures until the first payment is due if the following conditions 
are met:
    i. The credit request is initiated without face-to-face or direct 
telephone solicitation. (Creditors may, however, use the special rule 
when credit requests are solicited by mail.)
    ii. The creditor has supplied the specified credit information about 
its credit terms either to the individual consumer or to the public 
generally. That information may be distributed through advertisements, 
catalogs, brochures, special mailers, or similar means.
    2. Insurance. The location requirements for the insurance 
disclosures under Sec. 1026.18(n) permit them to appear apart from the 
other disclosures. Therefore, a creditor may mail an insurance 
authorization to the consumer and then prepare the other disclosures to 
reflect whether or not the authorization is completed by the consumer. 
Creditors may also disclose the insurance cost on a unit-cost basis, if 
the transaction meets the requirements of Sec. 1026.17(g).

               17(h) Series of Sales--Delay in Disclosures

    1. Applicability. The creditor may delay the disclosures for 
individual credit sales in a series of such sales until the first 
payment is due on the current sale, assuming the two conditions in this 
paragraph are met. If those conditions are not met, the general timing 
rules in Sec. 1026.17(b) apply.
    2. Basis of disclosures. Creditors structuring disclosures for a 
series of sales under Sec. 1026.17(h) may compute the total sale price 
as either:
    i. The cash price for the sale plus that portion of the finance 
charge and other charges applicable to that sale; or
    ii. The cash price for the sale, other charges applicable to the 
sale, and the total finance charge and outstanding principal.

                 17(i) Interim Student Credit Extensions

    1. Definition. Student credit plans involve extensions of credit for 
education purposes where the repayment amount and schedule are not known 
at the time credit is advanced. These plans include loans made under any 
student credit plan, whether government or private, where the repayment 
period does not begin immediately. (Certain student credit plans that 
meet this definition are exempt from Regulation Z. See Sec. 1026.3(f).)
    2. Relation to other sections. For disclosures made before the 
mandatory compliance date of the disclosures required under Sec. Sec. 
1026.46, 47, and 48, paragraph 17(i) permitted creditors to omit from 
the disclosures the terms set forth in that paragraph at the time the 
credit was actually extended. However, creditors were required to make 
complete disclosures at the time the creditor and consumer agreed upon 
the repayment schedule for the total obligation. At that time, a new set 
of disclosures of all applicable items under Sec. 1026.18 was required. 
Most student credit plans are subject to the requirements in Sec. Sec. 
1026.46, 47, and 48. Consequently, for applications for student credit 
plans received on or after the mandatory compliance date of Sec. Sec. 
1026.46, 47, and 48, the creditor may not omit from the disclosures the 
terms set forth in paragraph 17(i). Instead, the creditor must comply 
with Sec. Sec. 1026.46, 47, and 48, if applicable, or with Sec. Sec. 
1026.17 and 1026.18.

[[Page 844]]

    3. Basis of disclosures. The disclosures given at the time of 
execution of the interim note should reflect two annual percentage 
rates, one for the interim period and one for the repayment period. The 
use of Sec. 1026.17(i) in making disclosures does not, by itself, make 
those disclosures estimates. Any portion of the finance charge, such as 
statutory interest, that is attributable to the interim period and is 
paid by the student (either as a prepaid finance charge, periodically 
during the interim period, in one payment at the end of the interim 
period, or capitalized at the beginning of the repayment period) must be 
reflected in the interim annual percentage rate. Interest subsidies, 
such as payments made by either a state or the Federal Government on an 
interim loan, must be excluded in computing the annual percentage rate 
on the interim obligation, when the consumer has no contingent liability 
for payment of those amounts. Any finance charges that are paid 
separately by the student at the outset or withheld from the proceeds of 
the loan are prepaid finance charges. An example of this type of charge 
is the loan guarantee fee. The sum of the prepaid finance charges is 
deducted from the loan proceeds to determine the amount financed and 
included in the calculation of the finance charge.
    4. Consolidation. Consolidation of the interim student credit 
extensions through a renewal note with a set repayment schedule is 
treated as a new transaction with disclosures made as they would be for 
a refinancing. Any unearned portion of the finance charge must be 
reflected in the new finance charge and annual percentage rate, and is 
not added to the new amount financed. In itemizing the amount financed 
under Sec. 1026.18(c), the creditor may combine the principal balances 
remaining on the interim extensions at the time of consolidation and 
categorize them as the amount paid on the consumer's account.
    5. Approved student credit forms. See the commentary to Appendix H 
regarding disclosure forms approved for use in certain student credit 
programs for which applications were received prior to the mandatory 
compliance date of Sec. Sec. 1026.46, 1026.47, and 1026.48.

                 Section 1026.18--Content of Disclosures

    1. As applicable. i. The disclosures required by this section need 
be made only as applicable. Any disclosure not relevant to a particular 
transaction may be eliminated entirely. For example:
    A. In a loan transaction, the creditor may delete disclosure of the 
total sale price.
    B. In a credit sale requiring disclosure of the total sale price 
under Sec. 1026.18(j), the creditor may delete any reference to a 
downpayment where no downpayment is involved.
    ii. Where the amounts of several numerical disclosures are the same, 
the ``as applicable'' language also permits creditors to combine the 
terms, so long as it is done in a clear and conspicuous manner. For 
example:
    A. In a transaction in which the amount financed equals the total of 
payments, the creditor may disclose ``amount financed/total of 
payments,'' together with descriptive language, followed by a single 
amount.
    B. However, if the terms are separated on the disclosure statement 
and separate space is provided for each amount, both disclosures must be 
completed, even though the same amount is entered in each space.
    2. Format. See the commentary to Sec. 1026.17 and Appendix H for a 
discussion of the format to be used in making these disclosures, as well 
as acceptable modifications.

                             18(a) Creditor

    1. Identification of creditor. The creditor making the disclosures 
must be identified. This disclosure may, at the creditor's option, 
appear apart from the other disclosures. Use of the creditor's name is 
sufficient, but the creditor may also include an address and/or 
telephone number. In transactions with multiple creditors, any one of 
them may make the disclosures; the one doing so must be identified.

                          18(b) Amount Financed

    1. Disclosure required. The net amount of credit extended must be 
disclosed using the term amount financed and a descriptive explanation 
similar to the phrase in the regulation.
    2. Rebates and loan premiums. In a loan transaction, the creditor 
may offer a premium in the form of cash or merchandise to prospective 
borrowers. Similarly, in a credit sale transaction, a seller's or 
manufacturer's rebate may be offered to prospective purchasers of the 
creditor's goods or services. At the creditor's option, these amounts 
may be either reflected in the Truth in Lending disclosures or 
disregarded in the disclosures. If the creditor chooses to reflect them 
in the Sec. 1026.18 disclosures, rather than disregard them, they may 
be taken into account in any manner as part of those disclosures.

                           Paragraph 18(b)(1)

    1. Downpayments. A downpayment is defined in Sec. 1026.2(a)(18) to 
include, at the creditor's option, certain deferred downpayments or 
pick-up payments. A deferred downpayment that meets the criteria set 
forth in the definition may be treated as part of the downpayment, at 
the creditor's option.
    i. Deferred downpayments that are not treated as part of the 
downpayment (either because they do not meet the definition or because 
the creditor simply chooses not to treat them as downpayments) are 
included in the amount financed.

[[Page 845]]

    ii. Deferred downpayments that are treated as part of the 
downpayment are not part of the amount financed under Sec. 
1026.18(b)(1).

                           Paragraph 18(b)(2)

    1. Adding other amounts. Fees or other charges that are not part of 
the finance charge and that are financed rather than paid separately at 
consummation of the transaction are included in the amount financed. 
Typical examples are real estate settlement charges and premiums for 
voluntary credit life and disability insurance excluded from the finance 
charge under Sec. 1026.4. This paragraph does not include any amounts 
already accounted for under Sec. 1026.18(b)(1), such as taxes, tag and 
title fees, or the costs of accessories or service policies that the 
creditor includes in the cash price.

                           Paragraph 18(b)(3)

    1. Prepaid finance charges. i. Prepaid finance charges that are paid 
separately in cash or by check should be deducted under Sec. 
1026.18(b)(3) in calculating the amount financed. To illustrate:
    A. A consumer applies for a loan of $2,500 with a $40 loan fee. The 
face amount of the note is $2,500 and the consumer pays the loan fee 
separately by cash or check at closing. The principal loan amount for 
purposes of Sec. 1026.18(b)(1) is $2,500 and $40 should be deducted 
under Sec. 1026.18(b(3), thereby yielding an amount financed of $2,460.
    ii. In some instances, as when loan fees are financed by the 
creditor, finance charges are incorporated in the face amount of the 
note. Creditors have the option, when the charges are not add-on or 
discount charges, of determining a principal loan amount under Sec. 
1026.18(b)(1) that either includes or does not include the amount of the 
finance charges. (Thus the principal loan amount may, but need not, be 
determined to equal the face amount of the note.) When the finance 
charges are included in the principal loan amount, they should be 
deducted as prepaid finance charges under Sec. 1026.18(b)(3). When the 
finance charges are not included in the principal loan amount, they 
should not be deducted under Sec. 1026.18(b)(3). The following examples 
illustrate the application of Sec. 1026.18(b) to this type of 
transaction. Each example assumes a loan request of $2,500 with a loan 
fee of $40; the creditor assesses the loan fee by increasing the face 
amount of the note to $2,540.
    A. If the creditor determines the principal loan amount under Sec. 
1026.18(b)(1) to be $2,540, it has included the loan fee in the 
principal loan amount and should deduct $40 as a prepaid finance charge 
under Sec. 1026.18(b)(3), thereby obtaining an amount financed of 
$2,500.
    B. If the creditor determines the principal loan amount under Sec. 
1026.18(b)(1) to be $2,500, it has not included the loan fee in the 
principal loan amount and should not deduct any amount under Sec. 
1026.18(b)(3), thereby obtaining an amount financed of $2,500.
    iii. The same rules apply when the creditor does not increase the 
face amount of the note by the amount of the charge but collects the 
charge by withholding it from the amount advanced to the consumer. To 
illustrate, the following examples assume a loan request of $2,500 with 
a loan fee of $40; the creditor prepares a note for $2,500 and advances 
$2,460 to the consumer.
    A. If the creditor determines the principal loan amount under Sec. 
1026.18(b)(1) to be $2,500, it has included the loan fee in the 
principal loan amount and should deduct $40 as a prepaid finance charge 
under Sec. 1026.18(b)(3), thereby obtaining an amount financed of 
$2,460.
    B. If the creditor determines the principal loan amount under Sec. 
1026.18(b)(1) to be $2,460, it has not included the loan fee in the 
principal loan amount and should not deduct any amount under Sec. 
1026.18(b)(3), thereby obtaining an amount financed of $2,460.
    iv. Thus in the examples where the creditor derives the net amount 
of credit by determining a principal loan amount that does not include 
the amount of the finance charge, no subtraction is appropriate. 
Creditors should note, however, that although the charges are not 
subtracted as prepaid finance charges in those examples, they are 
nonetheless finance charges and must be treated as such.
    2. Add-on or discount charges. All finance charges must be deducted 
from the amount of credit in calculating the amount financed. If the 
principal loan amount reflects finance charges that meet the definition 
of a prepaid finance charge in Sec. 1026.2, those charges are included 
in the Sec. 1026.18(b)(1) amount and deducted under Sec. 
1026.18(b)(3). However, if the principal loan amount includes finance 
charges that do not meet the definition of a prepaid finance charge, the 
Sec. 1026.18(b)(1) amount must exclude those finance charges. The 
following examples illustrate the application of Sec. 1026.18(b) to 
these types of transactions. Each example assumes a loan request of 
$1000 for 1 year, subject to a 6 percent precomputed interest rate, with 
a $10 loan fee paid separately at consummation.
    i. The creditor assesses add-on interest of $60 which is added to 
the $1000 in loan proceeds for an obligation with a face amount of 
$1060. The principal for purposes of Sec. 1026.18(b)(1) is $1000, no 
amounts are added under Sec. 1026.18(b)(2), and the $10 loan fee is a 
prepaid finance charge to be deducted under Sec. 1026.18(b)(3). The 
amount financed is $990.
    ii. The creditor assesses discount interest of $60 and distributes 
$940 to the consumer, who is liable for an obligation with a face amount 
of $1000. The principal under Sec. 1026.18(b)(1) is $940, which results 
in an

[[Page 846]]

amount financed of $930, after deduction of the $10 prepaid finance 
charge under Sec. 1026.18(b)(3).
    iii. The creditor assesses $60 in discount interest by increasing 
the face amount of the obligation to $1060, with the consumer receiving 
$1000. The principal under Sec. 1026.18(b)(1) is thus $1000 and the 
amount financed $990, after deducting the $10 prepaid finance charge 
under Sec. 1026.18(b)(3).

                  18(c) Itemization of Amount Financed

    1. Disclosure required. i. The creditor has 2 alternatives in 
complying with Sec. 1026.18(c):
    A. The creditor may inform the consumer, on the segregated 
disclosures, that a written itemization of the amount financed will be 
provided on request, furnishing the itemization only if the customer in 
fact requests it.
    B. The creditor may provide an itemization as a matter of course, 
without notifying the consumer of the right to receive it or waiting for 
a request.
    ii. Whether given as a matter of course or only on request, the 
itemization must be provided at the same time as the other disclosures 
required by Sec. 1026.18, although separate from those disclosures.
    2. Additional information. Section 1026.18(c) establishes only a 
minimum standard for the material to be included in the itemization of 
the amount financed. Creditors have considerable flexibility in revising 
or supplementing the information listed in Sec. 1026.18(c) and shown in 
model form H-3, although no changes are required. The creditor may, for 
example, do one or more of the following:
    i. Include amounts that reflect payments not part of the amount 
financed. For example, escrow items and certain insurance premiums may 
be included, as discussed in the commentary to Sec. 1026.18(g).
    ii. Organize the categories in any order. For example, the creditor 
may rearrange the terms in a mathematical progression that depicts the 
arithmetic relationship of the terms.
    iii. Add categories. For example, in a credit sale, the creditor may 
include the cash price and the downpayment. If the credit sale involves 
a trade-in of the consumer's car and an existing lien on that car 
exceeds the value of the trade-in amount, the creditor may disclose the 
consumer's trade-in value, the creditor's payoff of the existing lien, 
and the resulting additional amount financed.
    iv. Further itemize each category. For example, the amount paid 
directly to the consumer may be subdivided into the amount given by 
check and the amount credited to the consumer's savings account.
    v. Label categories with different language from that shown in Sec. 
1026.18(c). For example, an amount paid on the consumer's account may be 
revised to specifically identify the account as ``your auto loan with 
us.''
    vi. Delete, leave blank, mark ``N/A,'' or otherwise note 
inapplicable categories in the itemization. For example, in a credit 
sale with no prepaid finance charges or amounts paid to others, the 
amount financed may consist of only the cash price less downpayment. In 
this case, the itemization may be composed of only a single category and 
all other categories may be eliminated.
    3. Amounts appropriate to more than one category. When an amount may 
appropriately be placed in any of several categories and the creditor 
does not wish to revise the categories shown in Sec. 1026.18(c), the 
creditor has considerable flexibility in determining where to show the 
amount. For example, in a credit sale, the portion of the purchase price 
being financed by the creditor may be viewed as either an amount paid to 
the consumer or an amount paid on the consumer's account.
    4. RESPA transactions. The Real Estate Settlement Procedures Act 
(RESPA) requires creditors to provide a good faith estimate of closing 
costs and a settlement statement listing the amounts paid by the 
consumer. Transactions subject to RESPA are exempt from the requirements 
of Sec. 1026.18(c) if the creditor complies with RESPA's requirements 
for a good faith estimate and settlement statement. The itemization of 
the amount financed need not be given, even though the content and 
timing of the good faith estimate and settlement statement under RESPA 
differ from the requirements of Sec. Sec. 1026.18(c) and 1026.19(a)(2). 
If a creditor chooses to substitute RESPA's settlement statement for the 
itemization when redisclosure is required under Sec. 1026.19(a)(2), the 
statement must be delivered to the consumer at or prior to consummation. 
The disclosures required by Sec. Sec. 1026.18(c) and 1026.19(a)(2) may 
appear on the same page or on the same document as the good faith 
estimate or the settlement statement, so long as the requirements of 
Sec. 1026.17(a) are met.

                          Paragraph 18(c)(1)(i)

    1. Amounts paid to consumer. This encompasses funds given to the 
consumer in the form of cash or a check, including joint proceeds 
checks, as well as funds placed in an asset account. It may include 
money in an interest-bearing account even if that amount is considered a 
required deposit under Sec. 1026.18(r). For example, in a transaction 
with total loan proceeds of $500, the consumer receives a check for $300 
and $200 is required by the creditor to be put into an interest-bearing 
account. Whether or not the $200 is a required deposit, it is part of 
the amount financed. At the creditor's option, it may be broken out and 
labeled in the itemization of the amount financed.

[[Page 847]]

                         Paragraph 18(c)(1)(ii)

    1. Amounts credited to consumer's account. The term consumer's 
account refers to an account in the nature of a debt with that creditor. 
It may include, for example, an unpaid balance on a prior loan, a credit 
sale balance or other amounts owing to that creditor. It does not 
include asset accounts of the consumer such as savings or checking 
accounts.

                         Paragraph 18(c)(1)(iii)

    1. Amounts paid to others. This includes, for example, tag and title 
fees; amounts paid to insurance companies for insurance premiums; 
security interest fees, and amounts paid to credit bureaus, appraisers 
or public officials. When several types of insurance premiums are 
financed, they may, at the creditor's option, be combined and listed in 
one sum, labeled ``insurance'' or similar term. This includes, but is 
not limited to, different types of insurance premiums paid to one 
company and different types of insurance premiums paid to different 
companies. Except for insurance companies and other categories noted in 
Sec. 1026.18(c)(1)(iii), third parties must be identified by name.
    2. Charges added to amounts paid to others. A sum is sometimes added 
to the amount of a fee charged to a consumer for a service provided by a 
third party (such as for an extended warranty or a service contract) 
that is payable in the same amount in comparable cash and credit 
transactions. In the credit transaction, the amount is retained by the 
creditor. Given the flexibility permitted in meeting the requirements of 
the amount financed itemization (see the commentary to Sec. 
1026.18(c)), the creditor in such cases may reflect that the creditor 
has retained a portion of the amount paid to others. For example, the 
creditor could add to the category ``amount paid to others'' language 
such as ``(we may be retaining a portion of this amount).''

                         Paragraph 18(c)(1)(iv)

    1. Prepaid finance charge. Prepaid finance charges that are deducted 
under Sec. 1026.18(b)(3) must be disclosed under this section. The 
prepaid finance charges must be shown as a total amount but may, at the 
creditor's option, also be further itemized and described. All amounts 
must be reflected in this total, even if portions of the prepaid finance 
charge are also reflected elsewhere. For example, if at consummation the 
creditor collects interim interest of $30 and a credit report fee of 
$10, a total prepaid finance charge of $40 must be shown. At the 
creditor's option, the credit report fee paid to a third party may also 
be shown elsewhere as an amount included in Sec. 1026.18(c)(1)(iii). 
The creditor may also further describe the 2 components of the prepaid 
finance charge, although no itemization of this element is required by 
Sec. 1026.18(c)(1)(iv).
    2. Prepaid mortgage insurance premiums. RESPA requires creditors to 
give consumers a settlement statement disclosing the costs associated 
with mortgage loan transactions. Included on the settlement statement 
are mortgage insurance premiums collected at settlement, which are 
prepaid finance charges. In calculating the total amount of prepaid 
finance charges, creditors should use the amount for mortgage insurance 
listed on the line for mortgage insurance on the settlement statement 
(line 1002 on HUD-1 or HUD 1-A), without adjustment, even if the actual 
amount collected at settlement may vary because of RESPA's escrow 
accounting rules. Figures for mortgage insurance disclosed in 
conformance with RESPA shall be deemed to be accurate for purposes of 
Regulation Z.

                          18(d) Finance Charge

    1. Disclosure required. The creditor must disclose the finance 
charge as a dollar amount, using the term finance charge, and must 
include a brief description similar to that in Sec. 1026.18(d). The 
creditor may, but need not, further modify the descriptor for variable 
rate transactions with a phrase such as which is subject to change. The 
finance charge must be shown on the disclosures only as a total amount; 
the elements of the finance charge must not be itemized in the 
segregated disclosures, although the regulation does not prohibit their 
itemization elsewhere.

                          18(d)(2) Other Credit

    1. Tolerance. When a finance charge error results in a misstatement 
of the amount financed, or some other dollar amount for which the 
regulation provides no specific tolerance, the misstated disclosure does 
not violate the Act or the regulation if the finance charge error is 
within the permissible tolerance under this paragraph.

                      18(e) Annual Percentage Rate

    1. Disclosure required. The creditor must disclose the cost of the 
credit as an annual rate, using the term annual percentage rate, plus a 
brief descriptive phrase comparable to that used in Sec. 1026.18(e). 
For variable rate transactions, the descriptor may be further modified 
with a phrase such as which is subject to change. Under Sec. 
1026.17(a), the terms annual percentage rate and finance charge must be 
more conspicuous than the other required disclosures.
    2. Exception. Section 1026.18(e) provides an exception for certain 
transactions in which no annual percentage rate disclosure is required.

[[Page 848]]

                           18(f) Variable Rate

    1. Coverage. The requirements of Sec. 1026.18(f) apply to all 
transactions in which the terms of the legal obligation allow the 
creditor to increase the rate originally disclosed to the consumer. It 
includes not only increases in the interest rate but also increases in 
other components, such as the rate of required credit life insurance. 
The provisions, however, do not apply to increases resulting from 
delinquency (including late payment), default, assumption, acceleration 
or transfer of the collateral. Section 1026.18(f)(1) applies to 
variable-rate transactions that are not secured by the consumer's 
principal dwelling and to those that are secured by the principal 
dwelling but have a term of one year or less. Section 1026.18(f)(2) 
applies to variable-rate transactions that are secured by the consumer's 
principal dwelling and have a term greater than one year. Moreover, 
transactions subject to Sec. 1026.18(f)(2) are subject to the special 
early disclosure requirements of Sec. 1026.19(b). (However, ``shared-
equity'' or ``shared-appreciation'' mortgages are subject to the 
disclosure requirements of Sec. 1026.18(f)(1) and not to the 
requirements of Sec. Sec. 1026.18(f)(2) and 1026.19(b) regardless of 
the general coverage of those sections.) Creditors are permitted under 
Sec. 1026.18(f)(1) to substitute in any variable-rate transaction the 
disclosures required under Sec. 1026.19(b) for those disclosures 
ordinarily required under Sec. 1026.18(f)(1). Creditors who provide 
variable-rate disclosures under Sec. 1026.19(b) must comply with all of 
the requirements of that section, including the timing of disclosures, 
and must also provide the disclosures required under Sec. 
1026.18(f)(2). Creditors substituting Sec. 1026.19(b) disclosures for 
Sec. 1026.18(f)(1) disclosures may, but need not, also provide 
disclosures pursuant to Sec. 1026.20(c). (Substitution of disclosures 
under Sec. 1026.18(f)(1) in transactions subject to Sec. 1026.19(b) is 
not permitted.)

                           Paragraph 18(f)(1)

    1. Terms used in disclosure. In describing the variable rate 
feature, the creditor need not use any prescribed terminology. For 
example, limitations and hypothetical examples may be described in terms 
of interest rates rather than annual percentage rates. The model forms 
in Appendix H provide examples of ways in which the variable rate 
disclosures may be made.
    2. Conversion feature. In variable-rate transactions with an option 
permitting consumers to convert to a fixed-rate transaction, the 
conversion option is a variable-rate feature that must be disclosed. In 
making disclosures under Sec. 1026.18(f)(1), creditors should disclose 
the fact that the rate may increase upon conversion; identify the index 
or formula used to set the fixed rate; and state any limitations on and 
effects of an increase resulting from conversion that differ from other 
variable-rate features. Because Sec. 1026.18(f)(1)(iv) requires only 
one hypothetical example (such as an example of the effect on payments 
resulting from changes in the index), a second hypothetical example need 
not be given.

                          Paragraph 18(f)(1)(i)

    1. Circumstances. The circumstances under which the rate may 
increase include identification of any index to which the rate is tied, 
as well as any conditions or events on which the increase is contingent.
    i. When no specific index is used, any identifiable factors used to 
determine whether to increase the rate must be disclosed.
    ii. When the increase in the rate is purely discretionary, the fact 
that any increase is within the creditor's discretion must be disclosed.
    iii. When the index is internally defined (for example, by that 
creditor's prime rate), the creditor may comply with this requirement by 
either a brief description of that index or a statement that any 
increase is in the discretion of the creditor. An externally defined 
index, however, must be identified.

                         Paragraph 18(f)(1)(ii)

    1. Limitations. This includes any maximum imposed on the amount of 
an increase in the rate at any time, as well as any maximum on the total 
increase over the life of the transaction. Except for private education 
loans disclosures, when there are no limitations, the creditor may, but 
need not, disclose that fact, and limitations do not include legal 
limits in the nature of usury or rate ceilings under state or Federal 
statutes or regulations. (See Sec. 1026.30 for the rule requiring that 
a maximum interest rate be included in certain variable-rate 
transactions.) For disclosures with respect to private education loan 
disclosures, see comment 47(b)(1)-2.

                         Paragraph 18(f)(1)(iii)

    1. Effects. Disclosure of the effect of an increase refers to an 
increase in the number or amount of payments or an increase in the final 
payment. In addition, the creditor may make a brief reference to 
negative amortization that may result from a rate increase. (See the 
commentary to Sec. 1026.17(a)(1) regarding directly related 
information.) If the effect cannot be determined, the creditor must 
provide a statement of the possible effects. For example, if the 
exercise of the variable-rate feature may result in either more or 
larger payments, both possibilities must be noted.

                         Paragraph 18(f)(1)(iv)

    1. Hypothetical example. The example may, at the creditor's option 
appear apart from

[[Page 849]]

the other disclosures. The creditor may provide either a standard 
example that illustrates the terms and conditions of that type of credit 
offered by that creditor or an example that directly reflects the terms 
and conditions of the particular transaction. In transactions with more 
than one variable-rate feature, only one hypothetical example need be 
provided. (See the commentary to Sec. 1026.17(a)(1) regarding 
disclosure of more than one hypothetical example as directly related 
information.)
    2. Hypothetical example not required. The creditor need not provide 
a hypothetical example in the following transactions with a variable-
rate feature:
    i. Demand obligations with no alternate maturity date.
    ii. Private education loans as defined in Sec. 1026.46(b)(5).
    iii. Multiple-advance construction loans disclosed pursuant to 
Appendix D, Part I.

                           Paragraph 18(f)(2)

    1. Disclosure required. In variable-rate transactions that have a 
term greater than one year and are secured by the consumer's principal 
dwelling, the creditor must give special early disclosures under Sec. 
1026.19(b) in addition to the later disclosures required under Sec. 
1026.18(f)(2). The disclosures under Sec. 1026.18(f)(2) must state that 
the transaction has a variable-rate feature and that variable-rate 
disclosures have been provided earlier. (See the commentary to Sec. 
1026.17(a)(1) regarding the disclosure of certain directly related 
information in addition to the variable-rate disclosures required under 
Sec. 1026.18(f)(2).)

                         18(g) Payment Schedule

    1. Amounts included in repayment schedule. The repayment schedule 
should reflect all components of the finance charge, not merely the 
portion attributable to interest. A prepaid finance charge, however, 
should not be shown in the repayment schedule as a separate payment. The 
payments may include amounts beyond the amount financed and finance 
charge. For example, the disclosed payments may, at the creditor's 
option, reflect certain insurance premiums where the premiums are not 
part of either the amount financed or the finance charge, as well as 
real estate escrow amounts such as taxes added to the payment in 
mortgage transactions.
    2. Deferred downpayments. As discussed in the commentary to Sec. 
1026.2(a)(18), deferred downpayments or pick-up payments that meet the 
conditions set forth in the definition of downpayment may be treated as 
part of the downpayment. Even if treated as a downpayment, that amount 
may nevertheless be disclosed as part of the payment schedule, at the 
creditor's option.
    3. Total number of payments. In disclosing the number of payments 
for transactions with more than one payment level, creditors may but 
need not disclose as a single figure the total number of payments for 
all levels. For example, in a transaction calling for 108 payments of 
$350, 240 payments of $335, and 12 payments of $330, the creditor need 
not state that there will be a total of 360 payments.
    4. Timing of payments. i. General rule. Section 1026.18(g) requires 
creditors to disclose the timing of payments. To meet this requirement, 
creditors may list all of the payment due dates. They also have the 
option of specifying the ``period of payments'' scheduled to repay the 
obligation. As a general rule, creditors that choose this option must 
disclose the payment intervals or frequency, such as ``monthly''or ``bi-
weekly,'' and the calendar date that the beginning payment is due. For 
example, a creditor may disclose that payments are due ``monthly 
beginning on July 1, 1998.'' This information, when combined with the 
number of payments, is necessary to define the repayment period and 
enable a consumer to determine all of the payment due dates.
    ii. Exception. In a limited number of circumstances, the beginning-
payment date is unknown and difficult to determine at the time 
disclosures are made. For example, a consumer may become obligated on a 
credit contract that contemplates the delayed disbursement of funds 
based on a contingent event, such as the completion of home repairs. 
Disclosures may also accompany loan checks that are sent by mail, in 
which case the initial disbursement and repayment dates are solely 
within the consumer's control. In such cases, if the beginning-payment 
date is unknown the creditor may use an estimated date and label the 
disclosure as an estimate pursuant to Sec. 1026.17(c). Alternatively, 
the disclosure may refer to the occurrence of a particular event, for 
example, by disclosing that the beginning payment is due ``30 days after 
the first loan disbursement.'' This information also may be included 
with an estimated date to explain the basis for the creditor's estimate. 
See comment 17(a)(1)-5.iii.
    5. Mortgage insurance. The payment schedule should reflect the 
consumer's mortgage insurance payments until the date on which the 
creditor must automatically terminate coverage under applicable law, 
even though the consumer may have a right to request that the insurance 
be cancelled earlier. The payment schedule must reflect the legal 
obligation, as determined by applicable state or other law. For example, 
assume that under applicable law, mortgage insurance must terminate 
after the 130th scheduled monthly payment, and the creditor collects at 
closing and places in escrow two months of premiums. If, under the legal 
obligation, the creditor will include mortgage insurance

[[Page 850]]

premiums in 130 payments and refund the escrowed payments when the 
insurance is terminated, the payment schedule should reflect 130 premium 
payments. If, under the legal obligation, the creditor will apply the 
amount escrowed to the two final insurance payments, the payment 
schedule should reflect 128 monthly premium payments. (For assumptions 
in calculating a payment schedule that includes mortgage insurance that 
must be automatically terminated, see comments 17(c)(1)-8 and 17(c)(1)-
10.)
    6. Mortgage transactions. Section 1026.18(g) applies only to closed-
end transactions other than transactions that are subject to Sec. 
1026.18(s). Section 1026.18(s) applies to closed-end transactions 
secured by real property or a dwelling. Thus, if a closed-end consumer 
credit transaction is secured by real property or a dwelling, the 
creditor discloses an interest rate and payment summary table in 
accordance with Sec. 1026.18(s) and does not observe the requirements 
of Sec. 1026.18(g). On the other hand, if a closed-end consumer credit 
transaction is not secured by real property or a dwelling, the creditor 
discloses a payment schedule in accordance with Sec. 1026.18(g) and 
does not observe the requirements of Sec. 1026.18(s).

                           Paragraph 18(g)(1)

    1. Demand obligations. In demand obligations with no alternate 
maturity date, the creditor has the option of disclosing only the due 
dates or periods of scheduled interest payments in the first year (for 
example, ``interest payable quarterly'' or ``interest due the first of 
each month''). The amounts of the interest payments need not be shown.

                           Paragraph 18(g)(2)

    1. Abbreviated disclosure. The creditor may disclose an abbreviated 
payment schedule when the amount of each regularly scheduled payment 
(other than the first or last payment) includes an equal amount to be 
applied on principal and a finance charge computed by application of a 
rate to the decreasing unpaid balance. This option is also available 
when mortgage-guarantee insurance premiums, paid either monthly or 
annually, cause variations in the amount of the scheduled payments, 
reflecting the continual decrease or increase in the premium due. In 
addition, in transactions where payments vary because interest and 
principal are paid at different intervals, the two series of payments 
may be disclosed separately and the abbreviated payment schedule may be 
used for the interest payments. For example, in transactions with fixed 
quarterly principal payments and monthly interest payments based on the 
outstanding principal balance, the amount of the interest payments will 
change quarterly as principal declines. In such cases the creditor may 
treat the interest and principal payments as two separate series of 
payments, separately disclosing the number, amount, and due dates of 
principal payments, and, using the abbreviated payment schedule, the 
number, amount, and due dates of interest payments. This option may be 
used when interest and principal are scheduled to be paid on the same 
date of the month as well as on different dates of the month. The 
creditor using this alternative must disclose the dollar amount of the 
highest and lowest payments and make reference to the variation in 
payments.
    2. Combined payment schedule disclosures. Creditors may combine the 
option in this paragraph with the general payment schedule requirements 
in transactions where only a portion of the payment schedule meets the 
conditions of Sec. 1026.18(g)(2). For example, in a graduated payment 
mortgage where payments rise sharply for 5 years and then decline over 
the next 25 years because of decreasing mortgage insurance premiums, the 
first 5 years would be disclosed under the general rule in Sec. 
1026.18(g) and the next 25 years according to the abbreviated schedule 
in Sec. 1026.18(g)(2).
    3. Effect on other disclosures. Section 1026.18(g)(2) applies only 
to the payment schedule disclosure. The actual amounts of payments must 
be taken into account in calculating and disclosing the finance charge 
and the annual percentage rate.

                    Paragraph 18(h) Total of Payments

    1. Disclosure required. The total of payments must be disclosed 
using that term, along with a descriptive phrase similar to the one in 
the regulation. The descriptive explanation may be revised to reflect a 
variable rate feature with a brief phrase such as ``based on the current 
annual percentage rate which may change.''
    2. Calculation of total of payments. The total of payments is the 
sum of the payments disclosed under Sec. 1026.18(g). For example, if 
the creditor disclosed a deferred portion of the downpayment as part of 
the payment schedule, that payment must be reflected in the total 
disclosed under this paragraph. To calculate the total of payments 
amount for transactions subject to Sec. 1026.18(s), creditors should 
use the rules in Sec. 1026.18(g) and associated commentary and, for 
adjustable-rate transactions, comments 17(c)(1)-8 and -10.
    3. Exception. Section 1026.18(h) permits creditors to omit 
disclosure of the total of payments in single-payment transactions. This 
exception does not apply to a transaction calling for a single payment 
of principal combined with periodic payments of interest.
    4. Demand obligations. In demand obligations with no alternate 
maturity date, the creditor may omit disclosure of payment

[[Page 851]]

amounts under Sec. 1026.18(g)(1). In those transactions, the creditor 
need not disclose the total of payments.

                     Paragraph 18(i) Demand Feature

    1. Disclosure requirements. The disclosure requirements of this 
provision apply not only to transactions payable on demand from the 
outset, but also to transactions that are not payable on demand at the 
time of consummation but convert to a demand status after a stated 
period. In demand obligations in which the disclosures are based on an 
assumed maturity of 1 year under Sec. 1026.17(c)(5), that fact must 
also be stated. Appendix H contains model clauses that may be used in 
making this disclosure.
    2. Covered demand features. The type of demand feature triggering 
the disclosures required by Sec. 1026.18(i) includes only those demand 
features contemplated by the parties as part of the legal obligation. 
For example, this provision does not apply to transactions that covert 
to a demand status as a result of the consumer's default. A due-on-sale 
clause is not considered a demand feature. A creditor may, but need not, 
treat its contractual right to demand payment of a loan made to its 
executive officers as a demand feature to the extent that the 
contractual right is required by Regulation O of the Board of Governors 
of the Federal Reserve System (12 CFR 215.5) or other Federal law.
    3. Relationship to payment schedule disclosures. As provided in 
Sec. 1026.18(g)(1), in demand obligations with no alternate maturity 
date, the creditor need only disclose the due dates or payment periods 
of any scheduled interest payments for the first year. If the demand 
obligation states an alternate maturity, however, the disclosed payment 
schedule must reflect that stated term; the special rule in Sec. 
1026.18(g)(1) is not available.

                    Paragraph 18(j) Total Sale Price

    1. Disclosure required. In a credit sale transaction, the total sale 
price must be disclosed using that term, along with a descriptive 
explanation similar to the one in the regulation. For variable rate 
transactions, the descriptive phrase may, at the creditor's option, be 
modified to reflect the variable rate feature. For example, the 
descriptor may read: ``The total cost of your purchase on credit, which 
is subject to change, including your downpayment of * * *.'' The 
reference to a downpayment may be eliminated in transactions calling for 
no downpayment.
    2. Calculation of total sale price. The figure to be disclosed is 
the sum of the cash price, other charges added under Sec. 
1026.18(b)(2), and the finance charge disclosed under Sec. 1026.18(d).
    3. Effect of existing liens. When a credit sale transaction involves 
property that is being used as a trade-in (an automobile, for example) 
and that has a lien exceeding the value of the trade-in, the total sale 
price is affected by the amount of any cash provided. (See comment 
2(a)(18)-3.) To illustrate, assume a consumer finances the purchase of 
an automobile with a cash price of $20,000. Another vehicle used as a 
trade-in has a value of $8,000 but has an existing lien of $10,000, 
leaving a $2,000 deficit that the consumer must finance.
    i. If the consumer pays $1,500 in cash, the creditor may apply the 
cash first to the lien, leaving a $500 deficit, and reflect a 
downpayment of $0. The total sale price would include the $20,000 cash 
price, an additional $500 financed under Sec. 1026.18(b)(2), and the 
amount of the finance charge. Alternatively, the creditor may reflect a 
downpayment of $1,500 and finance the $2,000 deficit. In that case, the 
total sale price would include the sum of the $20,000 cash price, the 
$2,000 lien payoff amount as an additional amount financed, and the 
amount of the finance charge.
    ii. If the consumer pays $3,000 in cash, the creditor may apply the 
cash first to extinguish the lien and reflect the remainder as a 
downpayment of $1,000. The total sale price would reflect the $20,000 
cash price and the amount of the finance charge. (The cash payment 
extinguishes the trade-in deficit and no charges are added under Sec. 
1026.18(b)(2).) Alternatively, the creditor may elect to reflect a 
downpayment of $3,000 and finance the $2,000 deficit. In that case, the 
total sale price would include the sum of the $20,000 cash price, the 
$2,000 lien payoff amount as an additional amount financed, and the 
amount of the finance charge.

                            18(k) Prepayment

    1. Disclosure required. The creditor must give a definitive 
statement of whether or not a penalty will be imposed or a rebate will 
be given.
    i. The fact that no penalty will be imposed may not simply be 
inferred from the absence of a penalty disclosure; the creditor must 
indicate that prepayment will not result in a penalty.
    ii. If a penalty or refund is possible for one type of prepayment, 
even though not for all, a positive disclosure is required. This applies 
to any type of prepayment, whether voluntary or involuntary as in the 
case of prepayments resulting from acceleration.
    iii. Any difference in rebate or penalty policy, depending on 
whether prepayment is voluntary or not, must not be disclosed with the 
segregated disclosures.
    2. Rebate-penalty disclosure. A single transaction may involve both 
a precomputed finance charge and a finance charge computed by 
application of a rate to the unpaid balance (for example, mortgages with 
mortgage-guarantee insurance). In these cases, disclosures about both 
prepayment rebates

[[Page 852]]

and penalties are required. Sample form H-15 in Appendix H illustrates a 
mortgage transaction in which both rebate and penalty disclosures are 
necessary.
    3. Prepaid finance charge. The existence of a prepaid finance charge 
in a transaction does not, by itself, require a disclosure under Sec. 
1026.18(k). A prepaid finance charge is not considered a penalty under 
Sec. 1026.18(k)(1), nor does it require a disclosure under Sec. 
1026.18(k)(2). At its option, however, a creditor may consider a prepaid 
finance charge to be under Sec. 1026.18(k)(2). If a disclosure is made 
under Sec. 1026.18(k)(2) with respect to a prepaid finance charge or 
other finance charge, the creditor may further identify that finance 
charge. For example, the disclosure may state that the borrower ``will 
not be entitled to a refund of the prepaid finance charge'' or some 
other term that describes the finance charge.

                           Paragraph 18(k)(1)

    1. Penalty. This applies only to those transactions in which the 
interest calculation takes account of all scheduled reductions in 
principal, as well as transactions in which interest calculations are 
made daily. The term penalty as used here encompasses only those charges 
that are assessed strictly because of the prepayment in full of a 
simple-interest obligation, as an addition to all other amounts. Items 
which are penalties include, for example:
    i. Interest charges for any period after prepayment in full is made. 
(See the commentary to Sec. 1026.17(a)(1) regarding disclosure of 
interest charges assessed for periods after prepayment in full as 
directly related information.)
    ii. A minimum finance charge in a simple-interest transaction. (See 
the commentary to Sec. 1026.17(a)(1) regarding the disclosure of a 
minimum finance charge as directly related information.) Items which are 
not penalties include, for example, loan guarantee fees.

                           Paragraph 18(k)(2)

    1. Rebate of finance charge. i. This applies to any finance charges 
that do not take account of each reduction in the principal balance of 
an obligation. This category includes, for example:
    A. Precomputed finance charges such as add-on charges.
    B. Charges that take account of some but not all reductions in 
principal, such as mortgage guarantee insurance assessed on the basis of 
an annual declining balance, when the principal is reduced on a monthly 
basis.
    ii. No description of the method of computing earned or unearned 
finance charges is required or permitted as part of the segregated 
disclosures under this section.

                           18(l) Late Payment

    1. Definition. This paragraph requires a disclosure only if charges 
are added to individual delinquent installments by a creditor who 
otherwise considers the transaction ongoing on its original terms. Late 
payment charges do not include:
    i. The right of acceleration.
    ii. Fees imposed for actual collection costs, such as repossession 
charges or attorney's fees.
    iii. Deferral and extension charges.
    iv. The continued accrual of simple interest at the contract rate 
after the payment due date. However, an increase in the interest rate is 
a late payment charge to the extent of the increase.
    2. Content of disclosure. Many state laws authorize the calculation 
of late charges on the basis of either a percentage or a specified 
dollar amount, and permit imposition of the lesser or greater of the 2 
charges. The disclosure made under Sec. 1026.18(l) may reflect this 
alternative. For example, stating that the charge in the event of a late 
payment is 5% of the late amount, not to exceed $5.00, is sufficient. 
Many creditors also permit a grace period during which no late charge 
will be assessed; this fact may be disclosed as directly related 
information. (See the commentary to Sec. 1026.17(a).)

                         18(m) Security Interest

    1. Purchase money transactions. When the collateral is the item 
purchased as part of, or with the proceeds of, the credit transaction, 
Sec. 1026.18(m) requires only a general identification such as ``the 
property purchased in this transaction.'' However, the creditor may 
identify the property by item or type instead of identifying it more 
generally with a phrase such as ``the property purchased in this 
transaction.'' For example, a creditor may identify collateral as ``a 
motor vehicle,'' or as ``the property purchased in this transaction.'' 
Any transaction in which the credit is being used to purchase the 
collateral is considered a purchase money transaction and the 
abbreviated identification may be used, whether the obligation is 
treated as a loan or a credit sale.
    2. Nonpurchase money transactions. In nonpurchase money 
transactions, the property subject to the security interest must be 
identified by item or type. This disclosure is satisfied by a general 
disclosure of the category of property subject to the security interest, 
such as ``motor vehicles,'' ``securities,'' ``certain household items,'' 
or ``household goods.'' (Creditors should be aware, however, that the 
Federal credit practices rules, as well as some state laws, prohibit 
certain security interests in household goods.) At the creditor's 
option, however, a more precise identification of the property or goods 
may be provided.

[[Page 853]]

    3. Mixed collateral. In some transactions in which the credit is 
used to purchase the collateral, the creditor may also take other 
property of the consumer as security. In those cases, a combined 
disclosure must be provided, consisting of an identification of the 
purchase money collateral consistent with comment 18(m)-1 and a specific 
identification of the other collateral consistent with comment 18(m)-2.
    4. After-acquired property. An after-acquired property clause is not 
a security interest to be disclosed under Sec. 1026.18(m).
    5. Spreader clause. The fact that collateral for pre-existing credit 
with the institution is being used to secure the present obligation 
constitutes a security interest and must be disclosed. (Such security 
interests may be known as ``spreader'' or ``dragnet'' clauses, or as 
``cross-collateralization'' clauses.) A specific identification of that 
collateral is unnecessary but a reminder of the interest arising from 
the prior indebtedness is required. The disclosure may be made by using 
language such as ``collateral securing other loans with us may also 
secure this loan.'' At the creditor's option, a more specific 
description of the property involved may be given.
    6. Terms used in disclosure. No specified terminology is required in 
disclosing a security interest. Although the disclosure may, at the 
creditor's option, use the term security interest, the creditor may 
designate its interest by using, for example, pledge, lien, or mortgage.
    7. Collateral from third party. In certain transactions, the 
consumer's obligation may be secured by collateral belonging to a third 
party. For example, a loan to a student may be secured by an interest in 
the property of the student's parents. In such cases, the security 
interest is taken in connection with the transaction and must be 
disclosed, even though the property encumbered is owned by someone other 
than the consumer.

                  18(n) Insurance and Debt Cancellation

    1. Location. This disclosure may, at the creditor's option, appear 
apart from the other disclosures. It may appear with any other 
information, including the amount financed itemization, any information 
prescribed by state law, or other supplementary material. When this 
information is disclosed with the other segregated disclosures, however, 
no additional explanatory material may be included.
    2. Debt cancellation. Creditors may use the model credit insurance 
disclosures only if the debt cancellation coverage constitutes insurance 
under state law. Otherwise, they may provide a parallel disclosure that 
refers to debt cancellation coverage.

                 18(o) Certain Security Interest Charges

    1. Format. No special format is required for these disclosures; 
under Sec. 1026.4(e), taxes and fees paid to government officials with 
respect to a security interest may be aggregated, or may be broken down 
by individual charge. For example, the disclosure could be labeled 
``filing fees and taxes'' and all funds disbursed for such purposes may 
be aggregated in a single disclosure. This disclosure may appear, at the 
creditor's option, apart from the other required disclosures. The 
inclusion of this information on a statement required under the Real 
Estate Settlement Procedures Act is sufficient disclosure for purposes 
of Truth in Lending.

                   Paragraph 18(p) Contract Reference

    1. Content. Creditors may substitute, for the phrase ``appropriate 
contract document,'' a reference to specific transaction documents in 
which the additional information is found, such as ``promissory note'' 
or ``retail installment sale contract.'' A creditor may, at its option, 
delete inapplicable items in the contract reference, as for example when 
the contract documents contain no information regarding the right of 
acceleration.

                         18(q) Assumption Policy

    1. Policy statement. In many mortgages, the creditor cannot 
determine, at the time disclosure must be made, whether a loan may be 
assumable at a future date on its original terms. For example, the 
assumption clause commonly used in mortgages sold to the Federal 
National Mortgage Association and the Federal Home Loan Mortgage 
Corporation conditions an assumption on a variety of factors such as the 
creditworthiness of the subsequent borrower, the potential for 
impairment of the lender's security, and execution of an assumption 
agreement by the subsequent borrower. In cases where uncertainty exists 
as to the future assumability of a mortgage, the disclosure under Sec. 
1026.18(q) should reflect that fact. In making disclosures in such 
cases, the creditor may use phrases such as ``subject to conditions,'' 
``under certain circumstances,'' or ``depending on future conditions.'' 
The creditor may provide a brief reference to more specific criteria 
such as a due-on-sale clause, although a complete explanation of all 
conditions is not appropriate. For example, the disclosure may state, 
``Someone buying your home may be allowed to assume the mortgage on its 
original terms, subject to certain conditions, such as payment of an 
assumption fee.'' See comment 17(a)(1)-5 for an example for a reference 
to a due-on-sale clause.
    2. Original terms. The phrase original terms for purposes of Sec. 
1026.18(q) does not preclude the imposition of an assumption fee, but a 
modification of the basic credit agreement,

[[Page 854]]

such as a change in the contract interest rate, represents different 
terms.

                         18(r) Required Deposit

    1. Disclosure required. The creditor must inform the consumer of the 
existence of a required deposit. (Appendix H provides a model clause 
that may be used in making that disclosure.) Section 1026.18(r) 
describes 3 types of deposits that need not be considered required 
deposits. Use of the phrase ``need not'' permits creditors to include 
the disclosure even in cases where there is doubt as to whether the 
deposit constitutes a required deposit.
    2. Pledged account mortgages. In these transactions, a consumer 
pledges as collateral funds that the consumer deposits in an account 
held by the creditor. The creditor withdraws sums from that account to 
supplement the consumer's periodic payments. Creditors may treat these 
pledged accounts as required deposits or they may treat them as consumer 
buydowns in accordance with the commentary to Sec. 1026.17(c)(1).
    3. Escrow accounts. The escrow exception in Sec. 1026.18(r) 
applies, for example, to accounts for such items as maintenance fees, 
repairs, or improvements, whether in a realty or a nonrealty 
transaction. (See the commentary to Sec. 1026.17(c)(1) regarding the 
use of escrow accounts in consumer buydown transactions.)
    4. Interest-bearing accounts. When a deposit earns at least 5 
percent interest per year, no disclosure is required under Sec. 
1026.18(r). This exception applies whether the deposit is held by the 
creditor or by a third party.
    5. Morris Plan transactions. A deposit under a Morris Plan, in which 
a deposit account is created for the sole purpose of accumulating 
payments and this is applied to satisfy entirely the consumer's 
obligation in the transaction, is not a required deposit.
    6. Examples of amounts excluded. The following are among the types 
of deposits that need not be treated as required deposits:
    i. Requirement that a borrower be a customer or a member even if 
that involves a fee or a minimum balance.
    ii. Required property insurance escrow on a mobile home transaction.
    iii. Refund of interest when the obligation is paid in full.
    iv. Deposits that are immediately available to the consumer.
    v. Funds deposited with the creditor to be disbursed (for example, 
for construction) before the loan proceeds are advanced.
    vi. Escrow of condominium fees.
    vii. Escrow of loan proceeds to be released when the repairs are 
completed.

    18(s) Interest Rate and Payment Summary for Mortgage Transactions

    1. In general. Section 1026.18(s) prescribes format and content for 
disclosure of interest rates and monthly (or other periodic) payments 
for mortgage loans. The information in Sec. 1026.18(s)(2)-(4) is 
required to be in the form of a table, except as otherwise provided, 
with headings and format substantially similar to Model Clause H-4(E), 
H-4(F), H-4(G), or H-4(H) in Appendix H to this part. A disclosure that 
does not include the shading shown in a model clause but otherwise 
follows the model clause's headings and format is substantially similar 
to that model clause. Where Sec. 1026.18(s)(2)-(4) or the applicable 
model clause requires that a column or row of the table be labeled using 
the word ``monthly'' but the periodic payments are not due monthly, the 
creditor should use the appropriate term, such as ``bi-weekly'' or 
``quarterly.'' In all cases, the table should have no more than five 
vertical columns corresponding to applicable interest rates at various 
times during the loan's term; corresponding payments would be shown in 
horizontal rows. Certain loan types and terms are defined for purposes 
of Sec. 1026.18(s) in Sec. 1026.18(s)(7).
    2. Amortizing loans. Loans described as amortizing in Sec. Sec. 
1026.18(s)(2)(i) and 1026.18(s)(3) include interest-only loans if they 
do not also permit negative amortization. (For rules relating to loans 
with balloon payments, see Sec. 1026.18(s)(5)). If an amortizing loan 
is an adjustable-rate mortgage with an introductory rate (less than the 
fully-indexed rate), creditors must provide a special explanation of 
introductory rates. See Sec. 1026.18(s)(2)(iii).
    3. Negative amortization. For negative amortization loans, creditors 
must follow the rules in Sec. Sec. 1026.18(s)(2)(ii) and 1026.18(s)(4) 
in disclosing interest rates and monthly payments. Loans with negative 
amortization also require special explanatory disclosures about rates 
and payments. See Sec. 1026.18(s)(6). Loans with negative amortization 
include ``payment option'' loans, in which the consumer is permitted to 
make minimum payments that will cover only some of the interest accruing 
each month. See also comment 17(c)(1)-12, regarding graduated-payment 
adjustable-rate mortgages.

                         18(s)(2) Interest Rates

                      18(s)(2)(i) Amortizing Loans

                        Paragraph 18(s)(2)(i)(A)

    1. Fixed rate loans--payment increases. Although the interest rate 
will not change after consummation for a fixed-rate loan, some fixed-
rate loans may have periodic payments that increase after consummation.

[[Page 855]]

For example, the terms of the legal obligation may permit the consumer 
to make interest-only payments for a specified period such as the first 
five years after consummation. In such cases, the creditor must include 
the increased payment under Sec. 1026.18(s)(3)(ii)(B) in the payment 
row, and must show the interest rate in the column for that payment, 
even though the rate has not changed since consummation. See also 
comment 17(c)(1)-13, regarding growth equity mortgages.

                        Paragraph 18(s)(2)(i)(B)

    1. Adjustable-rate mortgages and step-rate mortgages. Creditors must 
disclose more than one interest rate for adjustable-rate mortgages and 
step-rate mortgages, in accordance with Sec. 1026.18(s)(2)(i)(B). 
Creditors must assume that an adjustable-rate mortgage's interest rate 
will increase after consummation as rapidly as possible, taking into 
account the terms of the legal obligation.
    2. Maximum interest rate during first five years--adjustable-rate 
mortgages and step-rate mortgages. The creditor must disclose the 
maximum rate that could apply during the first five years after 
consummation. If there are no interest rate caps other than the maximum 
rate required under Sec. 1026.30, then the creditor should disclose 
only the rate at consummation and the maximum rate. Such a table would 
have only two columns.
    i. For an adjustable-rate mortgage, the creditor must take into 
account any interest rate caps when disclosing the maximum interest rate 
during the first five years. The creditor must also disclose the 
earliest date on which that adjustment may occur.
    ii. If the transaction is a step-rate mortgage, the creditor should 
disclose the rate that will apply after consummation. For example, the 
legal obligation may provide that the rate is 6 percent for the first 
two years following consummation, and then increases to 7 percent for at 
least the next three years. The creditor should disclose the maximum 
rate during the first five years as 7 percent and the date on which the 
rate is scheduled to increase to 7 percent.
    3. Maximum interest rate at any time. The creditor must disclose the 
maximum rate that could apply at any time during the term of the loan 
and the earliest date on which the maximum rate could apply.
    i. For an adjustable-rate mortgage, the creditor must take into 
account any interest rate caps in disclosing the maximum interest rate. 
For example, if the legal obligation provides that at each annual 
adjustment the rate may increase by no more than 2 percentage points, 
the creditor must take this limit into account in determining the 
earliest date on which the maximum possible rate may be reached.
    ii. For a step-rate mortgage, the creditor should disclose the 
highest rate that could apply under the terms of the legal obligation 
and the date on which that rate will first apply.

                        Paragraph 18(s)(2)(i)(C)

    1. Payment increases. For some loans, the payment may increase 
following consummation for reasons unrelated to an interest rate 
adjustment. For example, an adjustable-rate mortgage may have an 
introductory fixed rate for the first five years following consummation 
and permit the borrower to make interest-only payments for the first 
three years. The disclosure requirement of Sec. 1026.18(s)(2)(i)(C) 
applies to all amortizing loans, including interest-only loans, if the 
consumer's payment can increase in the manner described in Sec. 
1026.18(s)(3)(i)(B), even if it is not the type of loan covered by Sec. 
1026.18(s)(3)(i). Thus, Sec. 1026.18(s)(2)(i)(C) requires that the 
creditor disclose the interest rate that corresponds to the first 
payment that includes principal as well as interest, even though the 
interest rate will not adjust at that time. In such cases, if the loan 
is an interest-only loan, the creditor also must disclose the 
corresponding periodic payment pursuant to Sec. 1026.18(s)(3)(ii). The 
table would show, from left to right: The interest rate and payment at 
consummation with the payment itemized to show that the payment is being 
applied to interest only; the interest rate and payment when the 
interest-only option ends; the maximum interest rate and payment during 
the first five years; and the maximum possible interest rate and 
payment. The disclosure requirements of Sec. 1026.18(s)(2)(i)(C) do not 
apply to minor payment variations resulting solely from the fact that 
months have different numbers of days.

                18(s)(2)(ii) Negative Amortization Loans

    1. Rate at consummation. In all cases the interest rate in effect at 
consummation must be disclosed, even if it will apply only for a short 
period such as one month.
    2. Rates for adjustable-rate mortgages. The creditor must assume 
that interest rates rise as quickly as possible after consummation, in 
accordance with any interest rate caps under the legal obligation. For 
adjustable-rate mortgages with no rate caps except a lifetime maximum, 
creditors must assume that interest rate reaches the maximum at the 
first adjustment. For example, assume that the legal obligation provides 
for an interest rate at consummation of 1.5 percent. One month after 
consummation, the interest rate adjusts and will adjust monthly 
thereafter, according to changes in the index. The consumer may make 
payments that cover only part of the interest accrued each month, until 
the date the principal balance reaches 115 percent of its original 
balance, or

[[Page 856]]

until the end of the fifth year after consummation, whichever comes 
first. The maximum possible rate is 10.5 percent. No other limits on 
interest rates apply. The minimum required payment adjusts each year, 
and may increase by no more than 7.5 percent over the previous year's 
payment. The creditor should disclose the following rates and the dates 
when they are scheduled to occur: A rate of 1.5 percent for the first 
month following consummation and the minimum payment; a rate of 10.5 
percent, and the corresponding minimum payment taking into account the 
7.5 percent limit on payment increases, at the beginning of the second 
year; and a rate of 10.5 percent and the corresponding minimum payment 
taking into account the 7.5 percent payment increase limit, at the 
beginning of the third year. The creditor also must disclose the rate of 
10.5 percent, the fully amortizing payment, and the date on which the 
consumer must first make such a payment under the terms of the legal 
obligation.

  18(s)(2)(iii) Introductory Rate Disclosure for Amortizing Adjustable-
                              Rate Mortgage

    1. Introductory rate. In some adjustable-rate mortgages, creditors 
may set an initial interest rate that is lower than the fully indexed 
rate at consummation. For amortizing loans with an introductory rate, 
creditors must disclose the information required in Sec. 
1026.18(s)(2)(iii) directly below the table.

                       Paragraph 18(s)(2)(iii)(B)

    1. Place in sequence. ``Designation of the place in sequence'' 
refers to identifying the month or year, as applicable, of the change in 
the rate resulting from the expiration of an introductory rate by its 
place in the sequence of months or years, as applicable, of the 
transaction's term. For example, if a transaction has a discounted rate 
for the first three years, Sec. 1026.18(s)(2)(iii)(B) requires a 
statement such as, ``In the fourth year, even if market rates do not 
change, this rate will increase to ----%.''

                       Paragraph 18(s)(2)(iii)(C)

    1. Fully indexed rate. The fully indexed rate is defined in Sec. 
1026.18(s)(7) as the index plus the margin at consummation. For purposes 
of Sec. 1026.18(s)(2)(iii)(C), ``at consummation'' refers to 
disclosures delivered at consummation, or three business days before 
consummation pursuant to Sec. 1026.19(a)(2)(ii); for early disclosures 
delivered within three business days after receipt of a consumer's 
application pursuant to Sec. 1026.19(a)(1), the fully indexed rate 
disclosed under Sec. 1026.18(s)(2)(iii)(C) may be based on the index in 
effect at the time the disclosures are provided. The index in effect at 
consummation (or at the time of early disclosures) need not be used if a 
contract provides for a delay in the implementation of changes in an 
index value. For example, if the contract specifies that rate changes 
are based on the index value in effect 45 days before the change date, 
creditors may use any index value in effect during the 45 days before 
consummation (or any earlier date of disclosure) in calculating the 
fully indexed rate to be disclosed.

                 18(s)(3) Payments for Amortizing Loans

    1. Payments corresponding to interest rates. Creditors must disclose 
the periodic payment that corresponds to each interest rate disclosed 
under Sec. 1026.18(s)(2)(i)(A)-(C). The corresponding periodic payment 
is the regular payment for each such interest rate, without regard to 
any final payment that differs from others because of the rounding of 
periodic payments to account for payment amounts including fractions of 
cents. Balloon payments, however, must be disclosed as provided in Sec. 
1026.18(s)(5).
    2. Principal and interest payment amounts; examples. i. For fixed-
rate interest-only transactions, Sec. 1026.18(s)(3)(ii)(B) requires 
scheduled increases in the regular periodic payment amounts to be 
disclosed along with the date of the increase. For example, in a fixed-
rate interest-only loan, a scheduled increase in the payment amount from 
an interest-only payment to a fully amortizing payment must be 
disclosed. Similarly, in a fixed-rate balloon loan, the balloon payment 
must be disclosed in accordance with Sec. 1026.18(s)(5).
    ii. For adjustable-rate mortgage transactions, Sec. 
1026.18(s)(3)(i)(A) requires that for each interest rate required to be 
disclosed under Sec. 1026.18(s)(2)(i) (the interest rate at 
consummation, the maximum rate during the first five years, and the 
maximum possible rate) a corresponding payment amount must be disclosed.
    iii. The format of the payment disclosure varies depending on 
whether all regular periodic payment amounts will include principal and 
interest, and whether there will be an escrow account for taxes and 
insurance.

                        Paragraph 18(s)(3)(i)(C)

    1. Taxes and insurance. An estimated payment amount for taxes and 
insurance must be disclosed if the creditor will establish an escrow 
account for such amounts. If the escrow account will include amounts for 
items other than taxes and insurance, such as homeowners association 
dues, the creditor may but is not required to include such items in the 
estimate. When such estimated escrow payments must be disclosed in 
multiple columns of the table, such as for adjustable- and step-rate 
transactions, each column should use the same estimate for taxes and 
insurance except that the estimate should reflect changes in periodic 
mortgage

[[Page 857]]

insurance premiums that are known to the creditor at the time the 
disclosure is made. The estimated amounts of mortgage insurance premiums 
should be based on the declining principal balance that will occur as a 
result of changes to the interest rate that are assumed for purposes of 
disclosing those rates under Sec. 1026.18(s)(2) and accompanying 
commentary. The payment amount must include estimated amounts for 
property taxes and premiums for mortgage-related insurance required by 
the creditor, such as insurance against loss of or damage to property, 
or against liability arising out of the ownership or use of the 
property, or insurance protecting the creditor against the consumer's 
default or other credit loss. Premiums for credit insurance, debt 
suspension and debt cancellation agreements, however, should not be 
included. Except for periodic mortgage insurance premiums included in 
the escrow payment under Sec. 1026.18(s)(3)(i)(C), amounts included in 
the escrow payment disclosure such as property taxes and homeowner's 
insurance generally are not finance charges under Sec. 1026.4 and, 
therefore, do not affect other disclosures, including the finance charge 
and annual percentage rate.
    2. Mortgage insurance. Payment amounts under Sec. 1026.18(s)(3)(i) 
should reflect the consumer's mortgage insurance payments until the date 
on which the creditor must automatically terminate coverage under 
applicable law, even though the consumer may have a right to request 
that the insurance be cancelled earlier. The payment amount must reflect 
the terms of the legal obligation, as determined by applicable state or 
other law. For example, assume that under applicable law, mortgage 
insurance must terminate after the 130th scheduled monthly payment, and 
the creditor collects at closing and places in escrow two months of 
premiums. If, under the legal obligation, the creditor will include 
mortgage insurance premiums in 130 payments and refund the escrowed 
payments when the insurance is terminated, payment amounts disclosed 
through the 130th payment should reflect premium payments. If, under the 
legal obligation, the creditor will apply the amount escrowed to the two 
final insurance payments, payments disclosed through the 128th payment 
should reflect premium payments. The escrow amount reflected on the 
disclosure should include mortgage insurance premiums even if they are 
not escrowed and even if there is no escrow account established for the 
transaction.

                        Paragraph 18(s)(3)(i)(D)

    1. Total monthly payment. For amortizing loans, each column should 
add up to a total estimated payment. The total estimated payment amount 
should be labeled. If periodic payments are not due monthly, the 
creditor should use the appropriate term such as ``quarterly'' or 
``annually.''

                   18(s)(3)(ii) Interest-Only Payments

    1. Interest-only loans that are also negative amortization loans. 
The rules in Sec. 1026.18(s)(3)(ii) for disclosing payments on 
interest-only loans apply only if the loan is not also a negative 
amortization loan. If the loan is a negative amortization loan, even if 
it also has an interest-only feature, payments are disclosed under the 
rules in Sec. 1026.18(s)(4).

                        Paragraph 18(s)(3)(ii)(C)

    1. Escrows. See the commentary under Sec. 1026.18(s)(3)(i)(C) for 
guidance on escrows for purposes of Sec. 1026.18(s)(3)(ii)(C).

            18(s)(4) Payments for Negative Amortization Loans

    1. Table. Section 1026.18(s)(1) provides that tables shall include 
only the information required in Sec. 1026.18(s)(2)-(4). Thus, a table 
for a negative amortization loan must contain no more than two 
horizontal rows of payments and no more than five vertical columns of 
interest rates.
    2. Payment amounts. The payment amounts disclosed under Sec. 
1026.18(s)(4) are the minimum or fully amortizing periodic payments, as 
applicable, corresponding to the interest rates disclosed under Sec. 
1026.18(s)(2)(ii). The corresponding periodic payment is the regular 
payment for each such interest rate, without regard to any final payment 
that differs from the rest because of the rounding of periodic payments 
to account for payment amounts including fractions of cents.

                          Paragraph 18(s)(4)(i)

    1. Minimum required payments. In one row of the table, the creditor 
must disclose the minimum required payment in each column of the table, 
corresponding to each interest rate or adjustment required in Sec. 
1026.18(s)(2)(ii). The payments in this row must be calculated based on 
an assumption that the consumer makes the minimum required payment for 
as long as possible under the terms of the legal obligation. This row 
should be identified as the minimum payment option, and the statement 
required by Sec. 1026.18(s)(4)(i)(C) should be included in the heading 
for the row.

                         Paragraph 18(s)(4)(iii)

    1. Fully amortizing payments. In one row of the table, the creditor 
must disclose the fully amortizing payment in each column of the table, 
corresponding to each interest rate required in Sec. 1026.18(s)(2)(ii). 
The creditor must assume, for purposes of calculating the amounts in 
this row that the consumer makes only fully amortizing payments starting 
with the first scheduled payment.

[[Page 858]]

                        18(s)(5) Balloon Payments

    1. General. A balloon payment is one that is more than two times the 
regular periodic payment. In a reverse mortgage transaction, the single 
payment is not considered a balloon payment. A balloon payment must be 
disclosed outside and below the table, unless the balloon payment 
coincides with an interest rate adjustment or a scheduled payment 
increase. In those cases, the balloon payment must be disclosed in the 
table.

    18(s)(6) Special Disclosures for Loans With Negative Amortization

    1. Escrows. See the commentary under Sec. 1026.18(s)(3)(i)(C) for 
guidance on escrows for purposes of Sec. 1026.18(s)(6). Under that 
guidance, because mortgage insurance payments decline over a loan's 
term, the payment amounts shown in the table should reflect the mortgage 
insurance payment that will be applicable at the time each disclosed 
periodic payment will be in effect. Accordingly, the disclosed mortgage 
insurance payment will be zero if it corresponds to a periodic payment 
that will occur after the creditor will be legally required to terminate 
mortgage insurance. On the other hand, because only one escrow amount is 
disclosed under Sec. 1026.18(s)(6) for negative amortization loans and 
escrows are not itemized in the payment amounts, the single escrow 
amount disclosed should reflect the mortgage insurance amount that will 
be collected at the outset of the loan's term, even though that amount 
will decline in the future and ultimately will be discontinued pursuant 
to the terms of the mortgage insurance policy.

                          18(s)(7) Definitions

    1. Negative amortization loans. Under Sec. 1026.18(s)(7)(v), a 
negative amortization loan is one that requires only a minimum periodic 
payment that covers only a portion of the accrued interest, resulting in 
negative amortization. For such a loan, Sec. 1026.18(s)(4)(iii) 
requires creditors to disclose the fully amortizing periodic payment for 
each interest rate disclosed under Sec. 1026.18(s)(2)(ii), in addition 
to the minimum periodic payment, regardless of whether the legal 
obligation explicitly recites that the consumer may make the fully 
amortizing payment. Some loan types that result in negative amortization 
do not meet the definition of negative amortization loan for purposes of 
Sec. 1026.18(s). These include, for example, loans requiring level, 
amortizing payments but having a payment schedule containing gaps during 
which interest accrues and is added to the principal balance before 
regular, amortizing payments begin (or resume). For example, ``seasonal 
income'' loans may provide for amortizing payments during nine months of 
the year and no payments for the other three months; the required 
minimum payments (when made) are amortizing payments, thus such loans 
are not negative amortization loans under Sec. 1026.18(s)(7)(v). An 
adjustable-rate loan that has fixed periodic payments that do not adjust 
when the interest rate adjusts also would not be disclosed as a negative 
amortization loan under Sec. 1026.18(s). For example, assume the 
initial rate is 4%, for which the fully amortizing payment is $1500. 
Under the terms of the legal obligation, the consumer will make $1500 
monthly payments even if the interest rate increases, and the additional 
interest is capitalized. The possibility (but not certainty) of negative 
amortization occurring after consummation does not make this transaction 
a negative amortization loan for purposes of Sec. 1026.18(s). Loans 
that do not meet the definition of negative amortization loan, even if 
they may have negative amortization, are amortizing loans and are 
disclosed under Sec. Sec. 1026.18(s)(2)(i) and 1026.18(s)(3).

    Section 1026.19--Certain Mortgage and Variable-Rate Transactions

                     19(a)(1)(i) Time of Disclosures

    1. Coverage. This section requires early disclosure of credit terms 
in mortgage transactions that are secured by a consumer's dwelling 
(other than home equity lines of credit subject to Sec. 1026.40 or 
mortgage transactions secured by an interest in a timeshare plan) that 
are also subject to the Real Estate Settlement Procedures Act (RESPA) 
and its implementing Regulation X. To be covered by Sec. 1026.19, a 
transaction must be a federally related mortgage loan under RESPA. 
``Federally related mortgage loan'' is defined under RESPA (12 U.S.C. 
2602) and Regulation X (12 CFR 1024.2), and is subject to any 
interpretations by the Bureau.
    2. Timing and use of estimates. The disclosures required by Sec. 
1026.19(a)(1)(i) must be delivered or mailed not later than three 
business days after the creditor receives the consumer's written 
application. The general definition of ``business day'' in Sec. 
1026.2(a)(6)--a day on which the creditor's offices are open to the 
public for substantially all of its business functions--is used for 
purposes of Sec. 1026.19(a)(1)(i). See comment 2(a)(6)-1. This general 
definition is consistent with the definition of ``business day'' in 
Regulation X--a day on which the creditor's offices are open to the 
public for carrying on substantially all of its business functions. See 
12 CFR 1024.2. Accordingly, the three-business-day period in Sec. 
1026.19(a)(1)(i) for making early disclosures coincides with the time 
period within which creditors subject to RESPA must provide good faith 
estimates of settlement costs. If the creditor does not know the precise 
credit terms, the creditor must base the disclosures on the best 
information reasonably available and indicate that the disclosures are 
estimates under Sec. 1026.17(c)(2). If

[[Page 859]]

many of the disclosures are estimates, the creditor may include a 
statement to that effect (such as ``all numerical disclosures except the 
late-payment disclosure are estimates'') instead of separately labeling 
each estimate. In the alternative, the creditor may label as an estimate 
only the items primarily affected by unknown information. (See the 
commentary to Sec. 1026.17(c)(2).) The creditor may provide explanatory 
material concerning the estimates and the contingencies that may affect 
the actual terms, in accordance with the commentary to Sec. 
1026.17(a)(1).
    3. Written application. Creditors may rely on RESPA and Regulation X 
(including any interpretations issued by the Bureau) in deciding whether 
a ``written application'' has been received. In general, Regulation X 
defines ``application'' to mean the submission of a borrower's financial 
information in anticipation of a credit decision relating to a federally 
related mortgage loan. See 12 CFR 1024.2(b). An application is received 
when it reaches the creditor in any of the ways applications are 
normally transmitted--by mail, hand delivery, or through an intermediary 
agent or broker. (See comment 19(b)-3 for guidance in determining 
whether or not the transaction involves an intermediary agent or 
broker.) If an application reaches the creditor through an intermediary 
agent or broker, the application is received when it reaches the 
creditor, rather than when it reaches the agent or broker.
    4. Denied or withdrawn applications. The creditor may determine 
within the three-business-day period that the application will not or 
cannot be approved on the terms requested, as, for example, when a 
consumer applies for a type or amount of credit that the creditor does 
not offer, or the consumer's application cannot be approved for some 
other reason. In that case, or if the consumer withdraws the application 
within the three-business-day period, the creditor need not make the 
disclosures under this section. If the creditor fails to provide early 
disclosures and the transaction is later consummated on the original 
terms, the creditor will be in violation of this provision. If, however, 
the consumer amends the application because of the creditor's 
unwillingness to approve it on its original terms, no violation occurs 
for not providing disclosures based on the original terms. But the 
amended application is a new application subject to Sec. 
1026.19(a)(1)(i).
    5. Itemization of amount financed. In many mortgage transactions, 
the itemization of the amount financed required by Sec. 1026.18(c) will 
contain items, such as origination fees or points, that also must be 
disclosed as part of the good faith estimates of settlement costs 
required under RESPA. Creditors furnishing the RESPA good faith 
estimates need not give consumers any itemization of the amount 
financed.

                     19(a)(1)(ii) Imposition of Fees

    1. Timing of fees. The consumer must receive the disclosures 
required by this section before paying or incurring any fee imposed by a 
creditor or other person in connection with the consumer's application 
for a mortgage transaction that is subject to Sec. 1026.19(a)(1)(i), 
except as provided in Sec. 1026.19(a)(1)(iii). If the creditor delivers 
the disclosures to the consumer in person, a fee may be imposed anytime 
after delivery. If the creditor places the disclosures in the mail, the 
creditor may impose a fee after the consumer receives the disclosures 
or, in all cases, after midnight on the third business day following 
mailing of the disclosures. For purposes of Sec. 1026.19(a)(1)(ii), the 
term ``business day'' means all calendar days except Sundays and legal 
public holidays referred to in Sec. 1026.2(a)(6). See comment 2(a)(6)-
2. For example, assuming that there are no intervening legal public 
holidays, a creditor that receives the consumer's written application on 
Monday and mails the early mortgage loan disclosure on Tuesday may 
impose a fee on the consumer after midnight on Friday.
    2. Fees restricted. A creditor or other person may not impose any 
fee, such as for an appraisal, underwriting, or broker services, until 
the consumer has received the disclosures required by Sec. 
1026.19(a)(1)(i). The only exception to the fee restriction allows the 
creditor or other person to impose a bona fide and reasonable fee for 
obtaining a consumer's credit history, such as for a credit report(s).
    3. Collection of fees. A creditor complies with Sec. 
1026.19(a)(1)(ii) if:
    i. The creditor receives a consumer's written application directly 
from the consumer and does not collect any fee, other than a fee for 
obtaining a consumer's credit history, until the consumer receives the 
early mortgage loan disclosure.
    ii. A third party submits a consumer's written application to a 
creditor and both the creditor and third party do not collect any fee, 
other than a fee for obtaining a consumer's credit history, until the 
consumer receives the early mortgage loan disclosure from the creditor.
    iii. A third party submits a consumer's written application to a 
second creditor following a prior creditor's denial of an application 
made by the same consumer (or following the consumer's withdrawal), and, 
if a fee already has been assessed, the new creditor or third party does 
not collect or impose any additional fee until the consumer receives an 
early mortgage loan disclosure from the new creditor.

[[Page 860]]

               19(a)(1)(iii) Exception to Fee Restriction

    1. Requirements. A creditor or other person may impose a fee before 
the consumer receives the required disclosures if it is for obtaining 
the consumer's credit history, such as by purchasing a credit report(s) 
on the consumer. The fee also must be bona fide and reasonable in 
amount. For example, a creditor may collect a fee for obtaining a credit 
report(s) if it is in the creditor's ordinary course of business to 
obtain a credit report(s). If the criteria in Sec. 1026.19(a)(1)(iii) 
are met, the creditor may describe or refer to this fee, for example, as 
an ``application fee.''

19(a)(2) Waiting Periods for Early Disclosures and Corrected Disclosures

    1. Business day definition. For purposes of Sec. 1026.19(a)(2), 
``business day'' means all calendar days except Sundays and the legal 
public holidays referred to in Sec. 1026.2(a)(6). See comment 2(a)(6)-
2.
    2. Consummation after both waiting periods expire. Consummation may 
not occur until both the seven-business-day waiting period and the 
three-business-day waiting period have expired. For example, assume a 
creditor delivers the early disclosures to the consumer in person or 
places them in the mail on Monday, June 1, and the creditor then 
delivers corrected disclosures in person to the consumer on Wednesday, 
June 3. Although Saturday, June 6 is the third business day after the 
consumer received the corrected disclosures, consummation may not occur 
before Tuesday, June 9, the seventh business day following delivery or 
mailing of the early disclosures.

                          Paragraph 19(a)(2)(i)

    1. Timing. The disclosures required by Sec. 1026.19(a)(1)(i) must 
be delivered or placed in the mail no later than the seventh business 
day before consummation. The seven-business-day waiting period begins 
when the creditor delivers the early disclosures or places them in the 
mail, not when the consumer receives or is deemed to have received the 
early disclosures. For example, if a creditor delivers the early 
disclosures to the consumer in person or places them in the mail on 
Monday, June 1, consummation may occur on or after Tuesday, June 9, the 
seventh business day following delivery or mailing of the early 
disclosures.

                         Paragraph 19(a)(2)(ii)

    1. Conditions for redisclosure. If, at the time of consummation, the 
annual percentage rate disclosed is accurate under Sec. 1026.22, the 
creditor does not have to make corrected disclosures under Sec. 
1026.19(a)(2). If, on the other hand, the annual percentage rate 
disclosed is not accurate under Sec. 1026.22, the creditor must make 
corrected disclosures of all changed terms (including the annual 
percentage rate) so that the consumer receives them not later than the 
third business day before consummation. For example, assume consummation 
is scheduled for Thursday, June 11 and the early disclosures for a 
regular mortgage transaction disclose an annual percentage rate of 
7.00%:
    i. On Thursday, June 11, the annual percentage rate will be 7.10%. 
The creditor is not required to make corrected disclosures under Sec. 
1026.19(a)(2).
    ii. On Thursday, June 11, the annual percentage rate will be 7.15%. 
The creditor must make corrected disclosures so that the consumer 
receives them on or before Monday, June 8.
    2. Content of new disclosures. If redisclosure is required, the 
creditor may provide a complete set of new disclosures, or may 
redisclose only the changed terms. If the creditor chooses to provide a 
complete set of new disclosures, the creditor may but need not highlight 
the new terms, provided that the disclosures comply with the format 
requirements of Sec. 1026.17(a). If the creditor chooses to disclose 
only the new terms, all the new terms must be disclosed. For example, a 
different annual percentage rate will almost always produce a different 
finance charge, and often a new schedule of payments; all of these 
changes would have to be disclosed. If, in addition, unrelated terms 
such as the amount financed or prepayment penalty vary from those 
originally disclosed, the accurate terms must be disclosed. However, no 
new disclosures are required if the only inaccuracies involve estimates 
other than the annual percentage rate, and no variable rate feature has 
been added. For a discussion of the requirement to redisclose when a 
variable-rate feature is added, see comment 17(f)-2. For a discussion of 
redisclosure requirements in general, see the commentary on Sec. 
1026.17(f).
    3. Timing. When redisclosures are necessary because the annual 
percentage rate has become inaccurate, they must be received by the 
consumer no later than the third business day before consummation. (For 
redisclosures triggered by other events, the creditor must provide 
corrected disclosures before consummation. See Sec. 1026.17(f).) If the 
creditor delivers the corrected disclosures to the consumer in person, 
consummation may occur any time on the third business day following 
delivery. If the creditor provides the corrected disclosures by mail, 
the consumer is considered to have received them three business days 
after they are placed in the mail, for purposes of determining when the 
three-business-day waiting period required under Sec. 1026.19(a)(2)(ii) 
begins. Creditors that use electronic mail or a courier other than the 
postal service may also follow this approach.

[[Page 861]]

    4. Basis for annual percentage rate comparison. To determine whether 
a creditor must make corrected disclosures under Sec. 1026.22, a 
creditor compares (a) what the annual percentage rate will be at 
consummation to (b) the annual percentage rate stated in the most recent 
disclosures the creditor made to the consumer. For example, assume 
consummation for a regular mortgage transaction is scheduled for 
Thursday, June 11, the early disclosures provided in May stated an 
annual percentage rate of 7.00%, and corrected disclosures received by 
the consumer on Friday, June 5 stated an annual percentage rate of 
7.15%:
    i. On Thursday, June 11, the annual percentage rate will be 7.25%, 
which exceeds the most recently disclosed annual percentage rate by less 
than the applicable tolerance. The creditor is not required to make 
additional corrected disclosures or wait an additional three business 
days under Sec. 1026.19(a)(2).
    ii. On Thursday, June 11, the annual percentage rate will be 7.30%, 
which exceeds the most recently disclosed annual percentage rate by more 
than the applicable tolerance. The creditor must make corrected 
disclosures such that the consumer receives them on or before Monday, 
June 8.

    19(a)(3) Consumer's Waiver of Waiting Period Before Consummation

    1. Modification or waiver. A consumer may modify or waive the right 
to a waiting period required by Sec. 1026.19(a)(2) only after the 
creditor makes the disclosures required by Sec. 1026.18. The consumer 
must have a bona fide personal financial emergency that necessitates 
consummating the credit transaction before the end of the waiting 
period. Whether these conditions are met is determined by the facts 
surrounding individual situations. The imminent sale of the consumer's 
home at foreclosure, where the foreclosure sale will proceed unless loan 
proceeds are made available to the consumer during the waiting period, 
is one example of a bona fide personal financial emergency. Each 
consumer who is primarily liable on the legal obligation must sign the 
written statement for the waiver to be effective.
    2. Examples of waivers within the seven-business-day waiting period. 
Assume the early disclosures are delivered to the consumer in person on 
Monday, June 1, and at that time the consumer executes a waiver of the 
seven-business-day waiting period (which would end on Tuesday, June 9) 
so that the loan can be consummated on Friday, June 5:
    i. If the annual percentage rate on the early disclosures is 
inaccurate under Sec. 1026.22, the creditor must provide a corrected 
disclosure to the consumer before consummation, which triggers the 
three-business-day waiting period in Sec. 1026.19(a)(2)(ii). After the 
consumer receives the corrected disclosure, the consumer must execute a 
waiver of the three-business-day waiting period in order to consummate 
the transaction on Friday, June 5.
    ii. If a change occurs that does not render the annual percentage 
rate on the early disclosures inaccurate under Sec. 1026.22, the 
creditor must disclose the changed terms before consummation, consistent 
with Sec. 1026.17(f). Disclosure of the changed terms does not trigger 
an additional waiting period, and the transaction may be consummated on 
June 5 without the consumer giving the creditor an additional 
modification or waiver.
    3. Examples of waivers made after the seven-business-day waiting 
period. Assume the early disclosures are delivered to the consumer in 
person on Monday, June 1 and consummation is scheduled for Friday, June 
19. On Wednesday, June 17, a change to the annual percentage rate 
occurs:
    i. If the annual percentage rate on the early disclosures is 
inaccurate under Sec. 1026.22, the creditor must provide a corrected 
disclosure to the consumer before consummation, which triggers the 
three-business-day waiting period in Sec. 1026.19(a)(2). After the 
consumer receives the corrected disclosure, the consumer must execute a 
waiver of the three-business-day waiting period in order to consummate 
the transaction on Friday, June 19.
    ii. If a change occurs that does not render the annual percentage 
rate on the early disclosures inaccurate under Sec. 1026.22, the 
creditor must disclose the changed terms before consummation, consistent 
with Sec. 1026.17(f). Disclosure of the changed terms does not trigger 
an additional waiting period, and the transaction may be consummated on 
Friday, June 19 without the consumer giving the creditor an additional 
modification or waiver.

                             19(a)(4) Notice

    1. Inclusion in other disclosures. The notice required by Sec. 
1026.19(a)(4) must be grouped together with the disclosures required by 
Sec. 1026.19(a)(1)(i) or Sec. 1026.19(a)(2). See comment 17(a)(1)-2 
for a discussion of the rules for segregating disclosures. In other 
cases, the notice set forth in Sec. 1026.19(a)(4) may be disclosed 
together with or separately from the disclosures required under Sec. 
1026.18. See comment 17(a)(1)-5.xvi.

                        19(a)(5) Timeshare Plans

                         Paragraph 19(a)(5)(ii)

    1. Timing. A mortgage transaction secured by a consumer's interest 
in a ``timeshare plan,'' as defined in 11 U.S.C. 101(53D), that is also 
a federally related mortgage loan under RESPA is subject to the 
requirements of Sec. 1026.19(a)(5) instead of the requirements of Sec. 
1026.19(a)(1) through Sec. 1026.19(a)(4). See comment 19(a)(1)(i)-1. 
Early disclosures for

[[Page 862]]

transactions subject to Sec. 1026.19(a)(5) must be given (a) before 
consummation or (b) within three business days after the creditor 
receives the consumer's written application, whichever is earlier. The 
general definition of ``business day'' in Sec. 1026.2(a)(6)--a day on 
which the creditor's offices are open to the public for substantially 
all of its business functions--applies for purposes of Sec. 
1026.19(a)(5)(ii). See comment 2(a)(6)-1. These timing requirements are 
different from the timing requirements under Sec. 1026.19(a)(1)(i). 
Timeshare transactions covered by Sec. 1026.19(a)(5) may be consummated 
any time after the disclosures required by Sec. 1026.19(a)(5)(ii) are 
provided.
    2. Use of estimates. If the creditor does not know the precise 
credit terms, the creditor must base the disclosures on the best 
information reasonably available and indicate that the disclosures are 
estimates under Sec. 1026.17(c)(2). If many of the disclosures are 
estimates, the creditor may include a statement to that effect (such as 
``all numerical disclosures except the late-payment disclosure are 
estimates'') instead of separately labeling each estimate. In the 
alternative, the creditor may label as an estimate only the items 
primarily affected by unknown information. (See the commentary to Sec. 
1026.17(c)(2).) The creditor may provide explanatory material concerning 
the estimates and the contingencies that may affect the actual terms, in 
accordance with the commentary to Sec. 1026.17(a)(1).
    3. Written application. For timeshare transactions, creditors may 
rely on comment 19(a)(1)(i)-3 in determining whether a ``written 
application'' has been received.
    4. Denied or withdrawn applications. For timeshare transactions, 
creditors may rely on comment 19(a)(1)(i)-4 in determining that 
disclosures are not required by Sec. 1026.19(a)(5)(ii) because the 
consumer's application will not or cannot be approved on the terms 
requested or the consumer has withdrawn the application.
    5. Itemization of amount financed. For timeshare transactions, 
creditors may rely on comment 19(a)(1)(i)-5 in determining whether 
providing the good faith estimates of settlement costs required by RESPA 
satisfies the requirement of Sec. 1026.18(c) to provide an itemization 
of the amount financed.

                         Paragraph 19(a)(5)(iii)

    1. Consummation or settlement. For extensions of credit secured by a 
consumer's timeshare plan, when corrected disclosures are required, they 
must be given no later than ``consummation or settlement.'' 
``Consummation'' is defined in Sec. 1026.2(a). ``Settlement'' is 
defined in Regulation X (12 CFR 1024.2(b)) and is subject to any 
interpretations issued by the Bureau. In some cases, a creditor may 
delay redisclosure until settlement, which may be at a time later than 
consummation. If a creditor chooses to redisclose at settlement, 
disclosures may be based on the terms in effect at settlement, rather 
than at consummation. For example, in a variable-rate transaction, a 
creditor may choose to base disclosures on the terms in effect at 
settlement, despite the general rule in comment 17(c)(1)-8 that 
variable-rate disclosures should be based on the terms in effect at 
consummation.
    2. Content of new disclosures. Creditors may rely on comment 
19(a)(2)(ii)-2 in determining the content of corrected disclosures 
required under Sec. 1026.19(a)(5)(iii).

                19(b) Certain Variable-Rate Transactions

    1. Coverage. Section 1026.19(b) applies to all closed-end variable-
rate transactions that are secured by the consumer's principal dwelling 
and have a term greater than one year. The requirements of this section 
apply not only to transactions financing the initial acquisition of the 
consumer's principal dwelling, but also to any other closed-end 
variable-rate transaction secured by the principal dwelling. Closed-end 
variable-rate transactions that are not secured by the principal 
dwelling, or are secured by the principal dwelling but have a term of 
one year or less, are subject to the disclosure requirements of Sec. 
1026.18(f)(1) rather than those of Sec. 1026.19(b). (Furthermore, 
``shared-equity'' or ``shared-appreciation'' mortgages are subject to 
the disclosure requirements of Sec. 1026.18(f)(1) rather than those of 
Sec. 1026.19(b) regardless of the general coverage of those sections.) 
For purposes of this section, the term of a variable-rate demand loan is 
determined in accordance with the commentary to Sec. 1026.17(c)(5). In 
determining whether a construction loan that may be permanently financed 
by the same creditor is covered under this section, the creditor may 
treat the construction and the permanent phases as separate transactions 
with distinct terms to maturity or as a single combined transaction. For 
purposes of the disclosures required under Sec. 1026.18, the creditor 
may nevertheless treat the two phases either as separate transactions or 
as a single combined transaction in accordance with Sec. 1026.17(c)(6). 
Finally, in any assumption of a variable-rate transaction secured by the 
consumer's principal dwelling with a term greater than one year, 
disclosures need not be provided under Sec. Sec. 1026.18(f)(2)(ii) or 
1026.19(b).
    2. Timing. A creditor must give the disclosures required under this 
section at the time an application form is provided or before the 
consumer pays a nonrefundable fee, whichever is earlier.
    i. Intermediary agent or broker. In cases where a creditor receives 
a written application through an intermediary agent or broker, however, 
Sec. 1026.19(b) provides a substitute timing rule requiring the 
creditor to deliver the disclosures or place them in the

[[Page 863]]

mail not later than three business days after the creditor receives the 
consumer's written application. (See comment 19(b)-3 for guidance in 
determining whether or not the transaction involves an intermediary 
agent or broker.) This three-day rule also applies where the creditor 
takes an application over the telephone.
    ii. Telephone request. In cases where the consumer merely requests 
an application over the telephone, the creditor must include the early 
disclosures required under this section with the application that is 
sent to the consumer.
    iii. Mail solicitations. In cases where the creditor solicits 
applications through the mail, the creditor must also send the 
disclosures required under this section if an application form is 
included with the solicitation.
    iv. Conversion. In cases where an open-end credit account will 
convert to a closed-end transaction subject to this section under a 
written agreement with the consumer, disclosures under this section may 
be given at the time of conversion. (See the commentary to Sec. 
1026.20(a) for information on the timing requirements for Sec. 
1026.19(b)(2) disclosures when a variable-rate feature is later added to 
a transaction.)
    v. Form of electronic disclosures provided on or with electronic 
applications. Creditors must provide the disclosures required by this 
section (including the brochure) on or with a blank application that is 
made available to the consumer in electronic form, such as on a 
creditor's Internet Web site. Creditors have flexibility in satisfying 
this requirement. There are various methods creditors could use to 
satisfy the requirement. Whatever method is used, a creditor need not 
confirm that the consumer has read the disclosures. Methods include, but 
are not limited to, the following examples:
    A. The disclosures could automatically appear on the screen when the 
application appears;
    B. The disclosures could be located on the same web page as the 
application (whether or not they appear on the initial screen), if the 
application contains a clear and conspicuous reference to the location 
of the disclosures and indicates that the disclosures contain rate, fee, 
and other cost information, as applicable;
    C. Creditors could provide a link to the electronic disclosures on 
or with the application as long as consumers cannot bypass the 
disclosures before submitting the application. The link would take the 
consumer to the disclosures, but the consumer need not be required to 
scroll completely through the disclosures; or
    D. The disclosures could be located on the same web page as the 
application without necessarily appearing on the initial screen, 
immediately preceding the button that the consumer will click to submit 
the application.
    3. Intermediary agent or broker. i. In certain transactions 
involving an ``intermediary agent or broker,'' a creditor may delay 
providing disclosures. A creditor may not delay providing disclosures in 
transactions involving either a legal agent (as determined by applicable 
law) or any other third party that is not an ``intermediary agent or 
broker.'' In determining whether or not a transaction involves an 
``intermediary agent or broker'' the following factors should be 
considered:
    A. The number of applications submitted by the broker to the 
creditor as compared to the total number of applications received by the 
creditor. The greater the percentage of total loan applications 
submitted by the broker in any given period of time, the less likely it 
is that the broker would be considered an ``intermediary agent or 
broker'' of the creditor during the next period.
    B. The number of applications submitted by the broker to the 
creditor as compared to the total number of applications received by the 
broker. (This factor is applicable only if the creditor has such 
information.) The greater the percentage of total loan applications 
received by the broker that is submitted to a creditor in any given 
period of time, the less likely it is that the broker would be 
considered an ``intermediary agent or broker'' of the creditor during 
the next period.
    C. The amount of work (such as document preparation) the creditor 
expects to be done by the broker on an application based on the 
creditor's prior dealings with the broker and on the creditor's 
requirements for accepting applications, taking into consideration the 
customary practice of brokers in a particular area. The more work that 
the creditor expects the broker to do on an application, in excess of 
what is usually expected of a broker in that area, the less likely it is 
that the broker would be considered an ``intermediary agent or broker'' 
of the creditor.
    ii. An example of an ``intermediary agent or broker'' is a broker 
who, customarily within a brief period of time after receiving an 
application, inquires about the credit terms of several creditors with 
whom the broker does business and submits the application to one of 
them. The broker is responsible for only a small percentage of the 
applications received by that creditor. During the time the broker has 
the application, it might request a credit report and an appraisal (or 
even prepare an entire loan package if customary in that particular 
area).
    4. Other variable-rate regulations. Transactions in which the 
creditor is required to comply with and has complied with the disclosure 
requirements of the variable-rate regulations of other Federal agencies 
are exempt from the requirements of Sec. 1026.19(b), by virtue of Sec. 
1026.19(d), and are exempt from the

[[Page 864]]

requirements of Sec. 1026.20(c), by virtue of Sec. 1026.20(d). The 
exception is also available to creditors that are required by state law 
to comply with the Federal variable-rate regulations noted above. 
Creditors using this exception should comply with the timing 
requirements of those regulations rather than the timing requirements of 
Regulation Z in making the variable-rate disclosures.
    5. Examples of variable-rate transactions. i. The following 
transactions, if they have a term greater than one year and are secured 
by the consumer's principal dwelling, constitute variable-rate 
transactions subject to the disclosure requirements of Sec. 1026.19(b).
    A. Renewable balloon-payment instruments where the creditor is both 
unconditionally obligated to renew the balloon-payment loan at the 
consumer's option (or is obligated to renew subject to conditions within 
the consumer's control) and has the option of increasing the interest 
rate at the time of renewal. (See comment 17(c)(1)-11 for a discussion 
of conditions within a consumer's control in connection with renewable 
balloon-payment loans.)
    B. Preferred-rate loans where the terms of the legal obligation 
provide that the initial underlying rate is fixed but will increase upon 
the occurrence of some event, such as an employee leaving the employ of 
the creditor, and the note reflects the preferred rate. The disclosures 
under Sec. Sec. 1026.19(b)(1) and 1026.19(b)(2)(v), (viii), (ix), and 
(xii) are not applicable to such loans.
    C. ``Price-level-adjusted mortgages'' or other indexed mortgages 
that have a fixed rate of interest but provide for periodic adjustments 
to payments and the loan balance to reflect changes in an index 
measuring prices or inflation. The disclosures under Sec. 1026.19(b)(1) 
are not applicable to such loans, nor are the following provisions to 
the extent they relate to the determination of the interest rate by the 
addition of a margin, changes in the interest rate, or interest rate 
discounts: Section 1026.19(b)(2) (i), (iii), (iv), (v), (vi), (vii), 
(viii), and (ix). (See comments 20(c)-2 and 30-1 regarding the 
inapplicability of variable-rate adjustment notices and interest rate 
limitations to price-level-adjusted or similar mortgages.)
    ii. Graduated-payment mortgages and step-rate transactions without a 
variable-rate feature are not considered variable-rate transactions.

                           Paragraph 19(b)(1)

    1. Substitute. Creditors who wish to use publications other than the 
Consumer Handbook on Adjustable Rate Mortgages, available on the 
Bureau's Web site, must make a good faith determination that their 
brochures are suitable substitutes to the Consumer Handbook. A 
substitute is suitable if it is, at a minimum, comparable to the 
Consumer Handbook in substance and comprehensiveness. Creditors are 
permitted to provide more detailed information than is contained in the 
Consumer Handbook.
    2. Applicability. The Consumer Handbook need not be given for 
variable-rate transactions subject to this section in which the 
underlying interest rate is fixed. (See comment 19(b)-5 for an example 
of a variable-rate transaction where the underlying interest rate is 
fixed.)

                           Paragraph 19(b)(2)

    1. Disclosure for each variable-rate program. A creditor must 
provide disclosures to the consumer that fully describe each of the 
creditor's variable-rate loan programs in which the consumer expresses 
an interest. If a program is made available only to certain customers of 
an institution, a creditor need not provide disclosures for that program 
to other consumers who express a general interest in a creditor's ARM 
programs. Disclosures must be given at the time an application form is 
provided or before the consumer pays a nonrefundable fee, whichever is 
earlier. If program disclosures cannot be provided because a consumer 
expresses an interest in individually negotiating loan terms that are 
not generally offered, disclosures reflecting those terms may be 
provided as soon as reasonably possible after the terms have been 
decided upon, but not later than the time a non-refundable fee is paid. 
If a consumer who has received program disclosures subsequently 
expresses an interest in other available variable-rate programs subject 
to 1026.19(b)(2), or the creditor and consumer decide on a program for 
which the consumer has not received disclosures, the creditor must 
provide appropriate disclosures as soon as reasonably possible. The 
creditor, of course, is permitted to give the consumer information about 
additional programs subject to Sec. 1026.19(b) initially.
    2. Variable-rate loan program defined. i. Generally, if the 
identification, the presence or absence, or the exact value of a loan 
feature must be disclosed under this section, variable-rate loans that 
differ as to such features constitute separate loan programs. For 
example, separate loan programs would exist based on differences in any 
of the following loan features:
    A. The index or other formula used to calculate interest rate 
adjustments.
    B. The rules relating to changes in the index value, interest rate, 
payments, and loan balance.
    C. The presence or absence of, and the amount of, rate or payment 
caps.
    D. The presence of a demand feature.
    E. The possibility of negative amortization.
    F. The possibility of interest rate carryover.
    G. The frequency of interest rate and payment adjustments.

[[Page 865]]

    H. The presence of a discount feature.
    I. In addition, if a loan feature must be taken into account in 
preparing the disclosures required by Sec. 1026.19(b)(2)(viii), 
variable-rate loans that differ as to that feature constitute separate 
programs under Sec. 1026.19(b)(2).
    ii. If, however, a representative value may be given for a loan 
feature or the feature need not be disclosed under Sec. 1026.19(b)(2), 
variable-rate loans that differ as to such features do not constitute 
separate loan programs. For example, separate programs would not exist 
based on differences in the following loan features:
    A. The amount of a discount.
    B. The amount of a margin.
    3. Form of program disclosures. A creditor may provide separate 
program disclosure forms for each ARM program it offers or a single 
disclosure form that describes multiple programs. A disclosure form may 
consist of more than one page. For example, a creditor may attach a 
separate page containing the historical payment example for a particular 
program. A disclosure form describing more than one program need not 
repeat information applicable to each program that is described. For 
example, a form describing multiple programs may disclose the 
information applicable to all of the programs in one place with the 
various program features (such as options permitting conversion to a 
fixed rate) disclosed separately. The form, however, must state if any 
program feature that is described is available only in conjunction with 
certain other program features. Both the separate and multiple program 
disclosures may illustrate more than one loan maturity or payment 
amortization--for example, by including multiple payment and loan 
balance columns in the historical payment example. Disclosures may be 
inserted or printed in the Consumer Handbook (or a suitable substitute) 
as long as they are identified as the creditor's loan program 
disclosures.
    4. As applicable. The disclosures required by this section need only 
be made as applicable. Any disclosure not relevant to a particular 
transaction may be eliminated. For example, if the transaction does not 
contain a demand feature, the disclosure required under Sec. 
1026.19(b)(2)(x) need not be given. As used in this section, payment 
refers only to a payment based on the interest rate, loan balance and 
loan term, and does not refer to payment of other elements such as 
mortgage insurance premiums.
    5. Revisions. A creditor must revise the disclosures required under 
this section once a year as soon as reasonably possible after the new 
index value becomes available. Revisions to the disclosures also are 
required when the loan program changes.

                          Paragraph 19(b)(2)(i)

    1. Change in interest rate, payment, or term. A creditor must 
disclose the fact that the terms of the legal obligation permit the 
creditor, after consummation of the transaction, to increase (or 
decrease) the interest rate, payment, or term of the loan initially 
disclosed to the consumer. For example, the disclosures for a variable-
rate program in which the interest rate and payment (but not loan term) 
can change might read, ``Your interest rate and payment can change 
yearly.'' In transactions where the term of the loan may change due to 
rate fluctuations, the creditor must state that fact.

                         Paragraph 19(b)(2)(ii)

    1. Identification of index or formula. If a creditor ties interest 
rate changes to a particular index, this fact must be disclosed, along 
with a source of information about the index. For example, if a creditor 
uses the weekly average yield on U.S. Treasury Securities adjusted to a 
constant maturity as its index, the disclosure might read, ``Your index 
is the weekly average yield on U.S. Treasury Securities adjusted to a 
constant maturity of one year published weekly in the Wall Street 
Journal.'' If no particular index is used, the creditor must briefly 
describe the formula used to calculate interest rate changes.
    2. Changes at creditor's discretion. If interest rate changes are at 
the creditor's discretion, this fact must be disclosed. If an index is 
internally defined, such as by a creditor's prime rate, the creditor 
should either briefly describe that index or state that interest rate 
changes are at the creditor's discretion.

                         Paragraph 19(b)(2)(iii)

    1. Determination of interest rate and payment. This provision 
requires an explanation of how the creditor will determine the 
consumer's interest rate and payment. In cases where a creditor bases 
its interest rate on a specific index and adjusts the index through the 
addition of a margin, for example, the disclosure might read, ``Your 
interest rate is based on the index plus a margin, and your payment will 
be based on the interest rate, loan balance, and remaining loan term.'' 
In transactions where paying the periodic payments will not fully 
amortize the outstanding balance at the end of the loan term and where 
the final payment will equal the periodic payment plus the remaining 
unpaid balance, the creditor must disclose this fact. For example, the 
disclosure might read, ``Your periodic payments will not fully amortize 
your loan and you will be required to make a single payment of the 
periodic payment plus the remaining unpaid balance at

[[Page 866]]

the end of the loan term.'' The creditor, however, need not reflect any 
irregular final payment in the historical example or in the disclosure 
of the initial and maximum rates and payments. If applicable, the 
creditor should also disclose that the rate and payment will be rounded.

                         Paragraph 19(b)(2)(iv)

    1. Current margin value and interest rate. Because the disclosures 
can be prepared in advance, the interest rate and margin may be several 
months old when the disclosures are delivered. A statement, therefore, 
is required alerting consumers to the fact that they should inquire 
about the current margin value applied to the index and the current 
interest rate. For example, the disclosure might state, ``Ask us for our 
current interest rate and margin.''

                          Paragraph 19(b)(2)(v)

    1. Discounted and premium interest rate. In some variable-rate 
transactions, creditors may set an initial interest rate that is not 
determined by the index or formula used to make later interest rate 
adjustments. Typically, this initial rate charged to consumers is lower 
than the rate would be if it were calculated using the index or formula. 
However, in some cases the initial rate may be higher. If the initial 
interest rate will be a discount or a premium rate, creditors must alert 
the consumer to this fact. For example, if a creditor discounted a 
consumer's initial rate, the disclosure might state, ``Your initial 
interest rate is not based on the index used to make later 
adjustments.'' (See the commentary to Sec. 1026.17(c)(1) for a further 
discussion of discounted and premium variable-rate transactions.) In 
addition, the disclosure must suggest that consumers inquire about the 
amount that the program is currently discounted. For example, the 
disclosure might state, ``Ask us for the amount our adjustable rate 
mortgages are currently discounted.'' In a transaction with a consumer 
buydown or with a third-party buydown that will be incorporated in the 
legal obligation, the creditor should disclose the program as a 
discounted variable-rate transaction, but need not disclose additional 
information regarding the buydown in its program disclosures. (See the 
commentary to Sec. 1026.19(b)(2)(viii) for a discussion of how to 
reflect the discount or premium in the historical example or the maximum 
rate and payment disclosure).

                         Paragraph 19(b)(2)(vi)

    1. Frequency. The frequency of interest rate and payment adjustments 
must be disclosed. If interest rate changes will be imposed more 
frequently or at different intervals than payment changes, a creditor 
must disclose the frequency and timing of both types of changes. For 
example, in a variable-rate transaction where interest rate changes are 
made monthly, but payment changes occur on an annual basis, this fact 
must be disclosed. In certain ARM transactions, the interval between 
loan closing and the initial adjustment is not known and may be 
different from the regular interval for adjustments. In such cases, the 
creditor may disclose the initial adjustment period as a range of the 
minimum and maximum amount of time from consummation or closing. For 
example, the creditor might state: ``The first adjustment to your 
interest rate and payment will occur no sooner than 6 months and no 
later than 18 months after closing. Subsequent adjustments may occur 
once each year after the first adjustment.'' (See comments 
19(b)(2)(viii)(A)-7 and 19(b)(2)(viii)(B)-4 for guidance on other 
disclosures when this alternative disclosure rule is used.)

                         Paragraph 19(b)(2)(vii)

    1. Rate and payment caps. The creditor must disclose limits on 
changes (increases or decreases) in the interest rate or payment. If an 
initial discount is not taken into account in applying overall or 
periodic rate limitations, that fact must be disclosed. If separate 
overall or periodic limitations apply to interest rate increases 
resulting from other events, such as the exercise of a fixed-rate 
conversion option or leaving the creditor's employ, those limitations 
must also be stated. Limitations do not include legal limits in the 
nature of usury or rate ceilings under state or Federal statutes or 
regulations. (See Sec. 1026.30 for the rule requiring that a maximum 
interest rate be included in certain variable-rate transactions.) The 
creditor need not disclose each periodic or overall rate limitation that 
is currently available. As an alternative, the creditor may disclose the 
range of the lowest and highest periodic and overall rate limitations 
that may be applicable to the creditor's ARM transactions. For example, 
the creditor might state: ``The limitation on increases to your interest 
rate at each adjustment will be set at an amount in the following range: 
Between 1 and 2 percentage points at each adjustment. The limitation on 
increases to your interest rate over the term of the loan will be set at 
an amount in the following range: Between 4 and 7 percentage points 
above the initial interest rate.'' A creditor using this alternative 
rule must include a statement in its program disclosures suggesting that 
the consumer ask about the overall rate limitations currently offered 
for the creditor's ARM programs. (See comments 19(b)(2)(viii)(A)-6 and 
19(b)(2)(viii)(B)-3 for an explanation of the additional requirements 
for a creditor using this alternative rule for disclosure of periodic 
and overall rate limitations.)

[[Page 867]]

    2. Negative amortization and interest rate carryover. A creditor 
must disclose, where applicable, the possibility of negative 
amortization. For example, the disclosure might state, ``If any of your 
payments is not sufficient to cover the interest due, the difference 
will be added to your loan amount.'' Loans that provide for more than 
one way to trigger negative amortization are separate variable-rate 
programs requiring separate disclosures. (See the commentary to Sec. 
1026.19(b)(2) for a discussion on the definition of a variable-rate loan 
program and the format for disclosure.) If a consumer is given the 
option to cap monthly payments that may result in negative amortization, 
the creditor must fully disclose the rules relating to the option, 
including the effects of exercising the option (such as negative 
amortization will occur and the principal loan balance will increase); 
however, the disclosure in Sec. 1026.19(b)(2)(viii) need not be 
provided.
    3. Conversion option. If a loan program permits consumers to convert 
their variable-rate loans to fixed-rate loans, the creditor must 
disclose that the interest rate may increase if the consumer converts 
the loan to a fixed-rate loan. The creditor must also disclose the rules 
relating to the conversion feature, such as the period during which the 
loan may be converted, that fees may be charged at conversion, and how 
the fixed rate will be determined. The creditor should identify any 
index or other measure or formula used to determine the fixed rate and 
state any margin to be added. In disclosing the period during which the 
loan may be converted and the margin, the creditor may use information 
applicable to the conversion feature during the six months preceding 
preparation of the disclosures and state that the information is 
representative of conversion features recently offered by the creditor. 
The information may be used until the program disclosures are otherwise 
revised. Although the rules relating to the conversion option must be 
disclosed, the effect of exercising the option should not be reflected 
elsewhere in the disclosures, such as in the historical example or in 
the calculation of the initial and maximum interest rate and payments.
    4. Preferred-rate loans. Section 1026.19(b) applies to preferred-
rate loans, where the rate will increase upon the occurrence of some 
event, such as an employee leaving the creditor's employ, whether or not 
the underlying rate is fixed or variable. In these transactions, the 
creditor must disclose the event that would allow the creditor to 
increase the rate such as that the rate may increase if the employee 
leaves the creditor's employ. The creditor must also disclose the rules 
relating to termination of the preferred rate, such as that fees may be 
charged when the rate is changed and how the new rate will be 
determined.

                        Paragraph 19(b)(2)(viii)

    1. Historical example and initial and maximum interest rates and 
payments. A creditor may disclose both the historical example and the 
initial and maximum interest rates and payments.

                       Paragraph 19(b)(2)(viii)(A)

    1. Index movement. This section requires a creditor to provide an 
historical example, based on a $10,000 loan amount originating in 1977, 
showing how interest rate changes implemented according to the terms of 
the loan program would have affected payments and the loan balance at 
the end of each year during a 15-year period. (In all cases, the 
creditor need only calculate the payments and loan balance for the term 
of the loan. For example, in a five-year loan, a creditor would show the 
payments and loan balance for the five-year term, from 1977 to 1981, 
with a zero loan balance reflected for 1981. For the remaining ten 
years, 1982-1991, the creditor need only show the remaining index 
values, margin and interest rate and must continue to reflect all 
significant loan program terms such as rate limitations affecting them.) 
Pursuant to this section, the creditor must provide a history of index 
values for the preceding 15 years. Initially, the disclosures would give 
the index values from 1977 to the present. Each year thereafter, the 
revised program disclosures should include an additional year's index 
value until 15 years of values are shown. If the values for an index 
have not been available for 15 years, a creditor need only go back as 
far as the values are available in giving a history and payment example. 
In all cases, only one index value per year need be shown. Thus, in 
transactions where interest rate adjustments are implemented more 
frequently than once per year, a creditor may assume that the interest 
rate and payment resulting from the index value chosen will stay in 
effect for the entire year for purposes of calculating the loan balance 
as of the end of the year and for reflecting other loan program terms. 
In cases where interest rate changes are at the creditor's discretion 
(see the commentary to Sec. 1026.19(b)(2)(ii)), the creditor must 
provide a history of the rates imposed for the preceding 15 years, 
beginning with the rates in 1977. In giving this history, the creditor 
need only go back as far as the creditor's rates can reasonably be 
determined.
    2. Selection of index values. The historical example must reflect 
the method by which index values are determined under the program. If a 
creditor uses an average of index values or any other index formula, the 
history given should reflect those values. The creditor should select 
one date or, when an average of single values is used as an index, one 
period and should base the example on index values measured as of that 
same date

[[Page 868]]

or period for each year shown in the history. A date or period at any 
time during the year may be selected, but the same date or period must 
be used for each year in the historical example. For example, a creditor 
could use values for the first business day in July or for the first 
week ending in July for each of the 15 years shown in the example.
    3. Selection of margin. For purposes of the disclosure required 
under Sec. 1026.19(b)(2)(viii)(A), a creditor may select a 
representative margin that has been used during the six months preceding 
preparation of the disclosures, and should disclose that the margin is 
one that the creditor has used recently. The margin selected may be used 
until a creditor revises the disclosure form.
    4. Amount of discount or premium. For purposes of the disclosure 
required under Sec. 1026.19(b)(2)(viii)(A), a creditor may select a 
discount or premium (amount and term) that has been used during the six 
months preceding preparation of the disclosures, and should disclose 
that the discount or premium is one that the creditor has used recently. 
The discount or premium should be reflected in the historical example 
for as long as the discount or premium is in effect. A creditor may 
assume that a discount that would have been in effect for any part of a 
year was in effect for the full year for purposes of reflecting it in 
the historical example. For example, a 3-month discount may be treated 
as being in effect for the entire first year of the example; a 15-month 
discount may be treated as being in effect for the first two years of 
the example. In illustrating the effect of the discount or premium, 
creditors should adjust the value of the interest rate in the historical 
example, and should not adjust the margin or index values. For example, 
if during the six months preceding preparation of the disclosures the 
fully indexed rate would have been 10% but the first year's rate under 
the program was 8%, the creditor would discount the first interest rate 
in the historical example by 2 percentage points.
    5. Term of the loan. In calculating the payments and loan balances 
in the historical example, a creditor need not base the disclosures on 
each term to maturity or payment amortization that it offers. Instead, 
disclosures for ARMs may be based upon terms to maturity or payment 
amortizations of 5, 15 and 30 years, as follows: ARMs with terms or 
amortizations from over 1 year to 10 years may be based on a 5-year term 
or amortization; ARMs with terms or amortizations from over 10 years to 
20 years may be based on a 15-year term or amortization; and ARMs with 
terms or amortizations over 20 years may be based on a 30-year term or 
amortization. Thus, disclosures for ARMs offered with any term from over 
1 year to 40 years may be based solely on terms of 5, 15 and 30 years. 
Of course, a creditor may always base the disclosures on the actual 
terms or amortizations offered. If the creditor bases the disclosures on 
5-, 15- or 30-year terms or payment amortization as provided above, the 
term or payment amortization used in making the disclosure must be 
stated.
    6. Rate caps. A creditor using the alternative rule described in 
comment 19(b)(2)(vii)-1 for disclosure of rate limitations must base the 
historical example upon the highest periodic and overall rate 
limitations disclosed under Sec. 1026.19(b)(2)(vii). In addition, the 
creditor must state the limitations used in the historical example. (See 
comment 19(b)(2)(viii)(B)-3 for an explanation of the use of the highest 
rate limitation in other disclosures.)
    7. Frequency of adjustments. In certain transactions, creditors may 
use the alternative rule described in comment 19(b)(2)(vi)-1 for 
disclosure of the frequency of rate and payment adjustments. In such 
cases, the creditor may assume for purposes of the historical example 
that the first adjustment occurred at the end of the first full year in 
which the adjustment could occur. For example, in an ARM in which the 
first adjustment may occur between 6 and 18 months after closing and 
annually thereafter, the creditor may assume that the first adjustment 
occurred at the end of the first year in the historical example. (See 
comment 19(b)(2)(viii)(B)-4 for an explanation of how to compute the 
maximum interest rate and payment when the initial adjustment period is 
not known.)

                       Paragraph 19(b)(2)(viii)(B)

    1. Initial and maximum interest rates and payments. The disclosure 
form must state the initial and maximum interest rates and payments for 
a $10,000 loan originated at an initial interest rate (index value plus 
margin adjusted by the amount of any discount or premium) in effect as 
of an identified month and year for the loan program disclosure. (See 
comment 19(b)(2)-5 on revisions to the loan program disclosure.) In 
calculating the maximum payment under this paragraph, a creditor should 
assume that the interest rate increases as rapidly as possible under the 
loan program, and the maximum payment disclosed should reflect the 
amortization of the loan during this period. Thus, in a loan with 2 
percentage point annual (and 5 percentage point overall) interest rate 
limitations or ``caps,'' the maximum interest rate would be 5 percentage 
points higher than the initial interest rate disclosed. Moreover, the 
loan would not reach the maximum interest rate until the fourth year 
because of the 2 percentage point annual rate limitations, and the 
maximum payment disclosed would reflect the amortization of the loan 
during this period. If the loan program includes a discounted or premium 
initial interest rate,

[[Page 869]]

the initial interest rate should be adjusted by the amount of the 
discount or premium.
    2. Term of the loan. In calculating the initial and maximum 
payments, the creditor need not base the disclosures on each term to 
maturity or payment amortization offered under the program. Instead, the 
creditor may follow the rules set out in comment 19(b)(2)(viii)(A)-5. If 
a historical example is provided under Sec. 1026.19(b)(2)(viii)(A), the 
terms to maturity or payment amortization used in the historical example 
must be used in calculating the initial and maximum payment. In 
addition, creditors must state the term or payment amortization used in 
making the disclosures under this section.
    3. Rate caps. A creditor using the alternative rule for disclosure 
of interest rate limitations described in comment 19(b)(2)(vii)-1 must 
calculate the maximum interest rate and payment based upon the highest 
periodic and overall rate limitations disclosed under Sec. 
1026.19(b)(2)(vii). In addition, the creditor must state the rate 
limitations used in calculating the maximum interest rate and payment. 
(See comment 19(b)(2)(viii)(A)-6 for an explanation of the use of the 
highest rate limitation in other disclosures.)
    4. Frequency of adjustments. In certain transactions, a creditor may 
use the alternative rule for disclosure of the frequency of rate and 
payment adjustments described in comment 19(b)(2)(vi)-1. In such cases, 
the creditor must base the calculations of the initial and maximum rates 
and payments upon the earliest possible first adjustment disclosed under 
Sec. 1026.19(b)(2)(vi). (See comment 19(b)(2)(viii)(A)-7 for an 
explanation of how to disclose the historical example when the initial 
adjustment period is not known.)
    5. Periodic payment statement. The statement that the periodic 
payment may increase or decrease substantially may be satisfied by the 
disclosure in paragraph 19(b)(2)(vi) if it states for example, ``your 
monthly payment can increase or decrease substantially based on annual 
changes in the interest rate.''

                         Paragraph 19(b)(2)(ix)

    1. Calculation of payments. A creditor is required to include a 
statement on the disclosure form that explains how a consumer may 
calculate his or her actual monthly payments for a loan amount other 
than $10,000. The example should be based upon the most recent payment 
shown in the historical example or upon the initial interest rate 
reflected in the maximum rate and payment disclosure. In transactions in 
which the latest payment shown in the historical example is not for the 
latest year of index values shown (such as in a five-year loan), a 
creditor may provide additional examples based on the initial and 
maximum payments disclosed under Sec. 1026.19(b)(2)(viii)(B). The 
creditor, however, is not required to calculate the consumer's payments. 
(See the model clauses in Appendix H-4(C).)

                          Paragraph 19(b)(2)(x)

    1. Demand feature. If a variable-rate loan subject to Sec. 
1026.19(b) requirements contains a demand feature as discussed in the 
commentary to Sec. 1026.18(i), this fact must be disclosed. (Pursuant 
to Sec. 1026.18(i), creditors would also disclose the demand feature in 
the standard disclosures given later.)

                         Paragraph 19(b)(2)(xi)

    1. Adjustment notices. A creditor must disclose to the consumer the 
type of information that will be contained in subsequent notices of 
adjustments and when such notices will be provided. (See the commentary 
to Sec. 1026.20(c) regarding notices of adjustments.) For example, the 
disclosure might state, ``You will be notified at least 25, but no more 
than 120 days before the due date of a payment at a new level. This 
notice will contain information about the index and interest rates, 
payment amount, and loan balance.'' In transactions where there may be 
interest rate adjustments without accompanying payment adjustments in a 
year, the disclosure might read, ``You will be notified once each year 
during which interest rate adjustments, but no payment adjustments, have 
been made to your loan. This notice will contain information about the 
index and interest rates, payment amount, and loan balance.''

                         Paragraph 19(b)(2)(xii)

    1. Multiple loan programs. A creditor that offers multiple variable-
rate loan programs is required to have disclosures for each variable-
rate loan program subject to Sec. 1026.19(b)(2). Unless disclosures for 
all of its variable-rate programs are provided initially, the creditor 
must inform the consumer that other closed-end variable-rate programs 
exist, and that disclosure forms are available for these additional loan 
programs. For example, the disclosure form might state, ``Information on 
other adjustable rate mortgage programs is available upon request.''

                      19(c) Electronic Disclosures

    1. Form of disclosures. Whether disclosures must be in electronic 
form depends upon the following:
    i. If a consumer accesses an ARM loan application electronically 
(other than as described under ii. below), such as online at a home 
computer, the creditor must provide the disclosures in electronic form 
(such as with the application form on its Web site) in order to meet the 
requirement to provide disclosures in a timely manner on or with the 
application. If the creditor instead

[[Page 870]]

mailed paper disclosures to the consumer, this requirement would not be 
met.
    ii. In contrast, if a consumer is physically present in the 
creditor's office, and accesses an ARM loan application electronically, 
such as via a terminal or kiosk (or if the consumer uses a terminal or 
kiosk located on the premises of an affiliate or third party that has 
arranged with the creditor to provide applications to consumers), the 
creditor may provide disclosures in either electronic or paper form, 
provided the creditor complies with the timing, delivery, and 
retainability requirements of the regulation.

           Section 1026.20 Subsequent Disclosure Requirements

                           20(a) Refinancings

    1. Definition. A refinancing is a new transaction requiring a 
complete new set of disclosures. Whether a refinancing has occurred is 
determined by reference to whether the original obligation has been 
satisfied or extinguished and replaced by a new obligation, based on the 
parties' contract and applicable law. The refinancing may involve the 
consolidation of several existing obligations, disbursement of new money 
to the consumer or on the consumer's behalf, or the rescheduling of 
payments under an existing obligation. In any form, the new obligation 
must completely replace the prior one.
    i. Changes in the terms of an existing obligation, such as the 
deferral of individual installments, will not constitute a refinancing 
unless accomplished by the cancellation of that obligation and the 
substitution of a new obligation.
    ii. A substitution of agreements that meets the refinancing 
definition will require new disclosures, even if the substitution does 
not substantially alter the prior credit terms.
    2. Exceptions. A transaction is subject to Sec. 1026.20(a) only if 
it meets the general definition of a refinancing. Section 1026.20(a)(1) 
through (5) lists 5 events that are not treated as refinancings, even if 
they are accomplished by cancellation of the old obligation and 
substitution of a new one.
    3. Variable-rate. i. If a variable-rate feature was properly 
disclosed under the regulation, a rate change in accord with those 
disclosures is not a refinancing. For example, no new disclosures are 
required when the variable-rate feature is invoked on a renewable 
balloon-payment mortgage that was previously disclosed as a variable-
rate transaction.
    ii. Even if it is not accomplished by the cancellation of the old 
obligation and substitution of a new one, a new transaction subject to 
new disclosures results if the creditor either:
    A. Increases the rate based on a variable-rate feature that was not 
previously disclosed; or
    B. Adds a variable-rate feature to the obligation. A creditor does 
not add a variable-rate feature by changing the index of a variable-rate 
transaction to a comparable index, whether the change replaces the 
existing index or substitutes an index for one that no longer exists.
    iii. If either of the events in paragraph 20(a)-3.ii.A or ii.B 
occurs in a transaction secured by a principal dwelling with a term 
longer than one year, the disclosures required under Sec. 1026.19(b) 
also must be given at that time.
    4. Unearned finance charge. In a transaction involving precomputed 
finance charges, the creditor must include in the finance charge on the 
refinanced obligation any unearned portion of the original finance 
charge that is not rebated to the consumer or credited against the 
underlying obligation. For example, in a transaction with an add-on 
finance charge, a creditor advances new money to a consumer in a fashion 
that extinguishes the original obligation and replaces it with a new 
one. The creditor neither refunds the unearned finance charge on the 
original obligation to the consumer nor credits it to the remaining 
balance on the old obligation. Under these circumstances, the unearned 
finance charge must be included in the finance charge on the new 
obligation and reflected in the annual percentage rate disclosed on 
refinancing. Accrued but unpaid finance charges are included in the 
amount financed in the new obligation.
    5. Coverage. Section 1026.20(a) applies only to refinancings 
undertaken by the original creditor or a holder or servicer of the 
original obligation. A ``refinancing'' by any other person is a new 
transaction under the regulation, not a refinancing under this section.

                           Paragraph 20(a)(1)

    1. Renewal. This exception applies both to obligations with a single 
payment of principal and interest and to obligations with periodic 
payments of interest and a final payment of principal. In determining 
whether a new obligation replacing an old one is a renewal of the 
original terms or a refinancing, the creditor may consider it a renewal 
even if:
    i. Accrued unpaid interest is added to the principal balance.
    ii. Changes are made in the terms of renewal resulting from the 
factors listed in Sec. 1026.17(c)(3).
    iii. The principal at renewal is reduced by a curtailment of the 
obligation.

                           Paragraph 20(a)(2)

    1. Annual percentage rate reduction. A reduction in the annual 
percentage rate with a corresponding change in the payment schedule is 
not a refinancing. If the annual percentage rate is subsequently 
increased (even

[[Page 871]]

though it remains below its original level) and the increase is effected 
in such a way that the old obligation is satisfied and replaced, new 
disclosures must then be made.
    2. Corresponding change. A corresponding change in the payment 
schedule to implement a lower annual percentage rate would be a 
shortening of the maturity, or a reduction in the payment amount or the 
number of payments of an obligation. The exception in Sec. 
1026.20(a)(2) does not apply if the maturity is lengthened, or if the 
payment amount or number of payments is increased beyond that remaining 
on the existing transaction.

                           Paragraph 20(a)(3)

    1. Court agreements. This exception includes, for example, 
agreements such as reaffirmations of debts discharged in bankruptcy, 
settlement agreements, and post-judgment agreements. (See the commentary 
to Sec. 1026.2(a)(14) for a discussion of court-approved agreements 
that are not considered ``credit.'')

                           Paragraph 20(a)(4)

    1. Workout agreements. A workout agreement is not a refinancing 
unless the annual percentage rate is increased or additional credit is 
advanced beyond amounts already accrued plus insurance premiums.

                           Paragraph 20(a)(5)

    1. Insurance renewal. The renewal of optional insurance added to an 
existing credit transaction is not a refinancing, assuming that 
appropriate Truth in Lending disclosures were provided for the initial 
purchase of the insurance.

                            20(b) Assumptions

    1. General definition. i. An assumption as defined in Sec. 
1026.20(b) is a new transaction and new disclosures must be made to the 
subsequent consumer. An assumption under the regulation requires the 
following three elements:
    A. A residential mortgage transaction.
    B. An express acceptance of the subsequent consumer by the creditor.
    C. A written agreement.
    ii. The assumption of a nonexempt consumer credit obligation 
requires no disclosures unless all three elements are present. For 
example, an automobile dealer need not provide Truth in Lending 
disclosures to a customer who assumes an existing obligation secured by 
an automobile. However, a residential mortgage transaction with the 
elements described in Sec. 1026.20(b) is an assumption that calls for 
new disclosures; the disclosures must be given whether or not the 
assumption is accompanied by changes in the terms of the obligation. 
(See comment 2(a)(24)-5 for a discussion of assumptions that are not 
considered residential mortgage transactions.)
    2. Existing residential mortgage transaction. A transaction may be a 
residential mortgage transaction as to one consumer and not to the other 
consumer. In that case, the creditor must look to the assuming consumer 
in determining whether a residential mortgage transaction exists. To 
illustrate: The original consumer obtained a mortgage to purchase a home 
for vacation purposes. The loan was not a residential mortgage 
transaction as to that consumer. The mortgage is assumed by a consumer 
who will use the home as a principal dwelling. As to that consumer, the 
loan is a residential mortgage transaction. For purposes of Sec. 
1026.20(b), the assumed loan is an ``existing residential mortgage 
transaction'' requiring disclosures, if the other criteria for an 
assumption are met.
    3. Express agreement. Expressly agrees means that the creditor's 
agreement must relate specifically to the new debtor and must 
unequivocally accept that debtor as a primary obligor. The following 
events are not construed to be express agreements between the creditor 
and the subsequent consumer:
    i. Approval of creditworthiness.
    ii. Notification of a change in records.
    iii. Mailing of a coupon book to the subsequent consumer.
    iv. Acceptance of payments from the new consumer.
    4. Retention of original consumer. The retention of the original 
consumer as an obligor in some capacity does not prevent the change from 
being an assumption, provided the new consumer becomes a primary 
obligor. But the mere addition of a guarantor to an obligation for which 
the original consumer remains primarily liable does not give rise to an 
assumption. However, if neither party is designated as the primary 
obligor but the creditor accepts payment from the subsequent consumer, 
an assumption exists for purposes of Sec. 1026.20(b).
    5. Status of parties. Section 1026.20(b) applies only if the 
previous debtor was a consumer and the obligation is assumed by another 
consumer. It does not apply, for example, when an individual takes over 
the obligation of a corporation.
    6. Disclosures. For transactions that are assumptions within this 
provision, the creditor must make disclosures based on the ``remaining 
obligation.'' For example:
    i. The amount financed is the remaining principal balance plus any 
arrearages or other accrued charges from the original transaction.
    ii. If the finance charge is computed from time to time by 
application of a percentage rate to an unpaid balance, in determining 
the amount of the finance charge and the annual percentage rate to be 
disclosed, the creditor should disregard any prepaid finance charges 
paid by the original obligor,

[[Page 872]]

but must include in the finance charge any prepaid finance charge 
imposed in connection with the assumption.
    iii. If the creditor requires the assuming consumer to pay any 
charges as a condition of the assumption, those sums are prepaid finance 
charges as to that consumer, unless exempt from the finance charge under 
Sec. 1026.4. If a transaction involves add-on or discount finance 
charges, the creditor may make abbreviated disclosures, as outlined in 
Sec. 1026.20(b)(1) through (5). Creditors providing disclosures 
pursuant to this section for assumptions of variable-rate transactions 
secured by the consumer's principal dwelling with a term longer than one 
year need not provide new disclosures under Sec. 1026.18(f)(2)(ii) or 
Sec. 1026.19(b). In such transactions, a creditor may disclose the 
variable-rate feature solely in accordance with Sec. 1026.18(f)(1).
    7. Abbreviated disclosures. The abbreviated disclosures permitted 
for assumptions of transactions involving add-on or discount finance 
charges must be made clearly and conspicuously in writing in a form that 
the consumer may keep. However, the creditor need not comply with the 
segregation requirement of Sec. 1026.17(a)(1). The terms annual 
percentage rate and total of payments, when disclosed according to Sec. 
1026.20(b)(4) and (5), are not subject to the description requirements 
of Sec. 1026.18(e) and (h). The term annual percentage rate disclosed 
under Sec. 1026.20(b)(4) need not be more conspicuous than other 
disclosures.

                     20(c) Variable-Rate Adjustments

    1. Timing of adjustment notices. This section requires a creditor 
(or a subsequent holder) to provide certain disclosures in cases where 
an adjustment to the interest rate is made in a variable-rate 
transaction subject to Sec. 1026.19(b). There are two timing rules, 
depending on whether payment changes accompany interest rate changes. A 
creditor is required to provide at least one notice each year during 
which interest rate adjustments have occurred without accompanying 
payment adjustments. For payment adjustments, a creditor must deliver or 
place in the mail notices to borrowers at least 25, but not more than 
120, calendar days before a payment at a new level is due. The timing 
rules also apply to the notice required to be given in connection with 
the adjustment to the rate and payment that follows conversion of a 
transaction subject to Sec. 1026.19(b) to a fixed-rate transaction. (In 
cases where an open-end account is converted to a closed-end transaction 
subject to Sec. 1026.19(b), the requirements of this section do not 
apply until adjustments are made following conversion.)
    2. Exceptions. Section 1026.20(c) does not apply to ``shared-
equity,'' ``shared-appreciation,'' or ``price level adjusted'' or 
similar mortgages.
    3. Basis of disclosures. The disclosures required under this section 
shall reflect the terms of the parties' legal obligation, as required 
under Sec. 1026.17(c)(1).

                           Paragraph 20(c)(1)

    1. Current and prior interest rates. The requirements under this 
paragraph are satisfied by disclosing the interest rate used to compute 
the new adjusted payment amount (``current rate'') and the adjusted 
interest rate that was disclosed in the last adjustment notice, as well 
as all other interest rates applied to the transaction in the period 
since the last notice (``prior rates''). (If there has been no prior 
adjustment notice, the prior rates are the interest rate applicable to 
the transaction at consummation, as well as all other interest rates 
applied to the transaction in the period since consummation.) If no 
payment adjustment has been made in a year, the current rate is the new 
adjusted interest rate for the transaction, and the prior rates are the 
adjusted interest rate applicable to the loan at the time of the last 
adjustment notice, and all other rates applied to the transaction in the 
period between the current and last adjustment notices. In disclosing 
all other rates applied to the transaction during the period between 
notices, a creditor may disclose a range of the highest and lowest rates 
applied during that period.

                           Paragraph 20(c)(2)

    1. Current and prior index values. This section requires disclosure 
of the index or formula values used to compute the current and prior 
interest rates disclosed in Sec. 1026.20(c)(1). The creditor need not 
disclose the margin used in computing the rates. If the prior interest 
rate was not based on an index or formula value, the creditor also need 
not disclose the value of the index that would otherwise have been used 
to compute the prior interest rate.

                           Paragraph 20(c)(3)

    1. Unapplied index increases. The requirement that the consumer 
receive information about the extent to which the creditor has foregone 
any increase in the interest rate is applicable only to those 
transactions permitting interest rate carryover. The amount of increase 
that is foregone at an adjustment is the amount that, subject to rate 
caps, can be applied to future adjustments independently to increase, or 
offset decreases in, the rate that is determined according to the index 
or formula.

                           Paragraph 20(c)(4)

    1. Contractual effects of the adjustment. The contractual effects of 
an interest rate adjustment must be disclosed including the payment due 
after the adjustment is made

[[Page 873]]

whether or not the payment has been adjusted. A contractual effect of a 
rate adjustment would include, for example, disclosure of any change in 
the term or maturity of the loan if the change resulted from the rate 
adjustment. In transactions where paying the periodic payments will not 
fully amortize the outstanding balance at the end of the loan term and 
where the final payment will equal the periodic payment plus the 
remaining unpaid balance, the amount of the adjusted payment must be 
disclosed if such payment has changed as a result of the rate 
adjustment. A statement of the loan balance also is required. The 
balance required to be disclosed is the balance on which the new 
adjusted payment is based. If no payment adjustment is disclosed in the 
notice, the balance disclosed should be the loan balance on which the 
payment disclosed under Sec. 1026.20(c)(5) is based, if applicable, or 
the balance at the time the disclosure is prepared.

                           Paragraph 20(c)(5)

    1. Fully-amortizing payment. This paragraph requires a disclosure 
only when negative amortization occurs as a result of the adjustment. A 
disclosure is not required simply because a loan calls for non-
amortizing or partially amortizing payments. For example, in a 
transaction with a five-year term and payments based on a longer 
amortization schedule, and where the final payment will equal the 
periodic payment plus the remaining unpaid balance, the creditor would 
not have to disclose the payment necessary to fully amortize the loan in 
the remainder of the five-year term. A disclosure is required, however, 
if the payment disclosed under Sec. 1026.20(c)(4) is not sufficient to 
prevent negative amortization in the loan. The adjustment notice must 
state the payment required to prevent negative amortization. (This 
paragraph does not apply if the payment disclosed in Sec. 1026.20(c)(4) 
is sufficient to prevent negative amortization in the loan but the final 
payment will be a different amount due to rounding.)

              Section 1026.21--Treatment of Credit Balances

                             Paragraph 21(a)

    1. Credit balance. A credit balance arises whenever the creditor 
receives or holds funds in an account in excess of the total balance due 
from the consumer on that account. A balance might result, for example, 
from the debtor's paying off a loan by transmitting funds in excess of 
the total balance owed on the account, or from the early payoff of a 
loan entitling the consumer to a rebate of insurance premiums and 
finance charges. However, Sec. 1026.21 does not determine whether the 
creditor in fact owes or holds sums for the consumer. For example, if a 
creditor has no obligation to rebate any portion of precomputed finance 
charges on prepayment, the consumer's early payoff would not create a 
credit balance with respect to those charges. Similarly, nothing in this 
provision interferes with any rights the creditor may have under the 
contract or under state law with respect to set-off, cross 
collateralization, or similar provisions.
    2. Total balance due. The phrase total balance due refers to the 
total outstanding balance. Thus, this provision does not apply where the 
consumer has simply paid an amount in excess of the payment due for a 
given period.
    3. Timing of refund. The creditor may also fulfill its obligation 
under this section by:
    i. Refunding any credit balance to the consumer immediately.
    ii. Refunding any credit balance prior to a written request from the 
consumer.
    iii. Making a good faith effort to refund any credit balance before 
6 months have passed. If that attempt is unsuccessful, the creditor need 
not try again to refund the credit balance at the end of the 6-month 
period.

                             Paragraph 21(b)

    1. Written requests--standing orders. The creditor is not required 
to honor standing orders requesting refunds of any credit balance that 
may be created on the consumer's account.

                             Paragraph 21(c)

    1. Good faith effort to refund. The creditor must take positive 
steps to return any credit balance that has remained in the account for 
over 6 months. This includes, if necessary, attempts to trace the 
consumer through the consumer's last known address or telephone number, 
or both.
    2. Good faith effort unsuccessful. Section 1026.21 imposes no 
further duties on the creditor if a good faith effort to return the 
balance is unsuccessful. The ultimate disposition of the credit balance 
(or any credit balance of $1 or less) is to be determined under other 
applicable law.

        Section 1026.22--Determination of Annual Percentage Rate

                22(a) Accuracy of Annual Percentage Rate

                           Paragraph 22(a)(1)

    1. Calculation method. The regulation recognizes both the actuarial 
method and the United States Rule Method (U.S. Rule) as measures of an 
exact annual percentage rate. Both methods yield the same annual 
percentage rate when payment intervals are equal. They differ in their 
treatment of unpaid accrued interest.
    2. Actuarial method. When no payment is made, or when the payment is 
insufficient to

[[Page 874]]

pay the accumulated finance charge, the actuarial method requires that 
the unpaid finance charge be added to the amount financed and thereby 
capitalized. Interest is computed on interest since in succeeding 
periods the interest rate is applied to the unpaid balance including the 
unpaid finance charge. Appendix J provides instructions and examples for 
calculating the annual percentage rate using the actuarial method.
    3. U.S. Rule. The U.S. Rule produces no compounding of interest in 
that any unpaid accrued interest is accumulated separately and is not 
added to principal. In addition, under the U.S. Rule, no interest 
calculation is made until a payment is received.
    4. Basis for calculations. When a transaction involves ``step 
rates'' or ``split rates''--that is, different rates applied at 
different times or to different portions of the principal balance--a 
single composite annual percentage rate must be calculated and disclosed 
for the entire transaction. Assume, for example, a step-rate transaction 
in which a $10,000 loan is repayable in 5 years at 10 percent interest 
for the first 2 years, 12 percent for years 3 and 4, and 14 percent for 
year 5. The monthly payments are $210.71 during the first 2 years of the 
term, $220.25 for years 3 and 4, and $222.59 for year 5. The composite 
annual percentage rate, using a calculator with a ``discounted cash flow 
analysis'' or ``internal rate of return'' function, is 10.75 percent.
    5. Good faith reliance on faulty calculation tools. Section 
1026.22(a)(1) absolves a creditor of liability for an error in the 
annual percentage rate or finance charge that resulted from a 
corresponding error in a calculation tool used in good faith by the 
creditor. Whether or not the creditor's use of the tool was in good 
faith must be determined on a case-by-case basis, but the creditor must 
in any case have taken reasonable steps to verify the accuracy of the 
tool, including any instructions, before using it. Generally, the 
creditor is not liable only for errors directly attributable to the 
calculation tool itself, including software programs; Sec. 
1026.22(a)(1) is not intended to absolve a creditor of liability for its 
own errors, or for errors arising from improper use of the tool, from 
incorrect data entry, or from misapplication of the law.

                           Paragraph 22(a)(2)

    1. Regular transactions. The annual percentage rate for a regular 
transaction is considered accurate if it varies in either direction by 
not more than \1/8\ of 1 percentage point from the actual annual 
percentage rate. For example, when the exact annual percentage rate is 
determined to be 101/8%, a disclosed annual percentage rate from 10% to 
10 \1/4\%, or the decimal equivalent, is deemed to comply with the 
regulation.

                           Paragraph 22(a)(3)

    1. Irregular transactions. The annual percentage rate for an 
irregular transaction is considered accurate if it varies in either 
direction by not more than \1/4\ of 1 percentage point from the actual 
annual percentage rate. This tolerance is intended for more complex 
transactions that do not call for a single advance and a regular series 
of equal payments at equal intervals. The \1/4\ of 1 percentage point 
tolerance may be used, for example, in a construction loan where 
advances are made as construction progresses, or in a transaction where 
payments vary to reflect the consumer's seasonal income. It may also be 
used in transactions with graduated payment schedules where the contract 
commits the consumer to several series of payments in different amounts. 
It does not apply, however, to loans with variable rate features where 
the initial disclosures are based on a regular amortization schedule 
over the life of the loan, even though payments may later change because 
of the variable rate feature.

                         22(a)(4) Mortgage Loans

    1. Example. If a creditor improperly omits a $75 fee from the 
finance charge on a regular transaction, the understated finance charge 
is considered accurate under Sec. 1026.18(d)(1), and the annual 
percentage rate corresponding to that understated finance charge also is 
considered accurate even if it falls outside the tolerance of \1/8\ of 1 
percentage point provided under Sec. 1026.22(a)(2). Because a $75 error 
was made, an annual percentage rate corresponding to a $100 
understatement of the finance charge would not be considered accurate.

            22(a)(5) Additional Tolerance for Mortgage Loans

    1. Example. This paragraph contains an additional tolerance for a 
disclosed annual percentage rate that is incorrect but is closer to the 
actual annual percentage rate than the rate that would be considered 
accurate under the tolerance in Sec. 1026.22(a)(4). To illustrate: in 
an irregular transaction subject to a \1/4\ of 1 percentage point 
tolerance, if the actual annual percentage rate is 9.00 percent and a 
$75 omission from the finance charge corresponds to a rate of 8.50 
percent that is considered accurate under Sec. 1026.22(a)(4), a 
disclosed APR of 8.65 percent is within the tolerance in Sec. 
1026.22(a)(5). In this example of an understated finance charge, a 
disclosed annual percentage rate below 8.50 or above 9.25 percent will 
not be considered accurate.

                         22(b) Computation Tools

                           Paragraph 22(b)(1)

    1. Bureau tables. Volumes I and II of the Bureau's Annual Percentage 
Rate Tables

[[Page 875]]

provide a means of calculating annual percentage rates for regular and 
irregular transactions, respectively. An annual percentage rate computed 
in accordance with the instructions in the tables is deemed to comply 
with the regulation, even where use of the tables produces a rate that 
falls outside the general standard of accuracy. To illustrate:Volume I 
may be used for single advance transactions with completely regular 
payment schedules or with payment schedules that are regular except for 
an odd first payment, odd first period or odd final payment. When used 
for a transaction with a large final balloon payment, Volume I may 
produce a rate that is considerably higher than the exact rate produced 
using a computer program based directly on Appendix J. However, the 
Volume I rate--produced using certain adjustments in that volume--is 
considered to be in compliance.

                           Paragraph 22(b)(2)

    1. Other calculation tools. Creditors need not use the Bureau tables 
in calculating the annual percentage rates. Any computation tools may be 
used, so long as they produce annual percentage rates within \1/8\ or 
\1/4\ of 1 percentage point, as applicable, of the precise actuarial or 
U.S. Rule annual percentage rate.

                  22(c) Single Add-On Rate Transactions

    1. General rule. Creditors applying a single add-on rate to all 
transactions up to 60 months in length may disclose the same annual 
percentage rate for all those transactions, although the actual annual 
percentage rate varies according to the length of the transaction. 
Creditors utilizing this provision must show the highest of those rates. 
For example, an add-on rate of 10 percent converted to an annual 
percentage rate produces the following actual annual percentage rates at 
various maturities: At 3 months, 14.94 percent; at 21 months, 18.18 
percent; and at 60 months, 17.27 percent. The creditor must disclose an 
annual percentage rate of 18.18 percent (the highest annual percentage 
rate) for any transaction up to 5 years, even though that rate is 
precise only for a transaction of 21 months.

         22(d) Certain Transactions Involving Ranges of Balances

    1. General rule. Creditors applying a fixed dollar finance charge to 
all balances within a specified range of balances may understate the 
annual percentage rate by up to 8 percent of that rate, by disclosing 
for all those balances the annual percentage rate computed on the median 
balance within that range. For example: If a finance charge of $9 
applies to all balances between $91 and $100, an annual percentage rate 
of 10 percent (the rate on the median balance) may be disclosed as the 
annual percentage rate for all balances, even though a $9 finance charge 
applied to the lowest balance ($91) would actually produce an annual 
percentage rate of 10.7 percent.

                  Section 1026.23--Right of Rescission

    1. Transactions not covered. Credit extensions that are not subject 
to the regulation are not covered by Sec. 1026.23 even if a customer's 
principal dwelling is the collateral securing the credit. For example, 
the right of rescission does not apply to a business purpose loan, even 
though the loan is secured by the customer's principal dwelling.

                    23(a) Consumer's Right to Rescind

                           Paragraph 23(a)(1)

    1. Security interest arising from transaction. i. In order for the 
right of rescission to apply, the security interest must be retained as 
part of the credit transaction. For example:
    A. A security interest that is acquired by a contractor who is also 
extending the credit in the transaction.
    B. A mechanic's or materialman's lien that is retained by a 
subcontractor or supplier of the contractor-creditor, even when the 
latter has waived its own security interest in the consumer's home.
    ii. The security interest is not part of the credit transaction and 
therefore the transaction is not subject to the right of rescission 
when, for example:
    A. A mechanic's or materialman's lien is obtained by a contractor 
who is not a party to the credit transaction but is merely paid with the 
proceeds of the consumer's unsecured bank loan.
    B. All security interests that may arise in connection with the 
credit transaction are validly waived.
    C. The creditor obtains a lien and completion bond that in effect 
satisfies all liens against the consumer's principal dwelling as a 
result of the credit transaction.
    iii. Although liens arising by operation of law are not considered 
security interests for purposes of disclosure under Sec. 1026.2, that 
section specifically includes them in the definition for purposes of the 
right of rescission. Thus, even though an interest in the consumer's 
principal dwelling is not a required disclosure under Sec. 1026.18(m), 
it may still give rise to the right of rescission.
    2. Consumer. To be a consumer within the meaning of Sec. 1026.2, 
that person must at least have an ownership interest in the dwelling 
that is encumbered by the creditor's security interest, although that 
person need not be a signatory to the credit agreement. For example, if 
only one spouse signs a credit contract, the other spouse is a consumer 
if the ownership interest of that spouse is subject to the security 
interest.

[[Page 876]]

    3. Principal dwelling. A consumer can only have one principal 
dwelling at a time. (But see comment 23(a)(1)-4.) A vacation or other 
second home would not be a principal dwelling. A transaction secured by 
a second home (such as a vacation home) that is not currently being used 
as the consumer's principal dwelling is not rescindable, even if the 
consumer intends to reside there in the future. When a consumer buys or 
builds a new dwelling that will become the consumer's principal dwelling 
within one year or upon completion of construction, the new dwelling is 
considered the principal dwelling if it secures the acquisition or 
construction loan. In that case, the transaction secured by the new 
dwelling is a residential mortgage transaction and is not rescindable. 
For example, if a consumer whose principal dwelling is currently A 
builds B, to be occupied by the consumer upon completion of 
construction, a construction loan to finance B and secured by B is a 
residential mortgage transaction. Dwelling, as defined in Sec. 1026.2, 
includes structures that are classified as personalty under state law. 
For example, a transaction secured by a mobile home, trailer, or 
houseboat used as the consumer's principal dwelling may be rescindable.
    4. Special rule for principal dwelling. Notwithstanding the general 
rule that consumers may have only one principal dwelling, when the 
consumer is acquiring or constructing a new principal dwelling, any loan 
subject to Regulation Z and secured by the equity in the consumer's 
current principal dwelling (for example, a bridge loan) is subject to 
the right of rescission regardless of the purpose of that loan. For 
example, if a consumer whose principal dwelling is currently A builds B, 
to be occupied by the consumer upon completion of construction, a 
construction loan to finance B and secured by A is subject to the right 
of rescission. A loan secured by both A and B is, likewise, rescindable.
    5. Addition of a security interest. Under Sec. 1026.23(a), the 
addition of a security interest in a consumer's principal dwelling to an 
existing obligation is rescindable even if the existing obligation is 
not satisfied and replaced by a new obligation, and even if the existing 
obligation was previously exempt under Sec. 1026.3(b). The right of 
rescission applies only to the added security interest, however, and not 
to the original obligation. In those situations, only the Sec. 
1026.23(b) notice need be delivered, not new material disclosures; the 
rescission period will begin to run from the delivery of the notice.

                           Paragraph 23(a)(2)

    1. Consumer's exercise of right. The consumer must exercise the 
right of rescission in writing but not necessarily on the notice 
supplied under Sec. 1026.23(b). Whatever the means of sending the 
notification of rescission--mail, telegram or other written means--the 
time period for the creditor's performance under Sec. 1026.23(d)(2) 
does not begin to run until the notification has been received. The 
creditor may designate an agent to receive the notification so long as 
the agent's name and address appear on the notice provided to the 
consumer under Sec. 1026.23(b). Where the creditor fails to provide the 
consumer with a designated address for sending the notification of 
rescission, delivering notification to the person or address to which 
the consumer has been directed to send, payments constitutes delivery to 
the creditor or assignee. State law determines whether delivery of the 
notification to a third party other than the person to whom payments are 
made is delivery to the creditor or assignee, in the case where the 
creditor fails to designate an address for sending the notification of 
rescission.

                           Paragraph 23(a)(3)

    1. Rescission period. i. The period within which the consumer may 
exercise the right to rescind runs for 3 business days from the last of 
3 events:
    A. Consummation of the transaction.
    B. Delivery of all material disclosures.
    C. Delivery to the consumer of the required rescission notice.
    ii. For example:
    A. If a transaction is consummated on Friday, June 1, and the 
disclosures and notice of the right to rescind were given on Thursday, 
May 31, the rescission period will expire at midnight of the third 
business day after June 1--that is, Tuesday, June 5.
    B. If the disclosures are given and the transaction consummated on 
Friday, June 1, and the rescission notice is given on Monday, June 4, 
the rescission period expires at midnight of the third business day 
after June 4--that is, Thursday, June 7. The consumer must place the 
rescission notice in the mail, file it for telegraphic transmission, or 
deliver it to the creditor's place of business within that period in 
order to exercise the right.
    2. Material disclosures. Section 1026.23(a)(3)(ii) sets forth the 
material disclosures that must be provided before the rescission period 
can begin to run. Failure to provide information regarding the annual 
percentage rate also includes failure to inform the consumer of the 
existence of a variable rate feature. Failure to give the other required 
disclosures does not prevent the running of the rescission period, 
although that failure may result in civil liability or administrative 
sanctions.
    3. Unexpired right of rescission. i. When the creditor has failed to 
take the action necessary to start the three-business day rescission 
period running, the right to rescind

[[Page 877]]

automatically lapses on the occurrence of the earliest of the following 
three events:
    A. The expiration of three years after consummation of the 
transaction.
    B. Transfer of all the consumer's interest in the property.
    C. Sale of the consumer's interest in the property, including a 
transaction in which the consumer sells the dwelling and takes back a 
purchase money note and mortgage or retains legal title through a device 
such as an installment sale contract.
    ii. Transfer of all the consumers' interest includes such transfers 
as bequests and gifts. A sale or transfer of the property need not be 
voluntary to terminate the right to rescind. For example, a foreclosure 
sale would terminate an unexpired right to rescind. As provided in 
Section 125 of the Act, the three-year limit may be extended by an 
administrative proceeding to enforce the provisions of this section. A 
partial transfer of the consumer's interest, such as a transfer 
bestowing co-ownership on a spouse, does not terminate the right of 
rescission.

                           Paragraph 23(a)(4)

    1. Joint owners. When more than one consumer has the right to 
rescind a transaction, any of them may exercise that right and cancel 
the transaction on behalf of all. For example, if both husband and wife 
have the right to rescind a transaction, either spouse acting alone may 
exercise the right and both are bound by the rescission.

                             Paragraph 23(b)

                   23(b)(1) Notice of Right To Rescind

    1. Who receives notice. Each consumer entitled to rescind must be 
given two copies of the rescission notice and the material disclosures. 
In a transaction involving joint owners, both of whom are entitled to 
rescind, both must receive the notice of the right to rescind and 
disclosures. For example, if both spouses are entitled to rescind a 
transaction, each must receive two copies of the rescission notice (one 
copy to each if the notice is provided in electronic form in accordance 
with the consumer consent and other applicable provisions of the E-Sign 
Act) and one copy of the disclosures.
    2. Format. The notice must be on a separate piece of paper, but may 
appear with other information such as the itemization of the amount 
financed. The material must be clear and conspicuous, but no minimum 
type size or other technical requirements are imposed. The notices in 
Appendix H provide models that creditors may use in giving the notice.
    3. Content. The notice must include all of the information outlined 
in Section 1026.23(b)(1)(i) through (v). The requirement in Sec. 
1026.23(b) that the transaction be identified may be met by providing 
the date of the transaction. The creditor may provide a separate form 
that the consumer may use to exercise the right of rescission, or that 
form may be combined with the other rescission disclosures, as 
illustrated in Appendix H. The notice may include additional information 
related to the required information, such as:
    i. A description of the property subject to the security interest.
    ii. A statement that joint owners may have the right to rescind and 
that a rescission by one is effective for all.
    iii. The name and address of an agent of the creditor to receive 
notice of rescission.
    4. Time of providing notice. The notice required by Sec. 1026.23(b) 
need not be given before consummation of the transaction. The creditor 
may deliver the notice after the transaction is consummated, but the 
rescission period will not begin to run until the notice is given. For 
example, if the creditor provides the notice on May 15, but disclosures 
were given and the transaction was consummated on May 10, the 3-business 
day rescission period will run from May 15.

                  23(c) Delay of Creditor's Performance

    1. General rule. Until the rescission period has expired and the 
creditor is reasonably satisfied that the consumer has not rescinded, 
the creditor must not, either directly or through a third party:
    i. Disburse loan proceeds to the consumer.
    ii. Begin performing services for the consumer.
    iii. Deliver materials to the consumer.
    2. Escrow. The creditor may disburse loan proceeds during the 
rescission period in a valid escrow arrangement. The creditor may not, 
however, appoint the consumer as ``trustee'' or ``escrow agent'' and 
distribute funds to the consumer in that capacity during the delay 
period.
    3. Actions during the delay period. Section 1026.23(c) does not 
prevent the creditor from taking other steps during the delay, short of 
beginning actual performance. Unless otherwise prohibited, such as by 
state law, the creditor may, for example:
    i. Prepare the loan check.
    ii. Perfect the security interest.
    iii. Prepare to discount or assign the contract to a third party.
    iv. Accrue finance charges during the delay period.
    4. Delay beyond rescission period. i. The creditor must wait until 
it is reasonably satisfied that the consumer has not rescinded. For 
example, the creditor may satisfy itself by doing one of the following:
    A. Waiting a reasonable time after expiration of the rescission 
period to allow for delivery of a mailed notice.
    B. Obtaining a written statement from the consumer that the right 
has not been exercised.

[[Page 878]]

    ii. When more than one consumer has the right to rescind, the 
creditor cannot reasonably rely on the assurance of only one consumer, 
because other consumers may exercise the right.

                       23(d) Effects of Rescission

                           Paragraph 23(d)(1)

    1. Termination of security interest. Any security interest giving 
rise to the right of rescission becomes void when the consumer exercises 
the right of rescission. The security interest is automatically negated 
regardless of its status and whether or not it was recorded or 
perfected. Under Sec. 1026.23(d)(2), however, the creditor must take 
any action necessary to reflect the fact that the security interest no 
longer exists.

                           Paragraph 23(d)(2)

    1. Refunds to consumer. The consumer cannot be required to pay any 
amount in the form of money or property either to the creditor or to a 
third party as part of the credit transaction. Any amounts of this 
nature already paid by the consumer must be refunded. ``Any amount'' 
includes finance charges already accrued, as well as other charges, such 
as broker fees, application and commitment fees, or fees for a title 
search or appraisal, whether paid to the creditor, paid directly to a 
third party, or passed on from the creditor to the third party. It is 
irrelevant that these amounts may not represent profit to the creditor.
    2. Amounts not refundable to consumer. Creditors need not return any 
money given by the consumer to a third party outside of the credit 
transaction, such as costs incurred for a building permit or for a 
zoning variance. Similarly, the term any amount does not apply to any 
money or property given by the creditor to the consumer; those amounts 
must be tendered by the consumer to the creditor under Sec. 
1026.23(d)(3).
    3. Reflection of security interest termination. The creditor must 
take whatever steps are necessary to indicate that the security interest 
is terminated. Those steps include the cancellation of documents 
creating the security interest, and the filing of release or termination 
statements in the public record. In a transaction involving 
subcontractors or suppliers that also hold security interests related to 
the credit transaction, the creditor must insure that the termination of 
their security interests is also reflected. The 20-day period for the 
creditor's action refers to the time within which the creditor must 
begin the process. It does not require all necessary steps to have been 
completed within that time, but the creditor is responsible for seeing 
the process through to completion.

                           Paragraph 23(d)(3)

    1. Property exchange. Once the creditor has fulfilled its 
obligations under Sec. 1026.23(d)(2), the consumer must tender to the 
creditor any property or money the creditor has already delivered to the 
consumer. At the consumer's option, property may be tendered at the 
location of the property. For example, if lumber or fixtures have been 
delivered to the consumer's home, the consumer may tender them to the 
creditor by making them available for pick-up at the home, rather than 
physically returning them to the creditor's premises. Money already 
given to the consumer must be tendered at the creditor's place of 
business.
    2. Reasonable value. If returning the property would be extremely 
burdensome to the consumer, the consumer may offer the creditor its 
reasonable value rather than returning the property itself. For example, 
if building materials have already been incorporated into the consumer's 
dwelling, the consumer may pay their reasonable value.

                           Paragraph 23(d)(4)

    1. Modifications. The procedures outlined in Sec. 1026.23(d)(2) and 
(3) may be modified by a court. For example, when a consumer is in 
bankruptcy proceedings and prohibited from returning anything to the 
creditor, or when the equities dictate, a modification might be made. 
The sequence of procedures under Sec. 1026.23(d)(2) and (3), or a 
court's modification of those procedures under Sec. 1026.23(d)(4), does 
not affect a consumer's substantive right to rescind and to have the 
loan amount adjusted accordingly. Where the consumer's right to rescind 
is contested by the creditor, a court would normally determine whether 
the consumer has a right to rescind and determine the amounts owed 
before establishing the procedures for the parties to tender any money 
or property.

               23(e) Consumer's Waiver of Right to Rescind

    1. Need for waiver. To waive the right to rescind, the consumer must 
have a bona fide personal financial emergency that must be met before 
the end of the rescission period. The existence of the consumer's waiver 
will not, of itself, automatically insulate the creditor from liability 
for failing to provide the right of rescission.
    2. Procedure. To waive or modify the right to rescind, the consumer 
must give a written statement that specifically waives or modifies the 
right, and also includes a brief description of the emergency. Each 
consumer entitled to rescind must sign the waiver statement. In a 
transaction involving multiple consumers, such as a husband and wife 
using their home as collateral, the waiver must bear the signatures of 
both spouses.

[[Page 879]]

                        23(f) Exempt Transactions

    1. Residential mortgage transaction. Any transaction to construct or 
acquire a principal dwelling, whether considered real or personal 
property, is exempt. (See the commentary to Sec. 1026.23(a).) For 
example, a credit transaction to acquire a mobile home or houseboat to 
be used as the consumer's principal dwelling would not be rescindable.
    2. Lien status. The lien status of the mortgage is irrelevant for 
purposes of the exemption in Sec. 1026.23(f)(1); the fact that a loan 
has junior lien status does not by itself preclude application of this 
exemption. For example, a home buyer may assume the existing first 
mortgage and create a second mortgage to finance the balance of the 
purchase price. Such a transaction would not be rescindable.
    3. Combined-purpose transaction. A loan to acquire a principal 
dwelling and make improvements to that dwelling is exempt if treated as 
one transaction. If, on the other hand, the loan for the acquisition of 
the principal dwelling and the subsequent advances for improvements are 
treated as more than one transaction, then only the transaction that 
finances the acquisition of that dwelling is exempt.
    4. New advances. The exemption in Sec. 1026.23(f)(2) applies only 
to refinancings (including consolidations) by the original creditor. The 
original creditor is the creditor to whom the written agreement was 
initially made payable. In a merger, consolidation or acquisition, the 
successor institution is considered the original creditor for purposes 
of the exemption in Sec. 1026.23(f)(2). If the refinancing involves a 
new advance of money, the amount of the new advance is rescindable. In 
determining whether there is a new advance, a creditor may rely on the 
amount financed, refinancing costs, and other figures stated in the 
latest Truth in Lending disclosures provided to the consumer and is not 
required to use, for example, more precise information that may only 
become available when the loan is closed. For purposes of the right of 
rescission, a new advance does not include amounts attributed solely to 
the costs of the refinancing. These amounts would include Sec. 
1026.4(c)(7) charges (such as attorneys fees and title examination and 
insurance fees, if bona fide and reasonable in amount), as well as 
insurance premiums and other charges that are not finance charges. 
(Finance charges on the new transaction--points, for example--would not 
be considered in determining whether there is a new advance of money in 
a refinancing since finance charges are not part of the amount 
financed.) To illustrate, if the sum of the outstanding principal 
balance plus the earned unpaid finance charge is $50,000 and the new 
amount financed is $51,000, then the refinancing would be exempt if the 
extra $1,000 is attributed solely to costs financed in connection with 
the refinancing that are not finance charges. Of course, if new advances 
of money are made (for example, to pay for home improvements) and the 
consumer exercises the right of rescission, the consumer must be placed 
in the same position as he or she was in prior to entering into the new 
credit transaction. Thus, all amounts of money (which would include all 
the costs of the refinancing) already paid by the consumer to the 
creditor or to a third party as part of the refinancing would have to be 
refunded to the consumer. (See the commentary to Sec. 1026.23(d)(2) for 
a discussion of refunds to consumers.) A model rescission notice 
applicable to transactions involving new advances appears in Appendix H. 
The general rescission notice (model form H-8) is the appropriate form 
for use by creditors not considered original creditors in refinancing 
transactions.
    5. State creditors. Cities and other political subdivisions of 
states acting as creditors are not exempted from this section.
    6. Multiple advances. Just as new disclosures need not be made for 
subsequent advances when treated as one transaction, no new rescission 
rights arise so long as the appropriate notice and disclosures are given 
at the outset of the transaction. For example, the creditor extends 
credit for home improvements secured by the consumer's principal 
dwelling, with advances made as repairs progress. As permitted by Sec. 
1026.17(c)(6), the creditor makes a single set of disclosures at the 
beginning of the construction period, rather than separate disclosures 
for each advance. The right of rescission does not arise with each 
advance. However, if the advances are treated as separate transactions, 
the right of rescission applies to each advance.
    7. Spreader clauses. When the creditor holds a mortgage or deed of 
trust on the consumer's principal dwelling and that mortgage or deed of 
trust contains a ``spreader clause,'' subsequent loans made are separate 
transactions and are subject to the right of rescission. Those loans are 
rescindable unless the creditor effectively waives its security interest 
under the spreader clause with respect to the subsequent transactions.
    8. Converting open-end to closed-end credit. Under certain state 
laws, consummation of a closed-end credit transaction may occur at the 
time a consumer enters into the initial open-end credit agreement. As 
provided in the commentary to Sec. 1026.17(b), closed-end credit 
disclosures may be delayed under these circumstances until the 
conversion of the open-end account to a closed-end transaction. In 
accounts secured by the consumer's principal dwelling, no new right of 
rescission arises at the time of conversion. Rescission rights under 
Sec. 1026.15 are unaffected.

[[Page 880]]

                      23(g) Tolerances for Accuracy

                     23(g)(2) One Percent Tolerance

    1. New advance. The phrase ``new advance'' has the same meaning as 
in comment 23(f)-4.

                  23(h) Special Rules for Foreclosures

    1. Rescission. Section 1026.23(h) applies only to transactions that 
are subject to rescission under Sec. 1026.23(a)(1).

                          Paragraph 23(h)(1)(i)

    1. Mortgage broker fees. A consumer may rescind a loan in 
foreclosure if a mortgage broker fee that should have been included in 
the finance charge was omitted, without regard to the dollar amount 
involved. If the amount of the mortgage broker fee is included but 
misstated the rule in Sec. 1026.23(h)(2) applies.

                   23(h)(2) Tolerance for Disclosures

    1. General. This section is based on the accuracy of the total 
finance charge rather than its component charges.

                      Section 1026.24--Advertising

                     24(a) Actually Available Terms

    1. General rule. To the extent that an advertisement mentions 
specific credit terms, it may state only those terms that the creditor 
is actually prepared to offer. For example, a creditor may not advertise 
a very low annual percentage rate that will not in fact be available at 
any time. This provision is not intended to inhibit the promotion of new 
credit programs, but to bar the advertising of terms that are not and 
will not be available. For example, a creditor may advertise terms that 
will be offered for only a limited period, or terms that will become 
available at a future date.

                  24(b) Clear and Conspicuous Standard

    1. Clear and conspicuous standard--general. This section is subject 
to the general ``clear and conspicuous'' standard for this subpart, see 
Sec. 1026.17(a)(1), but prescribes no specific rules for the format of 
the necessary disclosures, other than the format requirements related to 
the advertisement of rates and payments as described in comment 24(b)-2 
below. The credit terms need not be printed in a certain type size nor 
need they appear in any particular place in the advertisement. For 
example, a merchandise tag that is an advertisement under the regulation 
complies with this section if the necessary credit terms are on both 
sides of the tag, so long as each side is accessible.
    2. Clear and conspicuous standard--rates and payments in 
advertisements for credit secured by a dwelling. For purposes of Sec. 
1026.24(f), a clear and conspicuous disclosure means that the required 
information in Sec. Sec. 1026.24(f)(2)(i) and 1026.24(f)(3)(i)(A) and 
(B) is disclosed with equal prominence and in close proximity to the 
advertised rates or payments triggering the required disclosures, and 
that the required information in Sec. 1026.24(f)(3)(i)(C) is disclosed 
prominently and in close proximity to the advertised rates or payments 
triggering the required disclosures. If the required information in 
Sec. Sec. 1026.24(f)(2)(i) and 1026.24(f)(3)(i)(A) and (B) is the same 
type size as the advertised rates or payments triggering the required 
disclosures, the disclosures are deemed to be equally prominent. The 
information in Sec. 1026.24(f)(3)(i)(C) must be disclosed prominently, 
but need not be disclosed with equal prominence or be the same type size 
as the payments triggering the required disclosures. If the required 
information in Sec. Sec. 1026.24(f)(2)(i) and 1026.24(f)(3)(i) is 
located immediately next to or directly above or below the advertised 
rates or payments triggering the required disclosures, without any 
intervening text or graphical displays, the disclosures are deemed to be 
in close proximity. Notwithstanding the above, for electronic 
advertisements that disclose rates or payments, compliance with the 
requirements of Sec. 1026.24(e) is deemed to satisfy the clear and 
conspicuous standard.
    3. Clear and conspicuous standard--Internet advertisements for 
credit secured by a dwelling. For purposes of this section, a clear and 
conspicuous disclosure for visual text advertisements on the Internet 
for credit secured by a dwelling means that the required disclosures are 
not obscured by techniques such as graphical displays, shading, 
coloration, or other devices and comply with all other requirements for 
clear and conspicuous disclosures under Sec. 1026.24. See also comment 
24(e)-4.
    4. Clear and conspicuous standard--televised advertisements for 
credit secured by a dwelling. For purposes of this section, including 
alternative disclosures as provided for by Sec. 1026.24(g), a clear and 
conspicuous disclosure in the context of visual text advertisements on 
television for credit secured by a dwelling means that the required 
disclosures are not obscured by techniques such as graphical displays, 
shading, coloration, or other devices, are displayed in a manner that 
allows a consumer to read the information required to be disclosed, and 
comply with all other requirements for clear and conspicuous disclosures 
under Sec. 1026.24. For example, very fine print in a television 
advertisement would not meet the clear and conspicuous standard if 
consumers cannot see and read the information required to be disclosed.
    5. Clear and conspicuous standard--oral advertisements for credit 
secured by a dwelling. For purposes of this section, including 
alternative disclosures as provided for by Sec. 1026.24(g), a clear and 
conspicuous disclosure in the context of an oral advertisement

[[Page 881]]

for credit secured by a dwelling, whether by radio, television, or other 
medium, means that the required disclosures are given at a speed and 
volume sufficient for a consumer to hear and comprehend them. For 
example, information stated very rapidly at a low volume in a radio or 
television advertisement would not meet the clear and conspicuous 
standard if consumers cannot hear and comprehend the information 
required to be disclosed.

              24(c) Advertisement of Rate of Finance Charge

    1. Annual percentage rate. Advertised rates must be stated in terms 
of an annual percentage rate, as defined in Sec. 1026.22. Even though 
state or local law permits the use of add-on, discount, time-price 
differential, or other methods of stating rates, advertisements must 
state them as annual percentage rates. Unlike the transactional 
disclosure of an annual percentage rate under Sec. 1026.18(e), the 
advertised annual percentage rate need not include a descriptive 
explanation of the term and may be expressed using the abbreviation APR. 
The advertisement must state that the rate is subject to increase after 
consummation if that is the case, but the advertisement need not 
describe the rate increase, its limits, or how it would affect the 
payment schedule. As under Sec. 1026.18(f), relating to disclosure of a 
variable rate, the rate increase disclosure requirement in this 
provision does not apply to any rate increase due to delinquency 
(including late payment), default, acceleration, assumption, or transfer 
of collateral.
    2. Simple or periodic rates. The advertisement may not 
simultaneously state any other rate, except that a simple annual rate or 
periodic rate applicable to an unpaid balance may appear along with (but 
not more conspicuously than) the annual percentage rate. An 
advertisement for credit secured by a dwelling may not state a periodic 
rate, other than a simple annual rate, that is applied to an unpaid 
balance. For example, in an advertisement for credit secured by a 
dwelling, a simple annual interest rate may be shown in the same type 
size as the annual percentage rate for the advertised credit, subject to 
the requirements of Sec. 1026.24(f). A simple annual rate or periodic 
rate that is applied to an unpaid balance is the rate at which interest 
is accruing; those terms do not include a rate lower than the rate at 
which interest is accruing, such as an effective rate, payment rate, or 
qualifying rate.
    3. Buydowns. When a third party (such as a seller) or a creditor 
wishes to promote the availability of reduced interest rates (consumer 
or seller buydowns), the advertised annual percentage rate must be 
determined in accordance with the commentary to Sec. 1026.17(c) 
regarding the basis of transactional disclosures for buydowns. The 
seller or creditor may advertise the reduced simple interest rate, 
provided the advertisement shows the limited term to which the reduced 
rate applies and states the simple interest rate applicable to the 
balance of the term. The advertisement may also show the effect of the 
buydown agreement on the payment schedule for the buydown period, but 
this will trigger the additional disclosures under Sec. 1026.24(d)(2).
    4. Discounted variable-rate transactions. The advertised annual 
percentage rate for discounted variable-rate transactions must be 
determined in accordance with comment 17(c)(1)-10 regarding the basis of 
transactional disclosures for such financing.
    i. A creditor or seller may promote the availability of the initial 
rate reduction in such transactions by advertising the reduced simple 
annual rate, provided the advertisement shows with equal prominence and 
in close proximity the limited term to which the reduced rate applies 
and the annual percentage rate that will apply after the term of the 
initial rate reduction expires. See Sec. 1026.24(f).
    ii. Limits or caps on periodic rate or payment adjustments need not 
be stated. To illustrate using the second example in comment 17(c)(1)-
10, the fact that the rate is presumed to be 11 percent in the second 
year and 12 percent for the remaining 28 years need not be included in 
the advertisement.
    iii. The advertisement may also show the effect of the discount on 
the payment schedule for the discount period, but this will trigger the 
additional disclosures under Sec. 1026.24(d).

    24(d) Advertisement of Terms That Require Additional Disclosures

    1. General rule. Under Sec. 1026.24(d)(1), whenever certain 
triggering terms appear in credit advertisements, the additional credit 
terms enumerated in Sec. 1026.24(d)(2) must also appear. These 
provisions apply even if the triggering term is not stated explicitly 
but may be readily determined from the advertisement. For example, an 
advertisement may state ``80 percent financing available,'' which is in 
fact indicating that a 20 percent downpayment is required.

                        24(d)(1) Triggering Terms

    1. Downpayment. i. The dollar amount of a downpayment or a statement 
of the downpayment as a percentage of the price requires further 
information. By virtue of the definition of downpayment in Sec. 1026.2, 
this triggering term is limited to credit sale transactions. It includes 
such statements as:
    A. Only 5% down.
    B. As low as $100 down.
    C. Total move-in costs of $800.

[[Page 882]]

    ii. This provision applies only if a downpayment is actually 
required; statements such as no downpayment or no trade-in required do 
not trigger the additional disclosures under this paragraph.
    2. Payment period. i. The number of payments required or the total 
period of repayment includes such statements as:
    A. 48-month payment terms.
    B. 30-year mortgage.
    C. Repayment in as many as 36 monthly installments.
    ii. But it does not include such statements as ``pay weekly,'' 
``monthly payment terms arranged,'' or ``take years to repay,'' since 
these statements do not indicate a time period over which a loan may be 
financed.
    3. Payment amount. i. The dollar amount of any payment includes 
statements such as:
    A. ``Payable in installments of $103.''
    B. ``$25 weekly.''
    C. ``$500,000 loan for just $1,650 per month.''
    D. ``$1,200 balance payable in 10 equal installments.''
    ii. In the last example, the amount of each payment is readily 
determinable, even though not explicitly stated. But statements such as 
``monthly payments to suit your needs'' or ``regular monthly payments'' 
are not deemed to be statements of the amount of any payment.
    4. Finance charge. i. The dollar amount of the finance charge or any 
portion of it includes statements such as:
    A. ``$500 total cost of credit.''
    B. ``$2 monthly carrying charge.''
    C. ``$50,000 mortgages, 2 points to the borrower.''
    ii. In the last example, the $1,000 prepaid finance charge can be 
readily determined from the information given. Statements of the annual 
percentage rate or statements that there is no particular charge for 
credit (such as ``no closing costs'') are not triggering terms under 
this paragraph.

                        24(d)(2) Additional Terms

    1. Disclosure of downpayment. The total downpayment as a dollar 
amount or percentage must be shown, but the word ``downpayment'' need 
not be used in making this disclosure. For example, ``10% cash required 
from buyer'' or ``credit terms require minimum $100 trade-in'' would 
suffice.
    2. Disclosure of repayment terms. The phrase ``terms of repayment'' 
generally has the same meaning as the ``payment schedule'' required to 
be disclosed under Sec. 1026.18(g). Section 1026.24(d)(2)(ii) provides 
flexibility to creditors in making this disclosure for advertising 
purposes. Repayment terms may be expressed in a variety of ways in 
addition to an exact repayment schedule; this is particularly true for 
advertisements that do not contemplate a single specific transaction. 
Repayment terms, however, must reflect the consumer's repayment 
obligations over the full term of the loan, including any balloon 
payment, see comment 24(d)(2)-3, not just the repayment terms that will 
apply for a limited period of time. For example:
    i. A creditor may use a unit-cost approach in making the required 
disclosure, such as ``48 monthly payments of $27.83 per $1,000 
borrowed.''
    ii. In an advertisement for credit secured by a dwelling, when any 
series of payments varies because of the inclusion of mortgage insurance 
premiums, a creditor may state the number and timing of payments, the 
fact that payments do not include amounts for mortgage insurance 
premiums, and that the actual payment obligation will be higher.
    iii. In an advertisement for credit secured by a dwelling, when one 
series of monthly payments will apply for a limited period of time 
followed by a series of higher monthly payments for the remaining term 
of the loan, the advertisement must state the number and time period of 
each series of payments, and the amounts of each of those payments. For 
this purpose, the creditor must assume that the consumer makes the lower 
series of payments for the maximum allowable period of time.
    3. Balloon payment; disclosure of repayment terms. In some 
transactions, a balloon payment will occur when the consumer only makes 
the minimum payments specified in an advertisement. A balloon payment 
results if paying the minimum payments does not fully amortize the 
outstanding balance by a specified date or time, usually the end of the 
term of the loan, and the consumer must repay the entire outstanding 
balance at such time. If a balloon payment will occur when the consumer 
only makes the minimum payments specified in an advertisement, the 
advertisement must state with equal prominence and in close proximity to 
the minimum payment statement the amount and timing of the balloon 
payment that will result if the consumer makes only the minimum payments 
for the maximum period of time that the consumer is permitted to make 
such payments.
    4. Annual percentage rate. The advertised annual percentage rate may 
be expressed using the abbreviation ``APR.'' The advertisement must also 
state, if applicable, that the annual percentage rate is subject to 
increase after consummation.
    5. Use of examples. A creditor may use illustrative credit 
transactions to make the necessary disclosures under Sec. 
1026.24(d)(2). That is, where a range of possible combinations of credit 
terms is offered, the advertisement may use examples of typical 
transactions, so long as each example contains all of the applicable 
terms required by Sec. 1026.24(d). The examples must be labeled as such 
and must reflect representative credit terms made available by the 
creditor to present and prospective customers.

[[Page 883]]

    24(e) Catalogs or Other Multiple-Page Advertisements; Electronic 
                             Advertisements

    1. Definition. The multiple-page advertisements to which this 
section refers are advertisements consisting of a series of sequentially 
numbered pages--for example, a supplement to a newspaper. A mailing 
consisting of several separate flyers or pieces of promotional material 
in a single envelope does not constitute a single multiple-page 
advertisement for purposes of Sec. 1026.24(e).
    2. General. Section 1026.24(e) permits creditors to put credit 
information together in one place in a catalog or other multiple-page 
advertisement or in an electronic advertisement (such as an 
advertisement appearing on an Internet Web site). The rule applies only 
if the advertisement contains one or more of the triggering terms from 
Sec. 1026.24(d)(1). A list of different annual percentage rates 
applicable to different balances, for example, does not trigger further 
disclosures under Sec. 1026.24(d)(2) and so is not covered by Sec. 
1026.24(e).
    3. Representative examples. The table or schedule must state all the 
necessary information for a representative sampling of amounts of 
credit. This must reflect amounts of credit the creditor actually 
offers, up to and including the higher-priced items. This does not mean 
that the chart must make the disclosures for the single most expensive 
item the seller offers, but only that the chart cannot be limited to 
information about less expensive sales when the seller commonly offers a 
distinct level of more expensive goods or services. The range of 
transactions shown in the table or schedule in a particular catalog or 
multiple-page advertisement need not exceed the range of transactions 
actually offered in that advertisement.
    4. Electronic advertisement. If an electronic advertisement (such as 
an advertisement appearing on an Internet Web site) contains the table 
or schedule permitted under Sec. 1026.24(e)(1), any statement of terms 
set forth in Sec. 1026.24(d)(1) appearing anywhere else in the 
advertisement must clearly direct the consumer to the location where the 
table or schedule begins. For example, a term triggering additional 
disclosures may be accompanied by a link that directly takes the 
consumer to the additional information.

  24(f) Disclosure of Rates and Payments in Advertisements for Credit 
                          Secured by a Dwelling

    1. Applicability. The requirements of Sec. 1026.24(f)(2) apply to 
advertisements for loans where more than one simple annual rate of 
interest will apply. The requirements of Sec. 1026.24(f)(3)(i)(A) 
require a clear and conspicuous disclosure of each payment that will 
apply over the term of the loan. In determining whether a payment will 
apply when the consumer may choose to make a series of lower monthly 
payments that will apply for a limited period of time, the creditor must 
assume that the consumer makes the series of lower payments for the 
maximum allowable period of time. See comment 24(d)(2)-2.iii. However, 
for purposes of Sec. 1026.24(f), the creditor may, but need not, assume 
that specific events which trigger changes to the simple annual rate of 
interest or to the applicable payments will occur. For example:
    i. Fixed-rate conversion loans. If a loan program permits consumers 
to convert their variable-rate loans to fixed rate loans, the creditor 
need not assume that the fixed-rate conversion option, by itself, means 
that more than one simple annual rate of interest will apply to the loan 
under Sec. 1026.24(f)(2) and need not disclose as a separate payment 
under Sec. 1026.24(f)(3)(i)(A) the payment that would apply if the 
consumer exercised the fixed-rate conversion option.
    ii. Preferred-rate loans. Some loans contain a preferred-rate 
provision, where the rate will increase upon the occurrence of some 
event, such as the consumer-employee leaving the creditor's employ or 
the consumer closing an existing deposit account with the creditor or 
the consumer revoking an election to make automated payments. A creditor 
need not assume that the preferred-rate provision, by itself, means that 
more than one simple annual rate of interest will apply to the loan 
under Sec. 1026.24(f)(2) and the payments that would apply upon 
occurrence of the event that triggers the rate increase need not be 
disclosed as a separate payment under Sec. 1026.24(f)(3)(i)(A).
    iii. Rate reductions. Some loans contain a provision where the rate 
will decrease upon the occurrence of some event, such as if the consumer 
makes a series of payments on time. A creditor need not assume that the 
rate reduction provision, by itself, means that more than one simple 
annual rate of interest will apply to the loan under Sec. 1026.24(f)(2) 
and need not disclose the payments that would apply upon occurrence of 
the event that triggers the rate reduction as a separate payment under 
Sec. 1026.24(f)(3)(i)(A).
    2. Equal prominence, close proximity. Information required to be 
disclosed under Sec. Sec. 1026.24(f)(2)(i) and 1026.24(f)(3)(i) that is 
immediately next to or directly above or below the simple annual rate or 
payment amount (but not in a footnote) is deemed to be closely proximate 
to the listing. Information required to be disclosed under Sec. Sec. 
1026.24(f)(2)(i) and 1026.24(f)(3)(i)(A) and (B) that is in the same 
type size as the simple annual rate or payment amount is deemed to be 
equally prominent.
    3. Clear and conspicuous standard. For more information about the 
applicable clear and conspicuous standard, see comment 24(b)-2.

[[Page 884]]

    4. Comparisons in advertisements. When making any comparison in an 
advertisement between actual or hypothetical credit payments or rates 
and the payments or rates available under the advertised product, the 
advertisement must state all applicable payments or rates for the 
advertised product and the time periods for which those payments or 
rates will apply, as required by this section.
    5. Application to variable-rate transactions--disclosure of rates. 
In advertisements for variable-rate transactions, if a simple annual 
rate that applies at consummation is not based on the index and margin 
that will be used to make subsequent rate adjustments over the term of 
the loan, the requirements of Sec. 1026.24(f)(2)(i) apply.
    6. Reasonably current index and margin. For the purposes of this 
section, an index and margin is considered reasonably current if:
    i. For direct mail advertisements, it was in effect within 60 days 
before mailing;
    ii. For advertisements in electronic form it was in effect within 30 
days before the advertisement is sent to a consumer's email address, or 
in the case of an advertisement made on an Internet Web site, when 
viewed by the public; or
    iii. For printed advertisements made available to the general 
public, including ones contained in a catalog, magazine, or other 
generally available publication, it was in effect within 30 days before 
printing.

                     24(f)(3) Disclosure of Payments

    1. Amounts and time periods of payments. Section 1026.24(f)(3)(i) 
requires disclosure of the amounts and time periods of all payments that 
will apply over the term of the loan. This section may require 
disclosure of several payment amounts, including any balloon payment. 
For example, if an advertisement for credit secured by a dwelling offers 
$300,000 of credit with a 30-year loan term for a payment of $600 per 
month for the first six months, increasing to $1,500 per month after 
month six, followed by a balloon payment of $30,000 at the end of the 
loan term, the advertisement must disclose the amount and time periods 
of each of the two monthly payment streams, as well as the amount and 
timing of the balloon payment, with equal prominence and in close 
proximity to each other. However, if the final scheduled payment of a 
fully amortizing loan is not greater than two times the amount of any 
other regularly scheduled payment, the final payment need not be 
disclosed.
    2. Application to variable-rate transactions--disclosure of 
payments. In advertisements for variable-rate transactions, if the 
payment that applies at consummation is not based on the index and 
margin that will be used to make subsequent payment adjustments over the 
term of the loan, the requirements of Sec. 1026.24(f)(3)(i) apply.

    24(g) Alternative Disclosures--Television or Radio Advertisements

    1. Multi-purpose telephone number. When an advertised telephone 
number provides a recording, disclosures should be provided early in the 
sequence to ensure that the consumer receives the required disclosures. 
For example, in providing several options--such as providing directions 
to the advertiser's place of business--the option allowing the consumer 
to request disclosures should be provided early in the telephone message 
to ensure that the option to request disclosures is not obscured by 
other information.
    2. Statement accompanying telephone number. Language must accompany 
a telephone number indicating that disclosures are available by calling 
the telephone number, such as ``call 1-(800) 000-0000 for details about 
credit costs and terms.''

24(i) Prohibited Acts or Practices in Advertisements for Credit Secured 
                              by a Dwelling

    1. Comparisons in advertisements. The requirements of Sec. 
1026.24(i)(2) apply to all advertisements for credit secured by a 
dwelling, including radio and television advertisements. A comparison 
includes a claim about the amount a consumer may save under the 
advertised product. For example, a statement such as ``save $300 per 
month on a $300,000 loan'' constitutes an implied comparison between the 
advertised product's payment and a consumer's current payment.
    2. Misrepresentations about government endorsement. A statement that 
the Federal Community Reinvestment Act entitles the consumer to 
refinance his or her mortgage at the low rate offered in the 
advertisement is prohibited because it conveys a misleading impression 
that the advertised product is endorsed or sponsored by the Federal 
government.
    3. Misleading claims of debt elimination. The prohibition against 
misleading claims of debt elimination or waiver or forgiveness does not 
apply to legitimate statements that the advertised product may reduce 
debt payments, consolidate debts, or shorten the term of the debt. 
Examples of misleading claims of debt elimination or waiver or 
forgiveness of loan terms with, or obligations to, another creditor of 
debt include: ``Wipe-Out Personal Debts!'', ``New DEBT-FREE Payment'', 
``Set yourself free; get out of debt today'', ``Refinance today and wipe 
your debt clean!'', ``Get yourself out of debt * * * Forever!'', and 
``Pre-payment Penalty Waiver.''

[[Page 885]]

                        Subpart D--Miscellaneous

                    Section 1026.25--Record Retention

                           25(a) General Rule

    1. Evidence of required actions. The creditor must retain evidence 
that it performed the required actions as well as made the required 
disclosures. This includes, for example, evidence that the creditor 
properly handled adverse credit reports in connection with amounts 
subject to a billing dispute under Sec. 1026.13, and properly handled 
the refunding of credit balances under Sec. Sec. 1026.11 and 1026.21.
    2. Methods of retaining evidence. Adequate evidence of compliance 
does not necessarily mean actual paper copies of disclosure statements 
or other business records. The evidence may be retained on microfilm, 
microfiche, or by any other method that reproduces records accurately 
(including computer programs). The creditor need retain only enough 
information to reconstruct the required disclosures or other records. 
Thus, for example, the creditor need not retain each open-end periodic 
statement, so long as the specific information on each statement can be 
retrieved.
    3. Certain variable-rate transactions. In variable-rate transactions 
that are subject to the disclosure requirements of Sec. 1026.19(b), 
written procedures for compliance with those requirements as well as a 
sample disclosure form for each loan program represent adequate evidence 
of compliance. (See comment 25(a)-2 pertaining to permissible methods of 
retaining the required disclosures.)
    4. Home equity plans. In home equity plans that are subject to the 
requirements of Sec. 1026.40, written procedures for compliance with 
those requirements as well as a sample disclosure form and contract for 
each home equity program represent adequate evidence of compliance. (See 
comment 25(a)-2 pertaining to permissible methods of retaining the 
required disclosures.)
    5. Prohibited payments to loan originators. For each transaction 
subject to the loan originator compensation provisions in Sec. 
1026.36(d)(1), a creditor should maintain records of the compensation it 
provided to the loan originator for the transaction as well as the 
compensation agreement in effect on the date the interest rate was set 
for the transaction. See Sec. 1026.35(a) and comment 35(a)(2)(iii)-3 
for additional guidance on when a transaction's rate is set. For 
example, where a loan originator is a mortgage broker, a disclosure of 
compensation or other broker agreement required by applicable state law 
that complies with Sec. 1026.25 would be presumed to be a record of the 
amount actually paid to the loan originator in connection with the 
transaction.

   Section 1026.26--Use of Annual Percentage Rate in Oral Disclosures

    1. Application of rules. The restrictions of Sec. 1026.26 apply 
only if the creditor chooses to respond orally to the consumer's request 
for credit cost information. Nothing in the regulation requires the 
creditor to supply rate information orally. If the creditor volunteers 
information (including rate information) through oral solicitations 
directed generally to prospective customers, as through a telephone 
solicitation, those communications may be advertisements subject to the 
rules in Sec. Sec. 1026.16 and 1026.24.

                          26(a) Open-End Credit

    1. Information that may be given. The creditor may state periodic 
rates in addition to the required annual percentage rate, but it need 
not do so. If the annual percentage rate is unknown because transaction 
charges, loan fees, or similar finance charges may be imposed, the 
creditor must give the corresponding annual percentage rate (that is, 
the periodic rate multiplied by the number of periods in a year, as 
described in Sec. Sec. 1026.6(a)(1)(ii) and (b)(4)(i)(A) and 
1026.7(a)(4) and (b)(4)). In such cases, the creditor may, but need not, 
also give the consumer information about other finance charges and other 
charges.

                         26(b) Closed-End Credit

    1. Information that may be given. The creditor may state other 
annual or periodic rates that are applied to an unpaid balance, along 
with the required annual percentage rate. This rule permits disclosure 
of a simple interest rate, for example, but not an add-on, discount, or 
similar rate. If the creditor cannot give a precise annual percentage 
rate in its oral response because of variables in the transaction, it 
must give the annual percentage rate for a comparable sample 
transaction; in this case, other cost information may, but need not, be 
given. For example, the creditor may be unable to state a precise annual 
percentage rate for a mortgage loan without knowing the exact amount to 
be financed, the amount of loan fees or mortgage insurance premiums, or 
similar factors. In this situation, the creditor should state an annual 
percentage rate for a sample transaction; it may also provide 
information about the consumer's specific case, such as the contract 
interest rate, points, other finance charges, and other charges.

                Section 1026.27--Language of Disclosures

    1. Subsequent disclosures. If a creditor provides account-opening 
disclosures in a language other than English, subsequent disclosures 
need not be in that other language. For example, if the creditor gave 
Spanish-language account-opening disclosures, periodic

[[Page 886]]

statements and change-in-terms notices may be made in English.

                  Section 1026.28--Effect on State Laws

               28(a) Inconsistent Disclosure Requirements

    1. General. There are 3 sets of preemption criteria: 1 applies to 
the general disclosure and advertising rules of the regulation, and 2 
apply to the credit billing provisions. Section 1026.28 also provides 
for Bureau determinations of preemption.
    2. Rules for chapters 1, 2, and 3. The standard for judging whether 
state laws that cover the types of requirements in chapters 1 (General 
provisions), 2 (Credit transactions), and 3 (Credit advertising) of the 
Act are inconsistent and therefore preempted, is contradiction of the 
Federal law. Examples of laws that would be preempted include:
    i. A state law that requires use of the term finance charge, but 
defines the term to include fees that the Federal law excludes, or to 
exclude fees the Federal law includes.
    ii. A state law that requires a label such as nominal annual 
interest rate to be used for what the Federal law calls the annual 
percentage rate.
    3. Laws not contradictory to chapters 1, 2, and 3. i. Generally, 
state law requirements that call for the disclosure of items of 
information not covered by the Federal law, or that require more 
detailed disclosures, do not contradict the Federal requirements. 
Examples of laws that are not preempted include:
    A. A state law that requires disclosure of the minimum periodic 
payment for open-end credit, even though not required by Sec. 1026.7.
    B. A state law that requires contracts to contain warnings such as: 
``Read this contract before you sign. Do not sign if any spaces are left 
blank. You are entitled to a copy of this contract.''
    ii. Similarly, a state law that requires itemization of the amount 
financed does not automatically contradict the permissive itemization 
under Sec. 1026.18(c). However, a state law requirement that the 
itemization appear with the disclosure of the amount financed in the 
segregated closed-end credit disclosures is inconsistent, and this 
location requirement would be preempted.
    4. Creditor's options. Before the Bureau makes a determination about 
a specific state law, the creditor has certain options.
    i. Since the prohibition against giving the state disclosures does 
not apply until the Bureau makes its determination, the creditor may 
choose to give state disclosures until the Bureau formally determines 
that the state law is inconsistent. (The Bureau will provide sufficient 
time for creditors to revise forms and procedures as necessary to 
conform to its determinations.) Under this first approach, as in all 
cases, the Federal disclosures must be clear and conspicuous, and the 
closed-end disclosures must be properly segregated in accordance with 
Sec. 1026.17(a)(1). This ability to give state disclosures relieves any 
uncertainty that the creditor might have prior to Bureau determinations 
of inconsistency.
    ii. As a second option, the creditor may apply the preemption 
standards to a state law, conclude that it is inconsistent, and choose 
not to give the state-required disclosures. However, nothing in Sec. 
1026.28(a) provides the creditor with immunity for violations of state 
law if the creditor chooses not to make state disclosures and the Bureau 
later determines that the state law is not preempted.
    5. Rules for correction of billing errors and regulation of credit 
reports. The preemption criteria for the fair credit billing provisions 
set forth in Sec. 1026.28 have two parts. With respect to the rules on 
correction of billing errors and regulation of credit reports (which are 
in Sec. 1026.13), Sec. 1026.28(a)(2)(i) provides that a state law is 
inconsistent and preempted if its requirements are different from the 
Federal law. An exception is made, however, for state laws that allow 
the consumer to inquire about an account and require the creditor to 
respond to such inquiries beyond the time limits in the Federal law. 
Such a state law is not preempted with respect to the extra time period. 
For example, Sec. 1026.13 requires the consumer to submit a written 
notice of billing error within 60 days after transmittal of the periodic 
statement showing the alleged error. If a state law allows the consumer 
90 days to submit a notice, the state law remains in effect to provide 
the extra 30 days. Any state law disclosures concerning this extended 
state time limit must reflect the qualifications and conform to the 
format specified in Sec. 1026.28(a)(2)(i). Examples of laws that would 
be preempted include:
    i. A state law that has a narrower or broader definition of billing 
error.
    ii. A state law that requires the creditor to take different steps 
to resolve errors.
    iii. A state law that provides different timing rules for error 
resolution (subject to the exception discussed above).
    6. Rules for other fair credit billing provisions. The second part 
of the criteria for fair credit billing relates to the other rules 
implementing chapter 4 of the Act (addressed in Sec. Sec. 1026.4(c)(8), 
1026.5(b)(2)(ii), 1026.6(a)(5) and (b)(5)(iii), 1026.7(a)(9) and (b)(9), 
1026.9(a), 1026.10, 1026.11, 1026.12(c) through (f), 1026.13, and 
1026.21). Section 1026.28(a)(2)(ii) provides that the test of 
inconsistency is whether the creditor can comply with state law without 
violating Federal law. For example:
    i. A state law that allows the card issuer to offset the consumer's 
credit-card indebtedness against funds held by the card issuer would be 
preempted, since Sec. 1026.12(d) prohibits such action.

[[Page 887]]

    ii. A state law that requires periodic statements to be sent more 
than 14 days before the end of a free-ride period would not be 
preempted.
    iii. A state law that permits consumers to assert claims and 
defenses against the card issuer without regard to the $50 and 100-mile 
limitations of Sec. 1026.12(c)(3)(ii) would not be preempted.
    iv. In paragraphs ii. and iii. of this comment, compliance with 
state law would involve no violation of the Federal law.
    7. Who may receive a chapter 4 determination. Only states (through 
their authorized officials) may request and receive determinations on 
inconsistency with respect to the fair credit billing provisions.
    8. Preemption determination--Arizona. The Bureau recognizes state 
law preemption determinations made by the Board of Governors of the 
Federal Reserve System prior to July 21, 2011, until and unless the 
Bureau makes and publishes any contrary determination. Effective October 
1, 1983, the Board of Governors determined that the following provisions 
in the state law of Arizona are preempted by the Federal law:
    i. Section 44-287 B.5--Disclosure of final cash price balance. This 
provision is preempted in those transactions in which the amount of the 
final cash price balance is the same as the Federal amount financed, 
since in such transactions the state law requires the use of a term 
different from the Federal term to represent the same amount.
    ii. Section 44-287 B.6--Disclosure of finance charge. This provision 
is preempted in those transactions in which the amount of the finance 
charge is different from the amount of the Federal finance charge, since 
in such transactions the state law requires the use of the same term as 
the Federal law to represent a different amount.
    iii. Section 44-287 B.7--Disclosure of the time balance. The time 
balance disclosure provision is preempted in those transactions in which 
the amount is the same as the amount of the Federal total of payments, 
since in such transactions the state law requires the use of a term 
different from the Federal term to represent the same amount.
    9. Preemption determination--Florida. The Bureau recognizes state 
law preemption determinations made by the Board of Governors of the 
Federal Reserve System prior to July 21, 2011, until and unless the 
Bureau makes and publishes any contrary determination. Effective October 
1, 1983, the Board of Governors determined that the following provisions 
in the state law of Florida are preempted by the Federal law:
    i. Sections 520.07(2)(f) and 520.34(2)(f)--Disclosure of amount 
financed. This disclosure is preempted in those transactions in which 
the amount is different from the Federal amount financed, since in such 
transactions the state law requires the use of the same term as the 
Federal law to represent a different amount.
    ii. Sections 520.07(2)(g), 520.34(2)(g), and 520.35(2)(d)--
Disclosure of finance charge and a description of its components. The 
finance charge disclosure is preempted in those transactions in which 
the amount of the finance charge is different from the Federal amount, 
since in such transactions the state law requires the use of the same 
term as the Federal law to represent a different amount. The requirement 
to describe or itemize the components of the finance charge, which is 
also included in these provisions, is not preempted.
    iii. Sections 520.07(2)(h) and 520.34(2)(h)--Disclosure of total of 
payments. The total of payments disclosure is preempted in those 
transactions in which the amount differs from the amount of the Federal 
total of payments, since in such transactions the state law requires the 
use of the same term as the Federal law to represent a different amount 
than the Federal law.
    iv. Sections 520.07(2)(i) and 520.34(2)(i)--Disclosure of deferred 
payment price. This disclosure is preempted in those transactions in 
which the amount is the same as the Federal total sale price, since in 
such transactions the state law requires the use of a different term 
than the Federal law to represent the same amount as the Federal law.
    10. Preemption determination--Missouri. The Bureau recognizes state 
law preemption determinations made by the Board of Governors of the 
Federal Reserve System prior to July 21, 2011, until and unless the 
Bureau makes and publishes any contrary determination. Effective October 
1, 1983, the Board of Governors determined that the following provisions 
in the state law of Missouri are preempted by the Federal law:
    i. Sections 365.070-6(9) and 408.260-5(6)--Disclosure of principal 
balance. This disclosure is preempted in those transactions in which the 
amount of the principal balance is the same as the Federal amount 
financed, since in such transactions the state law requires the use of a 
term different from the Federal term to represent the same amount.
    ii. Sections 365.070-6(10) and 408.260-5(7)--Disclosure of time 
price differential and time charge, respectively. These disclosures are 
preempted in those transactions in which the amount is the same as the 
Federal finance charge, since in such transactions the state law 
requires the use of a term different from the Federal law to represent 
the same amount.
    iii. Sections 365.070-2 and 408.260-2--Use of the terms time price 
differential and time charge in certain notices to the buyer. In those 
transactions in which the state disclosure of the time price 
differential or time charge is preempted, the use of the terms in this 
notice also is preempted. The notice itself is not preempted.

[[Page 888]]

    iv. Sections 365.070-6(11) and 408.260-5(8)--Disclosure of time 
balance. The time balance disclosure is preempted in those transactions 
in which the amount is the same as the amount of the Federal total of 
payments, since in such transactions the state law requires the use of a 
different term than the Federal law to represent the same amount.
    v. Sections 365.070-6(12) and 408.260-5(9)--Disclosure of time sale 
price. This disclosure is preempted in those transactions in which the 
amount is the same as the Federal total sale price, since in such 
transactions the state law requires the use of a different term from the 
Federal law to represent the same amount.
    11. Preemption determination--Mississippi. The Bureau recognizes 
state law preemption determinations made by the Board of Governors of 
the Federal Reserve System prior to July 21, 2011, until and unless the 
Bureau makes and publishes any contrary determination. Effective October 
1, 1984, the Board of Governors determined that the following provision 
in the state law of Mississippi is preempted by the Federal law:
    i. Section 63-19-31(2)(g)--Disclosure of finance charge. This 
disclosure is preempted in those cases in which the term finance charge 
would be used under state law to describe a different amount than the 
finance charge disclosed under Federal law.
    12. Preemption determination--South Carolina. The Bureau recognizes 
state law preemption determinations made by the Board of Governors of 
the Federal Reserve System prior to July 21, 2011, until and unless the 
Bureau makes and publishes any contrary determination. Effective October 
1, 1984, the Board of Governors determined that the following provision 
in the state law of South Carolina is preempted by the Federal law.
    i. Section 37-10-102(c)--Disclosure of due-on-sale clause. This 
provision is preempted, but only to the extent that the creditor is 
required to include the disclosure with the segregated Federal 
disclosures. If the creditor may comply with the state law by placing 
the due-on-sale notice apart from the Federal disclosures, the state law 
is not preempted.
    13. Preemption determination--Arizona. The Bureau recognizes state 
law preemption determinations made by the Board of Governors of the 
Federal Reserve System prior to July 21, 2011, until and unless the 
Bureau makes and publishes any contrary determination.
    i. Effective October 1, 1986, the Board of Governors determined that 
the following provision in the state law of Arizona is preempted by the 
Federal law:
    A. Section 6-621A.2--Use of the term the total sum of $-------- in 
certain notices provided to borrowers. This term describes the same item 
that is disclosed under Federal law as the total of payments. Since the 
state law requires the use of a different term than Federal law to 
describe the same item, the state-required term is preempted. The notice 
itself is not preempted.
    ii. Note: The state disclosure notice that incorporated the above 
preempted term was amended on May 4, 1987, to provide that disclosures 
must now be made pursuant to the Federal disclosure provisions.
    14. Preemption determination--Indiana. The Bureau recognizes state 
law preemption determinations made by the Board of Governors of the 
Federal Reserve System prior to July 21, 2011, until and unless the 
Bureau makes and publishes any contrary determination. Effective October 
1, 1988, the Board of Governors determined that the following provision 
in the state law of Indiana is preempted by the Federal law:
    i. Section 23-2-5-8--Inclusion of the loan broker's fees and charges 
in the calculation of, among other items, the finance charge and annual 
percentage rate disclosed to potential borrowers. This disclosure is 
inconsistent with section 106(a) and Sec. 1026.4(a) of the Federal 
statute and regulation, respectively, and is preempted in those 
instances where the use of the same term would disclose a different 
amount than that required to be disclosed under Federal law.
    15. Preemption determination--Wisconsin. The Bureau recognizes state 
law preemption determinations made by the Board of Governors of the 
Federal Reserve System prior to July 21, 2011, until and unless the 
Bureau makes and publishes any contrary determination. Effective October 
1, 1991, the Board of Governors determined that the following provisions 
in the state law of Wisconsin are preempted by the Federal law:
    i. Section 422.308(1)--the disclosure of the annual percentage rate 
in cases where the amount of the annual percentage rate disclosed to 
consumers under the state law differs from the amount that would be 
disclosed under Federal law, since in those cases the state law requires 
the use of the same term as the Federal law to represent a different 
amount than the Federal law.
    ii. Section 766.565(5)--the provision permitting a creditor to 
include in an open-end home equity agreement authorization to declare 
the account balance due and payable upon receiving notice of termination 
from a non-obligor spouse, since such provision is inconsistent with the 
purpose of the Federal law.

                28(b) Equivalent Disclosure Requirements

    1. General. A state disclosure may be substituted for a Federal 
disclosure only after the Bureau has made a finding of substantial 
similarity. Thus, the creditor may not unilaterally choose to make a 
state disclosure in place of a Federal disclosure, even if it believes 
that the state disclosure is substantially similar. Since the rule 
stated in

[[Page 889]]

Sec. 1026.28(b) does not extend to any requirement relating to the 
finance charge or annual percentage rate, no state provision on 
computation, description, or disclosure of these terms may be 
substituted for the Federal provision.

             28(d) Special Rule for Credit and Charge Cards

    1. General. The standard that applies to preemption of state laws as 
they affect transactions of the type subject to Sec. Sec. 1026.60 and 
1026.9(e) differs from the preemption standards generally applicable 
under the Truth in Lending Act. The Fair Credit and Charge Card 
Disclosure Act fully preempts state laws relating to the disclosure of 
credit information in consumer credit or charge card applications or 
solicitations. (For purposes of this section, a single credit or charge 
card application or solicitation that may be used to open either an 
account for consumer purposes or an account for business purposes is 
deemed to be a ``consumer credit or charge card application or 
solicitation.'') For example, a state law requiring disclosure of credit 
terms in direct mail solicitations for consumer credit card accounts is 
preempted. A state law requiring disclosures in telephone applications 
for consumer credit card accounts also is preempted, even if it applies 
to applications initiated by the consumer rather than the issuer, 
because the state law relates to the disclosure of credit information in 
applications or solicitations within the general field of preemption, 
that is, consumer credit and charge cards.
    2. Limitations on field of preemption. Preemption under the Fair 
Credit and Charge Card Disclosure Act does not extend to state laws 
applying to types of credit other than open-end consumer credit and 
charge card accounts. Thus, for example, a state law is not preempted as 
it applies to disclosures in credit and charge card applications and 
solicitations solely for business-purpose accounts. On the other hand, 
state credit disclosure laws will not apply to a single application or 
solicitation to open either an account for consumer purposes or an 
account for business purposes. Such ``dual purpose'' applications and 
solicitations are treated as ``consumer credit or charge card 
applications or solicitations'' under this section and state credit 
disclosure laws applicable to them are preempted. Preemption under this 
statute does not extend to state laws applicable to home equity plans; 
preemption determinations in this area are based on the Home Equity Loan 
Consumer Protection Act, as implemented in Sec. 1026.40 of the 
regulation.
    3. Laws not preempted. State laws relating to disclosures concerning 
credit and charge cards other than in applications, solicitations, or 
renewal notices are not preempted under Sec. 1026.28(d). In addition, 
state laws regulating the terms of credit and charge card accounts are 
not preempted, nor are laws preempted that regulate the form or content 
of information unrelated to the information required to be disclosed 
under Sec. Sec. 1026.60 and 1026.9(e). Finally, state laws concerning 
the enforcement of the requirements of Sec. Sec. 1026.60 and 1026.9(e) 
and state laws prohibiting unfair or deceptive acts or practices 
concerning credit and charge card applications, solicitations and 
renewals are not preempted. Examples of laws that are not preempted 
include:
    i. A state law that requires card issuers to offer a grace period or 
that prohibits certain fees in credit and charge card transactions.
    ii. A state retail installment sales law or a state plain language 
law, except to the extent that it regulates the disclosure of credit 
information in applications, solicitations and renewals of accounts of 
the type subject to Sec. Sec. 1026.60 and 1026.9(e).
    iii. A state law requiring notice of a consumer's rights under 
antidiscrimination or similar laws or a state law requiring notice about 
credit information available from state authorities.

                    Section 1026.29--State Exemptions

                           29(a) General Rule

    1. Classes eligible. The state determines the classes of 
transactions for which it will request an exemption, and makes its 
application for those classes. Classes might be, for example, all open-
end credit transactions, all open-end and closed-end transactions, or 
all transactions in which the creditor is a bank.
    2. Substantial similarity. The ``substantially similar'' standard 
requires that state statutory or regulatory provisions and state 
interpretations of those provisions be generally the same as the Federal 
Act and Regulation Z. This includes the requirement that state 
provisions for reimbursement to consumers for overcharges be at least 
equivalent to those required in section 108 of the Act. A state will be 
eligible for an exemption even if its law covers classes of transactions 
not covered by the Federal law. For example, if a state's law covers 
agricultural credit, this will not prevent the Bureau from granting an 
exemption for consumer credit, even though agricultural credit is not 
covered by the Federal law.
    3. Adequate enforcement. The standard requiring adequate provision 
for enforcement generally means that appropriate state officials must be 
authorized to enforce the state law through procedures and sanctions 
comparable to those available to Federal enforcement agencies. 
Furthermore, state law must make adequate provision for enforcement of 
the reimbursement rules.
    4. Exemptions granted. The Bureau recognizes exemptions granted by 
the Board of Governors of the Federal Reserve System prior to July 21, 
2011, until and unless the

[[Page 890]]

Bureau makes and publishes any contrary determination. Effective October 
1, 1982, the Board of Governors granted the following exemptions from 
portions of the revised Truth in Lending Act:
    i. Maine. Credit or lease transactions subject to the Maine Consumer 
Credit Code and its implementing regulations are exempt from chapters 2, 
4 and 5 of the Federal Act. (The exemption does not apply to 
transactions in which a federally chartered institution is a creditor or 
lessor.)
    ii. Connecticut. Credit transactions subject to the Connecticut 
Truth in Lending Act are exempt from chapters 2 and 4 of the Federal 
Act. (The exemption does not apply to transactions in which a federally 
chartered institution is a creditor.)
    iii. Massachusetts. Credit transactions subject to the Massachusetts 
Truth in Lending Act are exempt from chapters 2 and 4 of the Federal 
Act. (The exemption does not apply to transactions in which a federally 
chartered institution is a creditor.)
    iv. Oklahoma. Credit or lease transactions subject to the Oklahoma 
Consumer Credit Code are exempt from chapters 2 and 5 of the Federal 
Act. (The exemption does not apply to sections 132 through 135 of the 
Federal Act, nor does it apply to transactions in which a federally 
chartered institution is a creditor or lessor.)
    v. Wyoming. Credit transactions subject to the Wyoming Consumer 
Credit Code are exempt from chapter 2 of the Federal Act. (The exemption 
does not apply to transactions in which a federally chartered 
institution is a creditor.)

                          29(b) Civil Liability

    1. Not eligible for exemption. The provision that an exemption may 
not extend to sections 130 and 131 of the Act assures that consumers 
retain access to both Federal and state courts in seeking damages or 
civil penalties for violations, while creditors retain the defenses 
specified in those sections.

                  Section 1026.30--Limitation on Rates

    1. Scope of coverage. i. The requirement of this section applies to 
consumer credit obligations secured by a dwelling (as dwelling is 
defined in Sec. 1026.2(a)(19)) in which the annual percentage rate may 
increase after consummation (or during the term of the plan, in the case 
of open-end credit) as a result of an increase in the interest rate 
component of the finance charge--whether those increases are tied to an 
index or formula or are within a creditor's discretion. The section 
applies to credit sales as well as loans. Examples of credit obligations 
subject to this section include:
    A. Dwelling-secured credit obligations that require variable-rate 
disclosures under the regulation because the interest rate may increase 
during the term of the obligation.
    B. Dwelling-secured open-end credit plans entered into before 
November 7, 1989 (the effective date of the home equity rules) that are 
not considered variable-rate obligations for purposes of disclosure 
under the regulation but where the creditor reserves the contractual 
right to increase the interest rate--periodic rate and corresponding 
annual percentage rate--during the term of the plan.
    ii. In contrast, credit obligations in which there is no contractual 
right to increase the interest rate during the term of the obligation 
are not subject to this section. Examples include:
    A. ``Shared-equity'' or ``shared-appreciation'' mortgage loans that 
have a fixed rate of interest and a shared-appreciation feature based on 
the consumer's equity in the mortgaged property. (The appreciation share 
is payable in a lump sum at a specified time.)
    B. Dwelling-secured fixed-rate closed-end balloon-payment mortgage 
loans and dwelling-secured fixed-rate open-end plans with a stated term 
that the creditor may renew at maturity. (Contrast with the renewable 
balloon-payment mortgage instrument described in comment 17(c)(1)-11.)
    C. Dwelling-secured fixed-rate closed-end multiple advance 
transactions in which each advance is disclosed as a separate 
transaction.
    D. ``Price level adjusted mortgages'' or other indexed mortgages 
that have a fixed rate of interest but provide for periodic adjustments 
to payments and the loan balance to reflect changes in an index 
measuring prices or inflation.
    iii. The requirement of this section does not apply to credit 
obligations entered into prior to December 9, 1987. Consequently, new 
advances under open-end credit plans existing prior to December 9, 1987, 
are not subject to this section.
    2. Refinanced obligations. On or after December 9, 1987, when a 
credit obligation is refinanced, as defined in Sec. 1026.20(a), the new 
obligation is subject to this section if it is dwelling-secured and 
allows for increases in the interest rate.
    3. Assumptions. On or after December 9, 1987, when a credit 
obligation is assumed, as defined in Sec. 1026.20(b), the obligation 
becomes subject to this section if it is dwelling-secured and allows for 
increases in the interest rate.
    4. Modifications of obligations. The modification of an obligation, 
regardless of when the obligation was entered into, is generally not 
covered by this section. For example, increasing the credit limit on a 
dwelling-secured, open-end plan with a variable interest rate entered 
into before the effective date of the rule does not make the obligation 
subject to this section. If, however, a security

[[Page 891]]

interest in a dwelling is added on or after December 9, 1987, to a 
credit obligation that allows for interest rate increases, the 
obligation becomes subject to this section. Similarly, if a variable 
interest rate feature is added to a dwelling-secured credit obligation, 
the obligation becomes subject to this section.
    5. Land trusts. In some states, a land trust is used in residential 
real estate transactions. (See discussion in comment 3(a)-8.) If a 
consumer-purpose loan that allows for interest rate increases is secured 
by an assignment of a beneficial interest in a land trust that holds 
title to a consumer's dwelling, that loan is subject to this section.
    6. Relationship to other sections. Unless otherwise provided for in 
the commentary to this section, other provisions of the regulation such 
as definitions, exemptions, rules and interpretations also apply to this 
section where appropriate. To illustrate:
    i. An adjustable interest rate business-purpose loan is not subject 
to this section even if the loan is secured by a dwelling because such 
credit extensions are not subject to the regulation. (See generally 
Sec. 1026.3(a).)
    ii. Creditors subject to this section are only those that fall 
within the definition of a creditor in Sec. 1026.2(a)(17).
    7. Consumer credit contract. Creditors are required to specify a 
lifetime maximum interest rate in their credit contracts--the instrument 
that creates personal liability and generally contains the terms and 
conditions of the agreement (for example, a promissory note or home-
equity line of credit agreement). In some states, the signing of a 
commitment letter may create a binding obligation, for example, 
constituting consummation as defined in Sec. 1026.2(a)(13). The maximum 
interest rate must be included in the credit contract, but a creditor 
may include the rate ceiling in the commitment instrument as well.
    8. Manner of stating the maximum interest rate. The maximum interest 
rate must be stated in the credit contract either as a specific amount 
or in any other manner that would allow the consumer to easily 
ascertain, at the time of entering into the obligation, what the rate 
ceiling will be over the term of the obligation.
    i. For example, the following statements would be sufficiently 
specific:
    A. The maximum interest rate will not exceed X%.
    B. The interest rate will never be higher than X percentage points 
above the initial rate of Y%.
    C. The interest rate will not exceed X%, or X percentage points 
above [a rate to be determined at some future point in time], whichever 
is less.
    D. The maximum interest rate will not exceed X%, or the state usury 
ceiling, whichever is less.
    ii. The following statements would not comply with this section:
    A. The interest rate will never be higher than X percentage points 
over the prevailing market rate.
    B. The interest rate will never be higher than X percentage points 
above [a rate to be determined at some future point in time].
    C. The interest rate will not exceed the state usury ceiling which 
is currently X%.
    iii. A creditor may state the maximum rate in terms of a maximum 
annual percentage rate that may be imposed. Under an open-end credit 
plan, this normally would be the corresponding annual percentage rate. 
(See generally Sec. 1026.6(a)(1)(ii) and (b)(4)(i)(A).)
    9. Multiple interest rate ceilings. Creditors are not prohibited 
from setting multiple interest rate ceilings. For example, on loans with 
multiple variable-rate features, creditors may establish a maximum 
interest rate for each feature. To illustrate, in a variable-rate loan 
that has an option to convert to a fixed rate, a creditor may set one 
maximum interest rate for the initially imposed index-based variable-
rate feature and another for the conversion option. Of course, a 
creditor may establish one maximum interest rate applicable to all 
features.
    10. Interest rate charged after default. State law may allow an 
interest rate after default higher than the contract rate in effect at 
the time of default; however, the interest rate after default is subject 
to a maximum interest rate set forth in a credit obligation that is 
otherwise subject to this section. This rule applies only in situations 
in which a post-default agreement is still considered part of the 
original obligation.
    11. Increasing the maximum interest rate--general rule. Generally, a 
creditor may not increase the maximum interest rate originally set on a 
credit obligation subject to this section unless the consumer and the 
creditor enter into a new obligation. Therefore, under an open-end plan, 
a creditor may not increase the rate ceiling imposed merely because 
there is an increase in the credit limit. If an open-end plan is closed 
and another opened, a new rate ceiling may be imposed. Furthermore, 
where an open-end plan has a fixed maturity and a creditor renews the 
plan at maturity, or enters into a closed-end credit transaction, a new 
maximum interest rate may be set at that time. If the open-end plan 
provides for a repayment phase, the maximum interest rate cannot be 
increased when the repayment phase begins unless the agreement provided 
for such an increase. For a closed-end credit transaction, a new maximum 
interest rate may be set only if the transaction is satisfied and 
replaced by a new obligation. (The exceptions in Sec. 1026.20(a)(1)-(5) 
which limit what transactions are considered refinancings for purposes 
of disclosure do not apply with respect

[[Page 892]]

to increasing a rate ceiling that has been imposed; if a transaction is 
satisfied and replaced, the rate ceiling may be increased.)
    12. Increasing the maximum interest rate--assumption of an 
obligation. If an obligation subject to this section is assumed by a new 
obligor and the original obligor is released from liability, the maximum 
interest rate set on the obligation may be increased as part of the 
assumption agreement. (This rule applies whether or not the transaction 
constitutes an assumption as defined in Sec. 1026.20(b).)

     Subpart E--Special Rules for Certain Home Mortgage Transactions

                     Section 1026.31--General Rules

                       31(c) Timing of Disclosure

    1. Furnishing disclosures. Disclosures are considered furnished when 
received by the consumer.

       31(c)(1) Disclosures for Certain Closed-End Home Mortgages

    1. Pre-consummation waiting period. A creditor must furnish Sec. 
1026.32 disclosures at least three business days prior to consummation. 
Under Sec. 1026.32, ``business day'' has the same meaning as the 
rescission rule in comment 2(a)(6)-2--all calendar days except Sundays 
and the Federal legal holidays listed in 5 U.S.C. 6103(a). However, 
while the disclosure rule under Sec. Sec. 1026.15 and 1026.23 extends 
to midnight of the third business day, the rule under Sec. 1026.32 does 
not. For example, under Sec. 1026.32, if disclosures were provided on a 
Friday, consummation could occur any time on Tuesday, the third business 
day following receipt of the disclosures. If the timing of the 
rescission rule were to be used, consummation could not occur until 
after midnight on Tuesday.

                       31(c)(1)(i) Change in Terms

    1. Redisclosure required. Creditors must provide new disclosures 
when a change in terms makes disclosures previously provided under Sec. 
1026.32(c) inaccurate, including disclosures based on and labeled as an 
estimate. A change in terms may result from a formal written agreement 
or otherwise.
    2. Sale of optional products at consummation. If the consumer 
finances the purchase of optional products such as credit insurance and 
as a result the monthly payment differs from what was previously 
disclosed under Sec. 1026.32, redisclosure is required and a new three-
day waiting period applies. (See comment 32(c)(3)-1 on when optional 
items may be included in the regular payment disclosure.)

                   31(c)(1)(ii) Telephone Disclosures

    1. Telephone disclosures. Disclosures by telephone must be furnished 
at least three business days prior to consummation, calculated in accord 
with the timing rules under Sec. 1026.31(c)(1).

  31(c)(1)(iii) Consumer's Waiver of Waiting Period Before Consummation

    1. Modification or waiver. A consumer may modify or waive the right 
to the three-day waiting period only after receiving the disclosures 
required by Sec. 1026.32 and only if the circumstances meet the 
criteria for establishing a bona fide personal financial emergency under 
Sec. 1026.23(e). Whether these criteria are met is determined by the 
facts surrounding individual situations. The imminent sale of the 
consumer's home at foreclosure during the three-day period is one 
example of a bona fide personal financial emergency. Each consumer 
entitled to the three-day waiting period must sign the handwritten 
statement for the waiver to be effective.

               31(c)(2) Disclosures for Reverse Mortgages

    1. Business days. For purposes of providing reverse mortgage 
disclosures, ``business day'' has the same meaning as in comment 
31(c)(1)-1--all calendar days except Sundays and the Federal legal 
holidays listed in 5 U.S.C. 6103(a). This means if disclosures are 
provided on a Friday, consummation could occur any time on Tuesday, the 
third business day following receipt of the disclosures.
    2. Open-end plans. Disclosures for open-end reverse mortgages must 
be provided at least three business days before the first transaction 
under the plan (see Sec. 1026.5(b)(1)).

             31(d) Basis of Disclosures and Use of Estimates

    1. Redisclosure. Section 1026.31(d) allows the use of estimates when 
information necessary for an accurate disclosure is unknown to the 
creditor, provided that the disclosure is clearly identified as an 
estimate. For purposes of Subpart E, the rule in Sec. 1026.31(c)(1)(i) 
requiring new disclosures when the creditor changes terms also applies 
to disclosures labeled as estimates.

                       31(d)(3) Per-Diem Interest

    1. Per-diem interest. This paragraph applies to the disclosure of 
any numerical amount (such as the finance charge, annual percentage 
rate, or payment amount) that is affected by the amount of the per-diem 
interest charge that will be collected at consummation. If the amount of 
per-diem interest used in preparing the disclosures for consummation is 
based on the information known to the creditor at the time the 
disclosure document is prepared, the disclosures are considered accurate 
under this rule, and affected disclosures are also considered accurate, 
even if the disclosures were not labeled

[[Page 893]]

as estimates. (See comment 17(c)(2)(ii)-1 generally.)

   Section 1026.32--Requirements for Certain Closed-End Home Mortgages

                             32(a) Coverage

                          Paragraph 32(a)(1)(i)

    1. Application date. An application is deemed received when it 
reaches the creditor in any of the ways applications are normally 
transmitted. (See Sec. 1026.19(a).) For example, if a borrower applies 
for a 10-year loan on September 30 and the creditor counteroffers with a 
7-year loan on October 10, the application is deemed received in 
September and the creditor must measure the annual percentage rate 
against the appropriate Treasury security yield as of August 15. An 
application transmitted through an intermediary agent or broker is 
received when it reaches the creditor, rather than when it reaches the 
agent or broker. (See comment 19(b)-3 to determine whether a transaction 
involves an intermediary agent or broker.)
    2. When fifteenth is not a business day. If the 15th day of the 
month immediately preceding the application date is not a business day, 
the creditor must use the yield as of the business day immediately 
preceding the 15th.
    3. Calculating annual percentage rates for variable-rate loans and 
discount loans. Creditors must use the rules set out in the commentary 
to Sec. 1026.17(c)(1) in calculating the annual percentage rate for 
variable-rate loans (assume the rate in effect at the time of disclosure 
remains unchanged) and for discount, premium, and stepped-rate 
transactions (which must reflect composite annual percentage rates).
    4. Treasury securities. To determine the yield on comparable 
Treasury securities for the annual percentage rate test, creditors may 
use the yield on actively traded issues adjusted to constant maturities 
published in the Federal Reserve Board's ``Selected Interest Rates'' 
(statistical release H-15). Creditors must use the yield corresponding 
to the constant maturity that is closest to the loan's maturity. If the 
loan's maturity is exactly halfway between security maturities, the 
annual percentage rate on the loan should be compared with the yield for 
Treasury securities having the lower yield. In determining the loan's 
maturity, creditors may rely on the rules in Sec. 1026.17(c)(4) 
regarding irregular first payment periods. For example:
    i. If the H-15 contains a yield for Treasury securities with 
constant maturities of 7 years and 10 years and no maturity in between, 
the annual percentage rate for an 8-year mortgage loan is compared with 
the yield of securities having a 7-year maturity, and the annual 
percentage rate for a 9-year mortgage loan is compared with the yield of 
securities having a 10-year maturity.
    ii. If a mortgage loan has a term of 15 years, and the H-15 contains 
a yield of 5.21 percent for constant maturities of 10 years, and also 
contains a yield of 6.33 percent for constant maturities of 20 years, 
then the creditor compares the annual percentage rate for a 15-year 
mortgage loan with the yield for constant maturities of 10 years.
    iii. If a mortgage loan has a term of 30 years, and the H-15 does 
not contain a yield for 30-year constant maturities, but contains a 
yield for 20-year constant maturities, and an average yield for 
securities with remaining terms to maturity of 25 years and over, then 
the annual percentage rate on the loan is compared with the yield for 
20-year constant maturities.

                         Paragraph 32(a)(1)(ii)

    1. Total loan amount. For purposes of the ``points and fees'' test, 
the total loan amount is calculated by taking the amount financed, as 
determined according to Sec. 1026.18(b), and deducting any cost listed 
in Sec. 1026.32(b)(1)(iii) and Sec. 1026.32(b)(1)(iv) that is both 
included as points and fees under Sec. 1026.32(b)(1) and financed by 
the creditor. Some examples follow, each using a $10,000 amount 
borrowed, a $300 appraisal fee, and $400 in points. A $500 premium for 
optional credit life insurance is used in one example.
    i. If the consumer finances a $300 fee for a creditor-conducted 
appraisal and pays $400 in points at closing, the amount financed under 
Sec. 1026.18(b) is $9,900 ($10,000 plus the $300 appraisal fee that is 
paid to and financed by the creditor, less $400 in prepaid finance 
charges). The $300 appraisal fee paid to the creditor is added to other 
points and fees under Sec. 1026.32(b)(1)(iii). It is deducted from the 
amount financed ($9,900) to derive a total loan amount of $9,600.
    ii. If the consumer pays the $300 fee for the creditor-conducted 
appraisal in cash at closing, the $300 is included in the points and 
fees calculation because it is paid to the creditor. However, because 
the $300 is not financed by the creditor, the fee is not part of the 
amount financed under Sec. 1026.18(b). In this case, the amount 
financed is the same as the total loan amount: $9,600 ($10,000, less 
$400 in prepaid finance charges).
    iii. If the consumer finances a $300 fee for an appraisal conducted 
by someone other than the creditor or an affiliate, the $300 fee is not 
included with other points and fees under Sec. 1026.32(b)(1)(iii). The 
amount financed under Sec. 1026.18(b) is $9,900 ($10,000 plus the $300 
fee for an independently-conducted appraisal that is financed by the 
creditor, less the $400 paid in cash and deducted as prepaid finance 
charges).

[[Page 894]]

    iv. If the consumer finances a $300 fee for a creditor-conducted 
appraisal and a $500 single premium for optional credit life insurance, 
and pays $400 in points at closing, the amount financed under Sec. 
1026.18(b) is $10,400 ($10,000, plus the $300 appraisal fee that is paid 
to and financed by the creditor, plus the $500 insurance premium that is 
financed by the creditor, less $400 in prepaid finance charges). The 
$300 appraisal fee paid to the creditor is added to other points and 
fees under Sec. 1026.32(b)(1)(iii), and the $500 insurance premium is 
added under 1026.32(b)(1)(iv). The $300 and $500 costs are deducted from 
the amount financed ($10,400) to derive a total loan amount of $9,600.
    2. Annual adjustment of $400 amount. A mortgage loan is covered by 
Sec. 1026.32 if the total points and fees payable by the consumer at or 
before loan consummation exceed the greater of $400 or 8 percent of the 
total loan amount. The $400 figure is adjusted annually on January 1 by 
the annual percentage change in the CPI that was in effect on the 
preceding June 1. The Bureau will publish adjustments after the June 
figures become available each year. The adjustment for the upcoming year 
will be included in any proposed commentary published in the fall, and 
incorporated into the commentary the following spring. The adjusted 
figures are:
    i. For 1996, $412, reflecting a 3.00 percent increase in the CPI-U 
from June 1994 to June 1995, rounded to the nearest whole dollar.
    ii. For 1997, $424, reflecting a 2.9 percent increase in the CPI-U 
from June 1995 to June 1996, rounded to the nearest whole dollar.
    iii. For 1998, $435, reflecting a 2.5 percent increase in the CPI-U 
from June 1996 to June 1997, rounded to the nearest whole dollar.
    iv. For 1999, $441, reflecting a 1.4 percent increase in the CPI-U 
from June 1997 to June 1998, rounded to the nearest whole dollar.
    v. For 2000, $451, reflecting a 2.3 percent increase in the CPI-U 
from June 1998 to June 1999, rounded to the nearest whole dollar.
    vi. For 2001, $465, reflecting a 3.1 percent increase in the CPI-U 
from June 1999 to June 2000, rounded to the nearest whole dollar.
    vii. For 2002, $480, reflecting a 3.27 percent increase in the CPI-U 
from June 2000 to June 2001, rounded to the nearest whole dollar.
    viii. For 2003, $488, reflecting a 1.64 percent increase in the CPI-
U from June 2001 to June 2002, rounded to the nearest whole dollar.
    ix. For 2004, $499, reflecting a 2.22 percent increase in the CPI-U 
from June 2002 to June 2003, rounded to the nearest whole dollar.
    x. For 2005, $510, reflecting a 2.29 percent increase in the CPI-U 
from June 2003 to June 2004, rounded to the nearest whole dollar.
    xi. For 2006, $528, reflecting a 3.51 percent increase in the CPI-U 
from June 2004 to June 2005, rounded to the nearest whole dollar.
    xii. For 2007, $547, reflecting a 3.55 percent increase in the CPI-U 
from June 2005 to June 2006, rounded to the nearest whole dollar.
    xiii. For 2008, $561, reflecting a 2.56 percent increase in the CPI-
U from June 2006 to June 2007, rounded to the nearest whole dollar.
    xiv. For 2009, $583, reflecting a 3.94 percent increase in the CPI-U 
from June 2007 to June 2008, rounded to the nearest whole dollar.
    xv. For 2010, $579, reflecting a 0.74 percent decrease in the CPI-U 
from June 2008 to June 2009, rounded to the nearest whole dollar.
    xvi. For 2011, $592, reflecting a 2.2 percent increase in the CPI-U 
from June 2009 to June 2010, rounded to the nearest whole dollar.
    xvii. For 2012, $611, reflecting a 3.2 percent increase in the CPI-U 
from June 2010 to June 2011, rounded to the nearest whole dollar.

                           Paragraph 32(a)(2)

    1. Exemption limited. Section 1026.32(a)(2) lists certain 
transactions exempt from the provisions of Sec. 1026.32. Nevertheless, 
those transactions may be subject to the provisions of Sec. 1026.35, 
including any provisions of Sec. 1026.32 to which Sec. 1026.35 refers. 
See Sec. 1026.35(a).

                            32(b) Definitions

                          Paragraph 32(b)(1)(i)

    1. General. Section 1026.32(b)(1)(i) includes in the total ``points 
and fees'' items defined as finance charges under Sec. Sec. 1026.4(a) 
and 1026.(4)(b). Items excluded from the finance charge under other 
provisions of Sec. 1026.4 are not included in the total ``points and 
fees'' under paragraph 32(b)(1)(i), but may be included in ``points and 
fees'' under paragraphs 32(b)(1)(ii) and 32(b)(1)(iii). Interest, 
including per-diem interest, is excluded from ``points and fees'' under 
Sec. 1026.32(b)(1).

                         Paragraph 32(b)(1)(ii)

    1. Mortgage broker fees. In determining ``points and fees'' for 
purposes of this section, compensation paid by a consumer to a mortgage 
broker (directly or through the creditor for delivery to the broker) is 
included in the calculation whether or not the amount is disclosed as a 
finance charge. Mortgage broker fees that are not paid by the consumer 
are not included. Mortgage broker fees already included in the 
calculation as finance charges under Sec. 1026.32(b)(1)(i) need not be 
counted again under Sec. 1026.32(b)(1)(ii).
    2. Example. Section 1026.32(b)(1)(iii) defines ``points and fees'' 
to include all items listed in Sec. 1026.4(c)(7), other than amounts 
held for the future payment of taxes. An item listed in Sec. 
1026.4(c)(7) may be excluded from the ``points and fees'' calculation, 
however, if the charge is reasonable, the creditor receives no direct or 
indirect compensation from the charge, and the charge is not paid

[[Page 895]]

to an affiliate of the creditor. For example, a reasonable fee paid by 
the consumer to an independent, third-party appraiser may be excluded 
from the ``points and fees'' calculation (assuming no compensation is 
paid to the creditor). A fee paid by the consumer for an appraisal 
performed by the creditor must be included in the calculation, even 
though the fee may be excluded from the finance charge if it is bona 
fide and reasonable in amount.

                         Paragraph 32(b)(1)(iv)

    1. Premium amount. In determining ``points and fees'' for purposes 
of this section, premiums paid at or before closing for credit insurance 
are included whether they are paid in cash or financed, and whether the 
amount represents the entire premium for the coverage or an initial 
payment.

                            32(c) Disclosures

    1. Format. The disclosures must be clear and conspicuous but need 
not be in any particular type size or typeface, nor presented in any 
particular manner. The disclosures need not be a part of the note or 
mortgage document.

                32(c)(3) Regular Payment; Balloon Payment

    1. General. The regular payment is the amount due from the borrower 
at regular intervals, such as monthly, bimonthly, quarterly, or 
annually. There must be at least two payments, and the payments must be 
in an amount and at such intervals that they fully amortize the amount 
owed. In disclosing the regular payment, creditors may rely on the rules 
set forth in Sec. 1026.18(g); however, the amounts for voluntary items, 
such as credit life insurance, may be included in the regular payment 
disclosure only if the consumer has previously agreed to the amounts.
    i. If the loan has more than one payment level, the regular payment 
for each level must be disclosed. For example:
    A. In a 30-year graduated payment mortgage where there will be 
payments of $300 for the first 120 months, $400 for the next 120 months, 
and $500 for the last 120 months, each payment amount must be disclosed, 
along with the length of time that the payment will be in effect.
    B. If interest and principal are paid at different times, the 
regular amount for each must be disclosed.
    C. In discounted or premium variable-rate transactions where the 
creditor sets the initial interest rate and later rate adjustments are 
determined by an index or formula, the creditor must disclose both the 
initial payment based on the discount or premium and the payment that 
will be in effect thereafter. Additional explanatory material which does 
not detract from the required disclosures may accompany the disclosed 
amounts. For example, if a monthly payment is $250 for the first six 
months and then increases based on an index and margin, the creditor 
could use language such as the following: ``Your regular monthly payment 
will be $250 for six months. After six months your regular monthly 
payment will be based on an index and margin, which currently would make 
your payment $350. Your actual payment at that time may be higher or 
lower.''

                         32(c)(4) Variable-Rate

    1. Calculating ``worst-case'' payment example. Creditors may rely on 
instructions in Sec. 1026.19(b)(2)(viii)(B) for calculating the maximum 
possible increases in rates in the shortest possible timeframe, based on 
the face amount of the note (not the hypothetical loan amount of $10,000 
required by Sec. 1026.19(b)(2)(viii)(B)). The creditor must provide a 
maximum payment for each payment level, where a payment schedule 
provides for more than one payment level and more than one maximum 
payment amount is possible.

                        32(c)(5) Amount Borrowed

    1. Optional insurance; debt-cancellation coverage. This disclosure 
is required when the amount borrowed in a refinancing includes premiums 
or other charges for credit life, accident, health, or loss-of-income 
insurance, or debt-cancellation coverage (whether or not the debt-
cancellation coverage is insurance under applicable law) that provides 
for cancellation of all or part of the consumer's liability in the event 
of the loss of life, health, or income or in the case of accident. See 
comment 4(d)(3)-2 and comment app. G and H-2 regarding terminology for 
debt-cancellation coverage.

                            32(d) Limitations

    1. Additional prohibitions applicable under other sections. Section 
1026.34 sets forth certain prohibitions in connection with mortgage 
credit subject to Sec. 1026.32, in addition to the limitations in Sec. 
1026.32(d). Further, Sec. 1026.35(b) prohibits certain practices in 
connection with transactions that meet the coverage test in Sec. 
1026.35(a). Because the coverage test in Sec. 1026.35(a) is generally 
broader than the coverage test in Sec. 1026.32(a), most Sec. 1026.32 
mortgage loans are also subject to the prohibitions set forth in Sec. 
1026.35(b) (such as escrows), in addition to the limitations in Sec. 
1026.32(d).

                       32(d)(1)(i) Balloon Payment

    1. Regular periodic payments. The repayment schedule for a Sec. 
1026.32 mortgage loan with a term of less than five years must fully 
amortize the outstanding principal balance through ``regular periodic 
payments.'' A payment is a ``regular periodic payment'' if it is

[[Page 896]]

not more than twice the amount of other payments.

                     32(d)(2) Negative Amortization

    1. Negative amortization. The prohibition against negative 
amortization in a mortgage covered by Sec. 1026.32 does not preclude 
reasonable increases in the principal balance that result from events 
permitted by the legal obligation unrelated to the payment schedule. For 
example, when a consumer fails to obtain property insurance and the 
creditor purchases insurance, the creditor may add a reasonable premium 
to the consumer's principal balance, to the extent permitted by the 
legal obligation.

                    32(d)(4) Increased Interest Rate

    1. Variable-rate transactions. The limitation on interest rate 
increases does not apply to rate increases resulting from changes in 
accordance with the legal obligation in a variable-rate transaction, 
even if the increase occurs after default by the consumer.

                            32(d)(5) Rebates

    1. Calculation of refunds. The limitation applies only to refunds of 
precomputed (such as add-on) interest and not to any other charges that 
are considered finance charges under Sec. 1026.4 (for example, points 
and fees paid at closing). The calculation of the refund of interest 
includes odd-days interest, whether paid at or after consummation.

                      32(d)(6) Prepayment Penalties

    1. State law. For purposes of computing a refund of unearned 
interest, if using the actuarial method defined by applicable state law 
results in a refund that is greater than the refund calculated by using 
the method described in section 933(d) of the Housing and Community 
Development Act of 1992, creditors should use the state law definition 
in determining if a refund is a prepayment penalty.

                  32(d)(7) Prepayment Penalty Exception

                         Paragraph 32(d)(7)(iii)

    1. Calculating debt-to-income ratio. ``Debt'' does not include 
amounts paid by the borrower in cash at closing or amounts from the loan 
proceeds that directly repay an existing debt. Creditors may consider 
combined debt-to-income ratios for transactions involving joint 
applicants. For more information about obligations and inflows that may 
constitute ``debt'' or ``income'' for purposes of Sec. 
1026.32(d)(7)(iii), see comment 34(a)(4)-6 and comment 34(a)(4)(iii)(C)-
1.
    2. Verification. Creditors shall verify income in the manner 
described in Sec. 1026.34(a)(4)(ii) and the related comments. Creditors 
may verify debt with a credit report. However, a credit report may not 
reflect certain obligations undertaken just before or at consummation of 
the transaction and secured by the same dwelling that secures the 
transaction. Section 1026.34(a)(4) may require creditors to consider 
such obligations; see comment 34(a)(4)-3 and comment 34(a)(4)(ii)(C)-1.
    3. Interaction with Regulation B. Section 1026.32(d)(7)(iii) does 
not require or permit the creditor to make inquiries or verifications 
that would be prohibited by Regulation B, 12 CFR part 1002.

                         Paragraph 32(d)(7)(iv)

    1. Payment change. Section 1026.32(d)(7) sets forth the conditions 
under which a mortgage transaction subject to this section may have a 
prepayment penalty. Section 1026.32(d)(7)(iv) lists as a condition that 
the amount of the periodic payment of principal or interest or both may 
not change during the four-year period following consummation. The 
following examples show whether prepayment penalties are permitted or 
prohibited under Sec. 1026.32(d)(7)(iv) in particular circumstances.
    i. Initial payments for a variable-rate transaction consummated on 
January 1, 2010 are $1,000 per month. Under the loan agreement, the 
first possible date that a payment in a different amount may be due is 
January 1, 2014. A prepayment penalty is permitted with this mortgage 
transaction provided that the other Sec. 1026.32(d)(7) conditions are 
met, that is: provided that the prepayment penalty is permitted by other 
applicable law, the penalty expires on or before December 31, 2011, the 
penalty will not apply if the source of the prepayment funds is a 
refinancing by the creditor or its affiliate, and at consummation the 
consumer's total monthly debts do not exceed 50 percent of the 
consumer's monthly gross income, as verified.
    ii. Initial payments for a variable-rate transaction consummated on 
January 1, 2010 are $1,000 per month. Under the loan agreement, the 
first possible date that a payment in a different amount may be due is 
December 31, 2013. A prepayment penalty is prohibited with this mortgage 
transaction because the payment may change within the four-year period 
following consummation.
    iii. Initial payments for a graduated-payment transaction 
consummated on January 1, 2010 are $1,000 per month. Under the loan 
agreement, the first possible date that a payment in a different amount 
may be due is January 1, 2014. A prepayment penalty is permitted with 
this mortgage transaction provided that the other Sec. 1026.32(d)(7) 
conditions are met, that is: provided that the prepayment penalty is 
permitted by other applicable law, the penalty expires on or before 
December 31, 2011, the penalty will not apply if the source of the 
prepayment funds is a refinancing by the creditor or its affiliate, and 
at consummation the consumer's total

[[Page 897]]

monthly debts do not exceed 50 percent of the consumer's monthly gross 
income, as verified.
    iv. Initial payments for a step-rate transaction consummated on 
January 1, 2010 are $1,000 per month. Under the loan agreement, the 
first possible date that a payment in a different amount may be due is 
December 31, 2013. A prepayment penalty is prohibited with this mortgage 
transaction because the payment may change within the four-year period 
following consummation.
    2. Payment changes excluded. Payment changes due to the following 
circumstances are not considered payment changes for purposes of this 
section:
    i. A change in the amount of a periodic payment that is allocated to 
principal or interest that does not change the total amount of the 
periodic payment.
    ii. The borrower's actual unanticipated late payment, delinquency, 
or default; and
    iii. The borrower's voluntary payment of additional amounts (for 
example when a consumer chooses to make a payment of interest and 
principal on a loan that only requires the consumer to pay interest).

                      32(d)(8) Due-on-Demand Clause

                         Paragraph 32(d)(8)(ii)

    1. Failure to meet repayment terms. A creditor may terminate a loan 
and accelerate the balance when the consumer fails to meet the repayment 
terms provided for in the agreement; a creditor may do so, however, only 
if the consumer actually fails to make payments. For example, a creditor 
may not terminate and accelerate if the consumer, in error, sends a 
payment to the wrong location, such as a branch rather than the main 
office of the creditor. If a consumer files for or is placed in 
bankruptcy, the creditor may terminate and accelerate under this 
provision if the consumer fails to meet the repayment terms of the 
agreement. Section 1026.32(d)(8)(ii) does not override any state or 
other law that requires a creditor to notify a borrower of a right to 
cure, or otherwise places a duty on the creditor before it can terminate 
a loan and accelerate the balance.

                         Paragraph 32(d)(8)(iii)

    1. Impairment of security. A creditor may terminate a loan and 
accelerate the balance if the consumer's action or inaction adversely 
affects the creditor's security for the loan, or any right of the 
creditor in that security. Action or inaction by third parties does not, 
in itself, permit the creditor to terminate and accelerate.
    2. Examples. i. A creditor may terminate and accelerate, for 
example, if:
    A. The consumer transfers title to the property or sells the 
property without the permission of the creditor.
    B. The consumer fails to maintain required insurance on the 
dwelling.
    C. The consumer fails to pay taxes on the property.
    D. The consumer permits the filing of a lien senior to that held by 
the creditor.
    E. The sole consumer obligated on the credit dies.
    F. The property is taken through eminent domain.
    G. A prior lienholder forecloses.
    ii. By contrast, the filing of a judgment against the consumer would 
permit termination and acceleration only if the amount of the judgment 
and collateral subject to the judgment is such that the creditor's 
security is adversely affected. If the consumer commits waste or 
otherwise destructively uses or fails to maintain the property such that 
the action adversely affects the security, the loan may be terminated 
and the balance accelerated. Illegal use of the property by the consumer 
would permit termination and acceleration if it subjects the property to 
seizure. If one of two consumers obligated on a loan dies, the creditor 
may terminate the loan and accelerate the balance if the security is 
adversely affected. If the consumer moves out of the dwelling that 
secures the loan and that action adversely affects the security, the 
creditor may terminate a loan and accelerate the balance.

           Section 1026.33--Requirements for Reverse Mortgages

                            33(a) Definition

    1. Nonrecourse transaction. A nonrecourse reverse mortgage 
transaction limits the homeowner's liability to the proceeds of the sale 
of the home (or any lesser amount specified in the credit obligation). 
If a transaction structured as a closed-end reverse mortgage transaction 
allows recourse against the consumer, and the annual percentage rate or 
the points and fees exceed those specified under Sec. 1026.32(a)(1), 
the transaction is subject to all the requirements of Sec. 1026.32, 
including the limitations concerning balloon payments and negative 
amortization.

                           Paragraph 33(a)(2)

    1. Default. Default is not defined by the statute or regulation, but 
rather by the legal obligation between the parties and state or other 
law.
    2. Definite term or maturity date. To meet the definition of a 
reverse mortgage transaction, a creditor cannot require any principal, 
interest, or shared appreciation or equity to be due and payable (other 
than in the case of default) until after the consumer's death, transfer 
of the dwelling, or the consumer ceases to occupy the dwelling as a 
principal dwelling. Some state laws require legal obligations secured by 
a mortgage to specify a definite maturity date or term of

[[Page 898]]

repayment in the instrument. An obligation may state a definite maturity 
date or term of repayment and still meet the definition of a reverse-
mortgage transaction if the maturity date or term of repayment used 
would not operate to cause maturity prior to the occurrence of any of 
the maturity events recognized in the regulation. For example, some 
reverse mortgage programs specify that the final maturity date is the 
borrower's 150th birthday; other programs include a shorter term but 
provide that the term is automatically extended for consecutive periods 
if none of the other maturity events has yet occurred. These programs 
would be permissible.

                  33(c) Projected Total Cost of Credit

                       33(c)(1) Costs to Consumer

    1. Costs and charges to consumer--relation to finance charge. All 
costs and charges to the consumer that are incurred in a reverse 
mortgage transaction are included in the projected total cost of credit, 
and thus in the total annual loan cost rates, whether or not the cost or 
charge is a finance charge under Sec. 1026.4.
    2. Annuity costs. As part of the credit transaction, some creditors 
require or permit a consumer to purchase an annuity that immediately--or 
at some future time--supplements or replaces the creditor's payments. 
The amount paid by the consumer for the annuity is a cost to the 
consumer under this section, regardless of whether the annuity is 
purchased through the creditor or a third party, or whether the purchase 
is mandatory or voluntary. For example, this includes the costs of an 
annuity that a creditor offers, arranges, assists the consumer in 
purchasing, or that the creditor is aware the consumer is purchasing as 
a part of the transaction.
    3. Disposition costs excluded. Disposition costs incurred in 
connection with the sale or transfer of the property subject to the 
reverse mortgage are not included in the costs to the consumer under 
this paragraph. (However, see the definition of Valnin 
Appendix K to the regulation to determine the effect certain disposition 
costs may have on the total annual loan cost rates.)

                 Paragraph 33(c)(2) Payments to Consumer

    1. Payments upon a specified event. The projected total cost of 
credit should not reflect contingent payments in which a credit to the 
outstanding loan balance or a payment to the consumer's estate is made 
upon the occurrence of an event (for example, a ``death benefit'' 
payable if the consumer's death occurs within a certain period of time). 
Thus, the table of total annual loan cost rates required under Sec. 
1026.33(b)(2) would not reflect such payments. At its option, however, a 
creditor may put an asterisk, footnote, or similar type of notation in 
the table next to the applicable total annual loan cost rate, and state 
in the body of the note, apart from the table, the assumption upon which 
the total annual loan cost is made and any different rate that would 
apply if the contingent benefit were paid.

                33(c)(3) Additional Creditor Compensation

    1. Shared appreciation or equity. Any shared appreciation or equity 
that the creditor is entitled to receive pursuant to the legal 
obligation must be included in the total cost of a reverse mortgage 
loan. For example, if a creditor agrees to a reduced interest rate on 
the transaction in exchange for a portion of the appreciation or equity 
that may be realized when the dwelling is sold, that portion is included 
in the projected total cost of credit.

               33(c)(4) Limitations on Consumer Liability

    1. In general. Creditors must include any limitation on the 
consumer's liability (such as a nonrecourse limit or an equity 
conservation agreement) in the projected total cost of credit. These 
limits and agreements protect a portion of the equity in the dwelling 
for the consumer or the consumer's estate. For example, the following 
are limitations on the consumer's liability that must be included in the 
projected total cost of credit:
    i. A limit on the consumer's liability to a certain percentage of 
the projected value of the home.
    ii. A limit on the consumer's liability to the net proceeds from the 
sale of the property subject to the reverse mortgage.
    2. Uniform assumption for ``net proceeds'' recourse limitations. If 
the legal obligation between the parties does not specify a percentage 
for the ``net proceeds'' liability of the consumer, for purposes of the 
disclosures required by Sec. 1026.33, a creditor must assume that the 
costs associated with selling the property will equal 7 percent of the 
projected sale price (see the definition of the Valn symbol 
under Appendix K(b)(6)).

 Section 1026.34--Prohibited Acts or Practices in Connection With High-
                             Cost Mortgages

       34(a) Prohibited Acts or Practices for High-Cost Mortgages

                   34(a)(1) Home-Improvement Contracts

                          Paragraph 34(a)(1)(i)

    1. Joint payees. If a creditor pays a contractor with an instrument 
jointly payable to the contractor and the consumer, the instrument must 
name as payee each consumer who is primarily obligated on the note.

                       34(a)(2) Notice to Assignee

    1. Subsequent sellers or assignors. Any person, whether or not the 
original creditor,

[[Page 899]]

that sells or assigns a mortgage subject to Sec. 1026.32 must furnish 
the notice of potential liability to the purchaser or assignee.
    2. Format. While the notice of potential liability need not be in 
any particular format, the notice must be prominent. Placing it on the 
face of the note, such as with a stamp, is one means of satisfying the 
prominence requirement.
    3. Assignee liability. Pursuant to section 131(d) of the Act, the 
Act's general holder-in-due course protections do not apply to 
purchasers and assignees of loans covered by Sec. 1026.32. For such 
loans, a purchaser's or other assignee's liability for all claims and 
defenses that the consumer could assert against the creditor is not 
limited to violations of the Act.

              34(a)(3) Refinancings Within One-Year Period

    1. In the borrower's interest. The determination of whether or not a 
refinancing covered by Sec. 1026.34(a)(3) is in the borrower's interest 
is based on the totality of the circumstances, at the time the credit is 
extended. A written statement by the borrower that ``this loan is in my 
interest'' alone does not meet this standard.
    i. A refinancing would be in the borrower's interest if needed to 
meet the borrower's ``bona fide personal financial emergency'' (see 
generally Sec. 1026.23(e) and Sec. 1026.31(c)(1)(iii)).
    ii. In connection with a refinancing that provides additional funds 
to the borrower, in determining whether a loan is in the borrower's 
interest consideration should be given to whether the loan fees and 
charges are commensurate with the amount of new funds advanced, and 
whether the real estate-related charges are bona fide and reasonable in 
amount (see generally Sec. 1026.4(c)(7)).
    2. Application of the one-year refinancing prohibition to creditors 
and assignees. The prohibition in Sec. 1026.34(a)(3) applies where an 
extension of credit subject to Sec. 1026.32 is refinanced into another 
loan subject to Sec. 1026.32. The prohibition is illustrated by the 
following examples. Assume that Creditor A makes a loan subject to Sec. 
1026.32 on January 15, 2003, secured by a first lien; this loan is 
assigned to Creditor B on February 15, 2003:
    i. Creditor A is prohibited from refinancing the January 2003 loan 
(or any other loan subject to Sec. 1026.32 to the same borrower) into a 
loan subject to Sec. 1026.32, until January 15, 2004. Creditor B is 
restricted until January 15, 2004, or such date prior to January 15, 
2004 that Creditor B ceases to hold or service the loan. During the 
prohibition period, Creditors A and B may make a subordinate lien loan 
that does not refinance a loan subject to Sec. 1026.32. Assume that on 
April 1, 2003, Creditor A makes but does not assign a second-lien loan 
subject to Sec. 1026.32. In that case, Creditor A would be prohibited 
from refinancing either the first-lien or second-lien loans (or any 
other loans to that borrower subject to Sec. 1026.32) into another loan 
subject to Sec. 1026.32 until April 1, 2004.
    ii. The loan made by Creditor A on January 15, 2003 (and assigned to 
Creditor B) may be refinanced by Creditor C at any time. If Creditor C 
refinances this loan on March 1, 2003 into a new loan subject to Sec. 
1026.32, Creditor A is prohibited from refinancing the loan made by 
Creditor C (or any other loan subject to Sec. 1026.32 to the same 
borrower) into another loan subject to Sec. 1026.32 until January 15, 
2004. Creditor C is similarly prohibited from refinancing any loan 
subject to Sec. 1026.32 to that borrower into another until March 1, 
2004. (The limitations of Sec. 1026.34(a)(3) no longer apply to 
Creditor B after Creditor C refinanced the January 2003 loan and 
Creditor B ceased to hold or service the loan.)

                       34(a)(4) Repayment Ability

    1. Application of repayment ability rule. The Sec. 1026.34(a)(4) 
prohibition against making loans without regard to consumers' repayment 
ability applies to mortgage loans described in Sec. 1026.32(a). In 
addition, the Sec. 1026.34(a)(4) prohibition applies to higher-priced 
mortgage loans described in Sec. 1026.35(a). See Sec. 1026.35(b)(1).
    2. General prohibition. Section 1026.34(a)(4) prohibits a creditor 
from extending credit subject to Sec. 1026.32 to a consumer based on 
the value of the consumer's collateral without regard to the consumer's 
repayment ability as of consummation, including the consumer's current 
and reasonably expected income, employment, assets other than the 
collateral, current obligations, and property tax and insurance 
obligations. A creditor may base its determination of repayment ability 
on current or reasonably expected income from employment or other 
sources, on assets other than the collateral, or both.
    3. Other dwelling-secured obligations. For purposes of Sec. 
1026.34(a)(4), current obligations include another credit obligation of 
which the creditor has knowledge undertaken prior to or at consummation 
of the transaction and secured by the same dwelling that secures the 
transaction subject to Sec. 1026.32 or Sec. 1026.35. For example, 
where a transaction subject to Sec. 1026.35 is a first-lien transaction 
for the purchase of a home, a creditor must consider a ``piggyback'' 
second-lien transaction of which it has knowledge that is used to 
finance part of the down payment on the house.
    4. Discounted introductory rates and non-amortizing or negatively-
amortizing payments. A credit agreement may determine a consumer's 
initial payments using a temporarily discounted interest rate or permit 
the consumer to make initial payments that are non-amortizing or 
negatively amortizing. (Negative amortization is permissible for loans 
covered by Sec. 1026.35(a), but not Sec. 1026.32).

[[Page 900]]

In such cases the creditor may determine repayment ability using the 
assumptions provided in Sec. 1026.34(a)(4)(iv).
    5. Repayment ability as of consummation. Section 1026.34(a)(4) 
prohibits a creditor from disregarding repayment ability based on the 
facts and circumstances known to the creditor as of consummation. In 
general, a creditor does not violate this provision if a consumer 
defaults because of a significant reduction in income (for example, a 
job loss) or a significant obligation (for example, an obligation 
arising from a major medical expense) that occurs after consummation. 
However, if a creditor has knowledge as of consummation of reductions in 
income, for example, if a consumer's written application states that the 
consumer plans to retire within twelve months without obtaining new 
employment, or states that the consumer will transition from full-time 
to part-time employment, the creditor must consider that information.
    6. Income, assets, and employment. Any current or reasonably 
expected assets or income may be considered by the creditor, except the 
collateral itself. For example, a creditor may use information about 
current or expected salary, wages, bonus pay, tips, and commissions. 
Employment may be full-time, part-time, seasonal, irregular, military, 
or self-employment. Other sources of income could include interest or 
dividends; retirement benefits; public assistance; and alimony, child 
support, or separate maintenance payments. A creditor may also take into 
account assets such as savings accounts or investments that the consumer 
can or will be able to use.
    7. Interaction with Regulation B. Section 1026.34(a)(4) does not 
require or permit the creditor to make inquiries or verifications that 
would be prohibited by Regulation B, 12 CFR part 1002.

                34(a)(4)(i) Mortgage-Related Obligations

    1. Mortgage-related obligations. A creditor must include in its 
repayment ability analysis the expected property taxes and premiums for 
mortgage-related insurance required by the creditor as set forth in 
Sec. 1026.35(b)(3)(i), as well as similar mortgage-related expenses. 
Similar mortgage-related expenses include homeowners' association dues 
and condominium or cooperative fees.

             34(a)(4)(ii) Verification of Repayment Ability

    1. Income and assets relied on. A creditor must verify the income 
and assets the creditor relies on to evaluate the consumer's repayment 
ability. For example, if a consumer earns a salary and also states that 
he or she is paid an annual bonus, but the creditor only relies on the 
applicant's salary to evaluate repayment ability, the creditor need only 
verify the salary.
    2. Income and assets--co-applicant. If two persons jointly apply for 
credit and both list income or assets on the application, the creditor 
must verify repayment ability with respect to both applicants unless the 
creditor relies only on the income or assets of one of the applicants in 
determining repayment ability.
    3. Expected income. If a creditor relies on expected income, the 
expectation must be reasonable and it must be verified with third-party 
documents that provide reasonably reliable evidence of the consumer's 
expected income. For example, if the creditor relies on an expectation 
that a consumer will receive an annual bonus, the creditor may verify 
the basis for that expectation with documents that show the consumer's 
past annual bonuses and the expected bonus must bear a reasonable 
relationship to past bonuses. Similarly, if the creditor relies on a 
consumer's expected salary following the consumer's receipt of an 
educational degree, the creditor may verify that expectation with a 
written statement from an employer indicating that the consumer will be 
employed upon graduation at a specified salary.

                        Paragraph 34(a)(4)(ii)(A)

    1. Internal Revenue Service (IRS) Form W-2. A creditor may verify a 
consumer's income using a consumer's IRS Form W-2 (or any subsequent 
revisions or similar IRS Forms used for reporting wages and tax 
withholding). The creditor may also use an electronic retrieval service 
for obtaining the consumer's W-2 information.
    2. Tax returns. A creditor may verify a consumer's income or assets 
using the consumer's tax return. A creditor may also use IRS Form 4506 
``Request for Copy of Tax Return,'' Form 4506-T ``Request for Transcript 
of Tax Return,'' or Form 8821 ``Tax Information Authorization'' (or any 
subsequent revisions or similar IRS Forms appropriate for obtaining tax 
return information directly from the IRS) to verify the consumer's 
income or assets. The creditor may also use an electronic retrieval 
service for obtaining tax return information.
    3. Other third-party documents that provide reasonably reliable 
evidence of consumer's income or assets. Creditors may verify income and 
assets using documents produced by third parties. Creditors may not rely 
on information provided orally by third parties, but may rely on 
correspondence from the third party, such as by letter or email. The 
creditor may rely on any third-party document that provides reasonably 
reliable evidence of the consumer's income or assets. For example, 
creditors may verify the consumer's income using receipts from a check-
cashing or remittance service, or by obtaining a written statement from 
the consumer's employer that states the consumer's income.

[[Page 901]]

    4. Information specific to the consumer. Creditors must verify a 
consumer's income or assets using information that is specific to the 
individual consumer. Creditors may use third-party databases that 
contain individual-specific data about a consumer's income or assets, 
such as a third-party database service used by the consumer's employer 
for the purpose of centralizing income verification requests, so long as 
the information is reasonably current and accurate. Information about 
average incomes for the consumer's occupation in the consumer's 
geographic location or information about average incomes paid by the 
consumer's employer, however, would not be specific to the individual 
consumer.
    5. Duplicative collection of documentation. A creditor that has made 
a loan to a consumer and is refinancing or extending new credit to the 
same consumer need not collect from the consumer a document the creditor 
previously obtained if the creditor has no information that would 
reasonably lead the creditor to believe that document has changed since 
it was initially collected. For example, if the creditor has obtained 
the consumer's 2006 tax return to make a home purchase loan in May 2007, 
the creditor may rely on the 2006 tax return if the creditor makes a 
home equity loan to the same consumer in August 2007. Similarly, if the 
creditor has obtained the consumer's bank statement for May 2007 in 
making the first loan, the creditor may rely on that bank statement for 
that month in making the subsequent loan in August 2007.

                        Paragraph 34(a)(4)(ii)(B)

    1. No violation if income or assets relied on not materially greater 
than verifiable amounts. A creditor that does not verify income or 
assets used to determine repayment ability with reasonably reliable 
third-party documents does not violate Sec. 1026.34(a)(4)(ii) if the 
creditor demonstrates that the income or assets it relied upon were not 
materially greater than the amounts that the creditor would have been 
able to verify pursuant to Sec. 1026.34(a)(4)(ii). For example, if a 
creditor determines a consumer's repayment ability by relying on the 
consumer's annual income of $40,000 but fails to obtain documentation of 
that amount before extending the credit, the creditor will not have 
violated this section if the creditor later obtains evidence that would 
satisfy Sec. 1026.34(a)(4)(ii)(A), such as tax return information, 
showing that the creditor could have documented, at the time the loan 
was consummated, that the consumer had an annual income not materially 
less than $40,000.
    2. Materially greater than. Amounts of income or assets relied on 
are not materially greater than amounts that could have been verified at 
consummation if relying on the verifiable amounts would not have altered 
a reasonable creditor's decision to extend credit or the terms of the 
credit.

                        Paragraph 34(a)(4)(ii)(C)

    1. In general. A credit report may be used to verify current 
obligations. A credit report, however, might not reflect an obligation 
that a consumer has listed on an application. The creditor is 
responsible for considering such an obligation, but the creditor is not 
required to independently verify the obligation. Similarly, a creditor 
is responsible for considering certain obligations undertaken just 
before or at consummation of the transaction and secured by the same 
dwelling that secures the transaction (for example, a ``piggy back'' 
loan), of which the creditor knows, even if not reflected on a credit 
report. See comment 34(a)(4)-3.

                 34(a)(4)(iii) Presumption of Compliance

    1. In general. A creditor is presumed to have complied with Sec. 
1026.34(a)(4) if the creditor follows the three underwriting procedures 
specified in paragraph 34(a)(4)(iii) for verifying repayment ability, 
determining the payment obligation, and measuring the relationship of 
obligations to income. The procedures for verifying repayment ability 
are required under paragraph 34(a)(4)(ii); the other procedures are not 
required but, if followed along with the required procedures, create a 
presumption that the creditor has complied with Sec. 1026.34(a)(4). The 
consumer may rebut the presumption with evidence that the creditor 
nonetheless disregarded repayment ability despite following these 
procedures. For example, evidence of a very high debt-to-income ratio 
and a very limited residual income could be sufficient to rebut the 
presumption, depending on all of the facts and circumstances. If a 
creditor fails to follow one of the non-required procedures set forth in 
paragraph 34(a)(4)(iii), then the creditor's compliance is determined 
based on all of the facts and circumstances without there being a 
presumption of either compliance or violation.

                       Paragraph 34(a)(4)(iii)(B)

    1. Determination of payment schedule. To retain a presumption of 
compliance under Sec. 1026.34(a)(4)(iii), a creditor must determine the 
consumer's ability to pay the principal and interest obligation based on 
the maximum scheduled payment in the first seven years following 
consummation. In general, a creditor should determine a payment schedule 
for purposes of Sec. 1026.34(a)(4)(iii)(B) based on the guidance in the 
commentary to Sec. 1026.17(c)(1). Examples of how to determine the 
maximum scheduled payment in the first seven years are provided as 
follows (all payment amounts are rounded):

[[Page 902]]

    i. Balloon-payment loan; fixed interest rate. A loan in an amount of 
$100,000 with a fixed interest rate of 8.0 percent (no points) has a 7-
year term but is amortized over 30 years. The monthly payment scheduled 
for 7 years is $733 with a balloon payment of remaining principal due at 
the end of 7 years. The creditor will retain the presumption of 
compliance if it assesses repayment ability based on the payment of 
$733.
    ii. Fixed-rate loan with interest-only payment for five years. A 
loan in an amount of $100,000 with a fixed interest rate of 8.0 percent 
(no points) has a 30-year term. The monthly payment of $667 scheduled 
for the first 5 years would cover only the interest due. After the fifth 
year, the scheduled payment would increase to $772, an amount that fully 
amortizes the principal balance over the remaining 25 years. The 
creditor will retain the presumption of compliance if it assesses 
repayment ability based on the payment of $772.
    iii. Fixed-rate loan with interest-only payment for seven years. A 
loan in an amount of $100,000 with a fixed interest rate of 8.0 percent 
(no points) has a 30-year term. The monthly payment of $667 scheduled 
for the first 7 years would cover only the interest due. After the 
seventh year, the scheduled payment would increase to $793, an amount 
that fully amortizes the principal balance over the remaining 23 years. 
The creditor will retain the presumption of compliance if it assesses 
repayment ability based on the interest-only payment of $667.
    iv. Variable-rate loan with discount for five years. A loan in an 
amount of $100,000 has a 30-year term. The loan agreement provides for a 
fixed interest rate of 7.0 percent for an initial period of 5 years. 
Accordingly, the payment scheduled for the first 5 years is $665. The 
agreement provides that, after 5 years, the interest rate will adjust 
each year based on a specified index and margin. As of consummation, the 
sum of the index value and margin (the fully-indexed rate) is 8.0 
percent. Accordingly, the payment scheduled for the remaining 25 years 
is $727. The creditor will retain the presumption of compliance if it 
assesses repayment ability based on the payment of $727.
    v. Variable-rate loan with discount for seven years. A loan in an 
amount of $100,000 has a 30-year term. The loan agreement provides for a 
fixed interest rate of 7.125 percent for an initial period of 7 years. 
Accordingly, the payment scheduled for the first 7 years is $674. After 
7 years, the agreement provides that the interest rate will adjust each 
year based on a specified index and margin. As of consummation, the sum 
of the index value and margin (the fully-indexed rate) is 8.0 percent. 
Accordingly, the payment scheduled for the remaining years is $725. The 
creditor will retain the presumption of compliance if it assesses 
repayment ability based on the payment of $674.
    vi. Step-rate loan. A loan in an amount of $100,000 has a 30-year 
term. The agreement provides that the interest rate will be 5 percent 
for two years, 6 percent for three years, and 7 percent thereafter. 
Accordingly, the payment amounts are $537 for two years, $597 for three 
years, and $654 thereafter. To retain the presumption of compliance, the 
creditor must assess repayment ability based on the payment of $654.

                       Paragraph 34(a)(4)(iii)(C)

    1. ``Income'' and ``debt''. To determine whether to classify 
particular inflows or obligations as ``income'' or ``debt,'' creditors 
may look to widely accepted governmental and non-governmental 
underwriting standards, including, for example, those set forth in the 
Federal Housing Administration's handbook on Mortgage Credit Analysis 
for Mortgage Insurance.

         34(a)(4)(iv) Exclusions From Presumption of Compliance

    1. In general. The exclusions from the presumption of compliance 
should be interpreted consistent with comments 32(d)(1)(i)-1 and 
32(d)(2)-1.
    2. Renewable balloon loan. If a creditor is unconditionally 
obligated to renew a balloon-payment loan at the consumer's option (or 
is obligated to renew subject to conditions within the consumer's 
control), the full term resulting from such renewal is the relevant term 
for purposes of the exclusion of certain balloon-payment loans. See 
comment 17(c)(1)-11 for a discussion of conditions within a consumer's 
control in connection with renewable balloon-payment loans.

34(b) Prohibited Acts or Practices for Dwelling-Secured Loans; Open-End 
                                 Credit

    1. Amount of credit extended. Where a loan is documented as open-end 
credit but the features and terms or other circumstances demonstrate 
that it does not meet the definition of open-end credit, the loan is 
subject to the rules for closed-end credit, including Sec. 1026.32 if 
the rate or fee trigger is met. In applying the triggers under Sec. 
1026.32, the ``amount financed,'' including the ``principal loan 
amount'' must be determined. In making the determination, the amount of 
credit that would have been extended if the loan had been documented as 
a closed-end loan is a factual determination to be made in each case. 
Factors to be considered include the amount of money the consumer 
originally requested, the amount of the first advance or the highest 
outstanding balance, or the amount of the credit line. The full amount 
of the credit line is considered only to the extent that it is 
reasonable to expect that the consumer might use the full amount of 
credit.

[[Page 903]]

Section 1026.35--Prohibited Acts or Practices in Connection With Higher-
                          Priced Mortgage Loans

                   35(a) Higher-Priced Mortgage Loans

                           Paragraph 35(a)(2)

    1. Average prime offer rate. Average prime offer rates are annual 
percentage rates derived from average interest rates, points, and other 
loan pricing terms currently offered to consumers by a representative 
sample of creditors for mortgage transactions that have low-risk pricing 
characteristics. Other pricing terms include commonly used indices, 
margins, and initial fixed-rate periods for variable-rate transactions. 
Relevant pricing characteristics include a consumer's credit history and 
transaction characteristics such as the loan-to-value ratio, owner-
occupant status, and purpose of the transaction. To obtain average prime 
offer rates, the Bureau uses a survey of creditors that both meets the 
criteria of Sec. 1026.35(a)(2) and provides pricing terms for at least 
two types of variable-rate transactions and at least two types of non-
variable-rate transactions. An example of such a survey is the Freddie 
Mac Primary Mortgage Market Survey[supreg].
    2. Comparable transaction. A higher-priced mortgage loan is a 
consumer credit transaction secured by the consumer's principal dwelling 
with an annual percentage rate that exceeds the average prime offer rate 
for a comparable transaction as of the date the interest rate is set by 
the specified margin. The table of average prime offer rates published 
by the Bureau indicates how to identify the comparable transaction.
    3. Rate set. A transaction's annual percentage rate is compared to 
the average prime offer rate as of the date the transaction's interest 
rate is set (or ``locked'') before consummation. Sometimes a creditor 
sets the interest rate initially and then re-sets it at a different 
level before consummation. The creditor should use the last date the 
interest rate is set before consummation.
    4. Bureau table. The Bureau publishes on the Internet, in table 
form, average prime offer rates for a wide variety of transaction types. 
The Bureau calculates an annual percentage rate, consistent with 
Regulation Z (see Sec. 1026.22 and Appendix J), for each transaction 
type for which pricing terms are available from a survey. The Bureau 
estimates annual percentage rates for other types of transactions for 
which direct survey data are not available based on the loan pricing 
terms available in the survey and other information. The Bureau 
publishes on the Internet the methodology it uses to arrive at these 
estimates.

              35(b) Rules for Higher-Priced Mortgage Loans

    1. Effective date. For guidance on the applicability of the rules in 
Sec. 1026.35(b), see comment 1(d)(5)-1.

                        Paragraph 35(b)(2)(ii)(C)

    1. Payment change. Section 1026.35(b)(2) provides that a loan 
subject to this section may not have a penalty described by Sec. 
1026.32(d)(6) unless certain conditions are met. Section 
1026.35(b)(2)(ii)(C) lists as a condition that the amount of the 
periodic payment of principal or interest or both may not change during 
the four-year period following consummation. For examples showing 
whether a prepayment penalty is permitted or prohibited in connection 
with particular payment changes, see comment 32(d)(7)(iv)-1. Those 
examples, however, include a condition that Sec. 1026.35(b)(2) does not 
include: the condition that, at consummation, the consumer's total 
monthly debt payments may not exceed 50 percent of the consumer's 
monthly gross income. For guidance about circumstances in which payment 
changes are not considered payment changes for purposes of this section, 
see comment 32(d)(7)(iv)-2.
    2. Negative amortization. Section 1026.32(d)(2) provides that a loan 
described in Sec. 1026.32(a) may not have a payment schedule with 
regular periodic payments that cause the principal balance to increase. 
Therefore, the commentary to Sec. 1026.32(d)(7)(iv) does not include 
examples of payment changes in connection with negative amortization. 
The following examples show whether, under Sec. 1026.35(b)(2), 
prepayment penalties are permitted or prohibited in connection with 
particular payment changes, when a loan agreement permits negative 
amortization:
    i. Initial payments for a variable-rate transaction consummated on 
January 1, 2010 are $1,000 per month and the loan agreement permits 
negative amortization to occur. Under the loan agreement, the first date 
that a scheduled payment in a different amount may be due is January 1, 
2014 and the creditor does not have the right to change scheduled 
payments prior to that date even if negative amortization occurs. A 
prepayment penalty is permitted with this mortgage transaction provided 
that the other Sec. 1026.35(b)(2) conditions are met, that is: provided 
that the prepayment penalty is permitted by other applicable law, the 
penalty expires on or before December 31, 2011, and the penalty will not 
apply if the source of the prepayment funds is a refinancing by the 
creditor or its affiliate.
    ii. Initial payments for a variable-rate transaction consummated on 
January 1, 2010 are $1,000 per month and the loan agreement permits 
negative amortization to occur. Under the loan agreement, the first date 
that a scheduled payment in a different

[[Page 904]]

amount may be due is January 1, 2014, but the creditor has the right to 
change scheduled payments prior to that date if negative amortization 
occurs. A prepayment penalty is prohibited with this mortgage 
transaction because the payment may change within the four-year period 
following consummation.

                            35(b)(3) Escrows

     35(b)(3)(i) Failure To Escrow for Property Taxes and Insurance

    1. Section 1026.35(b)(3) applies to principal dwellings, including 
structures that are classified as personal property under state law. For 
example, an escrow account must be established on a higher-priced 
mortgage loan secured by a first-lien on a mobile home, boat or a 
trailer used as the consumer's principal dwelling. See the commentary 
under Sec. Sec. 1026.2(a)(19), 1026.2(a)(24), 1026.15 and 1026.23. 
Section 1026.35(b)(3) also applies to higher-priced mortgage loans 
secured by a first lien on a condominium or a cooperative unit if it is 
in fact used as principal residence.
    2. Administration of escrow accounts. Section 1026.35(b)(3) requires 
creditors to establish before the consummation of a loan secured by a 
first lien on a principal dwelling an escrow account for payment of 
property taxes and premiums for mortgage-related insurance required by 
creditor. Section 6 of RESPA, 12 U.S.C. 2605, and Regulation X address 
how escrow accounts must be administered.
    3. Optional insurance items. Section 1026.35(b)(3) does not require 
that escrow accounts be established for premiums for mortgage-related 
insurance that the creditor does not require in connection with the 
credit transaction, such as an earthquake insurance or debt-protection 
insurance.

                        Paragraph 35(b)(3)(ii)(B)

    1. Limited exception. A creditor is required to escrow for payment 
of property taxes for all first lien loans secured by condominium units 
regardless of whether the creditors escrows insurance premiums for 
condominium unit.

                       35(b)(3)(v) ``Jumbo'' Loans

    1. Special threshold for ``jumbo'' loans. For purposes of the escrow 
requirement in Sec. 1026.35(b)(3) only, the coverage threshold stated 
in Sec. 1026.35(a)(1) for first-lien loans (1.5 or more percentage 
points greater than the average prime offer rate) does not apply to a 
loan with a principal obligation that exceeds the limit in effect as of 
the date the loan's rate is set for the maximum principal obligation 
eligible for purchase by Freddie Mac (``jumbo'' loans). The Federal 
Housing Finance Agency (FHFA) establishes and adjusts the maximum 
principal obligation pursuant to 12 U.S.C. 1454(a)(2) and other 
provisions of Federal law. Adjustments to the maximum principal 
obligation made by FHFA apply in determining whether a mortgage loan is 
a ``jumbo'' loan to which the separate coverage threshold in Sec. 
1026.35(b)(3)(v) applies.
    2. Escrow requirements only. Under Sec. 1026.35(b)(3)(v), for 
``jumbo'' loans, the annual percentage rate threshold is 2.5 or more 
percentage points greater than the average prime offer rate. This 
threshold applies solely in determining whether a ``jumbo'' loan is 
subject to the escrow requirement of Sec. 1026.35(b)(3). The 
determination of whether ``jumbo'' first-lien loans are subject to the 
other protections in Sec. 1026.35, such as the ability to repay 
requirements under Sec. 1026.35(b)(1) and the restrictions on 
prepayment penalties under Sec. 1026.35(b)(2), is based on the 1.5 
percentage point threshold stated in Sec. 1026.35(a)(1).

Section 1026.36--Prohibited Acts or Practices in Connection With Credit 
                          Secured by a Dwelling

    1. Scope of coverage. Sections 1026.36(b) and (c) apply to closed-
end consumer credit transactions secured by a consumer's principal 
dwelling. Sections 1026.36(d) and (e) apply to closed-end consumer 
credit transactions secured by a dwelling. Sections 1026.36(d) and (e) 
apply to closed-end loans secured by first or subordinate liens, and 
reverse mortgages that are not home-equity lines of credit under Sec. 
1026.40. See Sec. 1026.36(f) for additional restrictions on the scope 
of this section, and Sec. Sec. 1026.1(c) and 1026.3(a) and 
corresponding commentary for further discussion of extensions of credit 
subject to Regulation Z.
    2. Mandatory compliance date for Sec. Sec. 1026.36(d) and (e). The 
final rules on loan originator compensation in Sec. 1026.36 apply to 
transactions for which the creditor receives an application on or after 
the effective date. For example, assume a mortgage broker takes an 
application on March 10, 2011, which the creditor receives on March 25, 
2011. This transaction is not covered. If, however, the creditor does 
not receive the application until April 8, 2011, the transaction is 
covered.

            36(a) Loan Originator and Mortgage Broker Defined

    1. Meaning of loan originator. i. General. Section 1026.36(a) 
provides that a loan originator is any person who for compensation or 
other monetary gain arranges, negotiates, or otherwise obtains an 
extension of consumer credit for another person. Thus, the term ``loan 
originator'' includes employees of a creditor as well as employees of a 
mortgage broker that satisfy this definition. In addition, the 
definition of loan originator expressly includes any creditor that 
satisfies the definition of loan originator but makes use of ``table 
funding'' by a third party. See

[[Page 905]]

comment 36(a)-1.ii below discussing table funding. Although consumers 
may sometimes arrange, negotiate, or otherwise obtain extensions of 
consumer credit on their own behalf, in such cases they do not do so for 
another person or for compensation or other monetary gain, and therefore 
are not loan originators under this section. (Under Sec. 1026.2(a)(22), 
the term ``person'' means a natural person or an organization.)
    ii. Table funding. Table funding occurs when the creditor does not 
provide the funds for the transaction at consummation out of the 
creditor's own resources, including drawing on a bona fide warehouse 
line of credit, or out of deposits held by the creditor. Accordingly, a 
table-funded transaction is consummated with the debt obligation 
initially payable by its terms to one person, but another person 
provides the funds for the transaction at consummation and receives an 
immediate assignment of the note, loan contract, or other evidence of 
the debt obligation. Although Sec. 1026.2(a)(17)(i)(B) provides that a 
person to whom a debt obligation is initially payable on its face 
generally is a creditor, Sec. 1026.36(a)(1) provides that, solely for 
the purposes of Sec. 1026.36, such a person is also considered a loan 
originator. The creditor is not considered a loan originator unless 
table funding occurs. For example, if a person closes a loan in its own 
name but does not fund the loan from its own resources or deposits held 
by it because it assigns the loan at consummation, it is considered a 
creditor for purposes of Regulation Z and also a loan originator for 
purposes of Sec. 1026.36. However, if a person closes a loan in its own 
name and draws on a bona fide warehouse line of credit to make the loan 
at consummation, it is considered a creditor, not a loan originator, for 
purposes of Regulation Z, including Sec. 1026.36.
    iii. Servicing. The definition of ``loan originator'' does not apply 
to a loan servicer when the servicer modifies an existing loan on behalf 
of the current owner of the loan. The rule only applies to extensions of 
consumer credit and does not apply if a modification of an existing 
obligation's terms does not constitute a refinancing under Sec. 
1026.20(a).
    2. Meaning of mortgage broker. For purposes of Sec. 1026.36, with 
respect to a particular transaction, the term ``mortgage broker'' refers 
to a loan originator who is not an employee of the creditor. 
Accordingly, the term ``mortgage broker'' includes companies that engage 
in the activities described in Sec. 1026.36(a) and also includes 
employees of such companies that engage in these activities. Section 
1026.36(d) prohibits certain payments to a loan originator. These 
prohibitions apply to payments made to all loan originators, including 
payments made to mortgage brokers, and payments made by a company acting 
as a mortgage broker to its employees who are loan originators.
    3. Meaning of creditor. For purposes of Sec. 1026.36(d) and (e), a 
creditor means a creditor that is not deemed to be a loan originator on 
the transaction under this section. Thus, a person that closes a loan in 
its own name (but another person provides the funds for the transaction 
at consummation and receives an immediate assignment of the note, loan 
contract, or other evidence of the debt obligation) is deemed a loan 
originator, not a creditor, for purposes of Sec. 1026.36. However, that 
person is still a creditor for all other purposes of Regulation Z.
    4. Managers and administrative staff. For purposes of Sec. 1026.36, 
managers, administrative staff, and similar individuals who are employed 
by a creditor or loan originator but do not arrange, negotiate, or 
otherwise obtain an extension of credit for a consumer, or whose 
compensation is not based on whether any particular loan is originated, 
are not loan originators.

                        36(c) Servicing Practices

                          Paragraph 36(c)(1)(i)

    1. Crediting of payments. Under Sec. 1026.36(c)(1)(i), a mortgage 
servicer must credit a payment to a consumer's loan account as of the 
date of receipt. This does not require that a mortgage servicer post the 
payment to the consumer's loan account on a particular date; the 
servicer is only required to credit the payment as of the date of 
receipt. Accordingly, a servicer that receives a payment on or before 
its due date (or within any grace period), and does not enter the 
payment on its books or in its system until after the payment's due date 
(or expiration of any grace period), does not violate this rule as long 
as the entry does not result in the imposition of a late charge, 
additional interest, or similar penalty to the consumer, or in the 
reporting of negative information to a consumer reporting agency.
    2. Payments to be credited. Payments should be credited based on the 
legal obligation between the creditor and consumer. The legal obligation 
is determined by applicable state or other law.
    3. Date of receipt. The ``date of receipt'' is the date that the 
payment instrument or other means of payment reaches the mortgage 
servicer. For example, payment by check is received when the mortgage 
servicer receives it, not when the funds are collected. If the consumer 
elects to have payment made by a third-party payor such as a financial 
institution, through a preauthorized payment or telephone bill-payment 
arrangement, payment is received when the mortgage servicer receives the 
third-party payor's check or other transfer medium, such as an 
electronic fund transfer.

[[Page 906]]

                         Paragraph 36(c)(1)(ii)

    1. Pyramiding of late fees. The prohibition on pyramiding of late 
fees in this subsection should be construed consistently with the 
``credit practices rule'' of the Federal Trade Commission, 16 CFR 444.4.

                         Paragraph 36(c)(1)(iii)

    1. Reasonable time. The payoff statement must be provided to the 
consumer, or person acting on behalf of the consumer, within a 
reasonable time after the request. For example, it would be reasonable 
under most circumstances to provide the statement within five business 
days of receipt of a consumer's request. This time frame might be 
longer, for example, when the servicer is experiencing an unusually high 
volume of refinancing requests.
    2. Person acting on behalf of the consumer. For purposes of Sec. 
1026.36(c)(1)(iii), a person acting on behalf of the consumer may 
include the consumer's representative, such as an attorney representing 
the individual, a non-profit consumer counseling or similar 
organization, or a creditor with which the consumer is refinancing and 
which requires the payoff statement to complete the refinancing. A 
servicer may take reasonable measures to verify the identity of any 
person acting on behalf of the consumer and to obtain the consumer's 
authorization to release information to any such person before the 
``reasonable time'' period begins to run.
    3. Payment requirements. The servicer may specify reasonable 
requirements for making payoff requests, such as requiring requests to 
be in writing and directed to a mailing address, email address or fax 
number specified by the servicer or orally to a telephone number 
specified by the servicer, or any other reasonable requirement or 
method. If the consumer does not follow these requirements, a longer 
time frame for responding to the request would be reasonable.
    4. Accuracy of payoff statements. Payoff statements must be accurate 
when issued.

                           Paragraph 36(c)(2)

    1. Payment requirements. The servicer may specify reasonable 
requirements for making payments in writing, such as requiring that 
payments be accompanied by the account number or payment coupon; setting 
a cut-off hour for payment to be received, or setting different hours 
for payment by mail and payments made in person; specifying that only 
checks or money orders should be sent by mail; specifying that payment 
is to be made in U.S. dollars; or specifying one particular address for 
receiving payments, such as a post office box. The servicer may be 
prohibited, however, from requiring payment solely by preauthorized 
electronic fund transfer. (See Section 913 of the Electronic Fund 
Transfer Act, 15 U.S.C. 1693k.)
    2. Payment requirements--limitations. Requirements for making 
payments must be reasonable; it should not be difficult for most 
consumers to make conforming payments. For example, it would be 
reasonable to require a cut-off time of 5 p.m. for receipt of a mailed 
check at the location specified by the servicer for receipt of such 
check.
    3. Implied guidelines for payments. In the absence of specified 
requirements for making payments, payments may be made at any location 
where the servicer conducts business; any time during the servicer's 
normal business hours; and by cash, money order, draft, or other similar 
instrument in properly negotiable form, or by electronic fund transfer 
if the servicer and consumer have so agreed.

              36(d) Prohibited Payments to Loan Originators

    1. Persons covered. Section 1026.36(d) prohibits any person 
(including the creditor) from paying compensation to a loan originator 
in connection with a covered credit transaction, if the amount of the 
payment is based on any of the transaction's terms or conditions. For 
example, a person that purchases a loan from the creditor may not 
compensate the loan originator in a manner that violates Sec. 
1026.36(d).
    2. Mortgage brokers. The payments made by a company acting as a 
mortgage broker to its employees who are loan originators are subject to 
the section's prohibitions. For example, a mortgage broker may not pay 
its employee more for a transaction with a 7 percent interest rate than 
for a transaction with a 6 percent interest rate.

       36(d)(1) Payments Based on Transaction Terms and Conditions

    1. Compensation. i. General. For purposes of Sec. 1026.36(d) and 
(e), the term ``compensation'' includes salaries, commissions, and any 
financial or similar incentive provided to a loan originator that is 
based on any of the terms or conditions of the loan originator's 
transactions. See comment 36(d)(1)-3 for examples of types of 
compensation that are not covered by Sec. 1026.36(d) and (e). For 
example, the term ``compensation'' includes:
    A. An annual or other periodic bonus; or
    B. Awards of merchandise, services, trips, or similar prizes.
    ii. Name of fee. Compensation includes amounts the loan originator 
retains and is not dependent on the label or name of any fee imposed in 
connection with the transaction. For example, if a loan originator 
imposes a ``processing fee'' in connection with the transaction and 
retains such fee, it is deemed compensation for purposes of Sec. 
1026.36(d) and (e), whether the originator expends the time to process 
the consumer's application or uses the fee for other expenses, such as 
overhead.

[[Page 907]]

    iii. Amounts for third-party charges. Compensation includes amounts 
the loan originator retains, but does not include amounts the originator 
receives as payment for bona fide and reasonable third-party charges, 
such as title insurance or appraisals. In some cases, amounts received 
for payment for third-party charges may exceed the actual charge 
because, for example, the originator cannot determine with accuracy what 
the actual charge will be before consummation. In such a case, the 
difference retained by the originator is not deemed compensation if the 
third-party charge imposed on the consumer was bona fide and reasonable, 
and also complies with state and other applicable law. On the other 
hand, if the originator marks up a third-party charge (a practice known 
as ``upcharging''), and the originator retains the difference between 
the actual charge and the marked-up charge, the amount retained is 
compensation for purposes of Sec. 1026.36(d) and (e). For example:
    A. Assume a loan originator charges the consumer a $400 application 
fee that includes $50 for a credit report and $350 for an appraisal. 
Assume that $50 is the amount the creditor pays for the credit report. 
At the time the loan originator imposes the application fee on the 
consumer, the loan originator is uncertain of the cost of the appraisal 
because the originator may choose from appraisers that charge between 
$300 to $350 for appraisals. Later, the cost for the appraisal is 
determined to be $300 for this consumer's transaction. In this case, the 
$50 difference between the $400 application fee imposed on the consumer 
and the actual $350 cost for the credit report and appraisal is not 
deemed compensation for purposes of Sec. 1026.36(d) and (e), even 
though the $50 is retained by the loan originator.
    B. Using the same example in comment 36(d)(1)-1.iii.A above, the $50 
difference would be compensation for purposes of Sec. 1026.36(d) and 
(e) if the appraisers from whom the originator chooses charge fees 
between $250 and $300.
    2. Examples of compensation that is based on transaction terms or 
conditions. Section 1026.36(d)(1) prohibits loan originator compensation 
that is based on the terms or conditions of the loan originator's 
transactions. For example, the rule prohibits compensation to a loan 
originator for a transaction based on that transaction's interest rate, 
annual percentage rate, loan-to-value ratio, or the existence of a 
prepayment penalty. The rule also prohibits compensation based on a 
factor that is a proxy for a transaction's terms or conditions. For 
example, a consumer's credit score or similar representation of credit 
risk, such as the consumer's debt-to-income ratio, is not one of the 
transaction's terms or conditions. However, if a loan originator's 
compensation varies in whole or in part with a factor that serves as a 
proxy for loan terms or conditions, then the originator's compensation 
is based on a transaction's terms or conditions. To illustrate, assume 
that consumer A and consumer B receive loans from the same loan 
originator and the same creditor. Consumer A has a credit score of 650, 
and consumer B has a credit score of 800. Consumer A's loan has a 7 
percent interest rate, and consumer B's loan has a 6 \1/2\ percent 
interest rate because of the consumers' different credit scores. If the 
creditor pays the loan originator $1,500 in compensation for consumer 
A's loan and $1,000 in compensation for consumer B's loan because the 
creditor varies compensation payments in whole or in part with a 
consumer's credit score, the originator's compensation would be based on 
the transactions' terms or conditions.
    3. Examples of compensation not based on transaction terms or 
conditions. The following are only illustrative examples of compensation 
methods that are permissible (unless otherwise prohibited by applicable 
law), and not an exhaustive list. Compensation is not based on the 
transaction's terms or conditions if it is based on, for example:
    i. The loan originator's overall loan volume (i.e., total dollar 
amount of credit extended or total number of loans originated), 
delivered to the creditor.
    ii. The long-term performance of the originator's loans.
    iii. An hourly rate of pay to compensate the originator for the 
actual number of hours worked.
    iv. Whether the consumer is an existing customer of the creditor or 
a new customer.
    v. A payment that is fixed in advance for every loan the originator 
arranges for the creditor (e.g., $600 for every loan arranged for the 
creditor, or $1,000 for the first 1,000 loans arranged and $500 for each 
additional loan arranged).
    vi. The percentage of applications submitted by the loan originator 
to the creditor that result in consummated transactions.
    vii. The quality of the loan originator's loan files (e.g., accuracy 
and completeness of the loan documentation) submitted to the creditor.
    viii. A legitimate business expense, such as fixed overhead costs.
    ix. Compensation that is based on the amount of credit extended, as 
permitted by Sec. 1026.36(d)(1)(ii). See comment 36(d)(1)-9 discussing 
compensation based on the amount of credit extended.
    4. Creditor's flexibility in setting loan terms. Section 
1026.36(d)(1) does not limit a creditor's ability to offer a higher 
interest rate in a transaction as a means for the consumer to finance 
the payment of the loan originator's compensation or other costs that 
the consumer would otherwise be required to pay directly (either in cash 
or out of the loan proceeds). Thus, a creditor may charge a higher

[[Page 908]]

interest rate to a consumer who will pay fewer of the costs of the 
transaction directly, or it may offer the consumer a lower rate if the 
consumer pays more of the costs directly. For example, if the consumer 
pays half of the transaction costs directly, a creditor may charge an 
interest rate of 6 percent but, if the consumer pays none of the 
transaction costs directly, the creditor may charge an interest rate of 
6.5 percent. Section 1026.36(d)(1) also does not limit a creditor from 
offering or providing different loan terms to the consumer based on the 
creditor's assessment of the credit and other transactional risks 
involved. A creditor could also offer different consumers varying 
interest rates that include a constant interest rate premium to recoup 
the loan originator's compensation through increased interest paid by 
the consumer (such as by adding a constant 0.25 percent to the interest 
rate on each loan).
    5. Effect of modification of loan terms. Under Sec. 1026.36(d)(1), 
a loan originator's compensation may not vary based on any of a credit 
transaction's terms or conditions. Thus, a creditor and originator may 
not agree to set the originator's compensation at a certain level and 
then subsequently lower it in selective cases (such as where the 
consumer is able to obtain a lower rate from another creditor). When the 
creditor offers to extend a loan with specified terms and conditions 
(such as the rate and points), the amount of the originator's 
compensation for that transaction is not subject to change (increase or 
decrease) based on whether different loan terms are negotiated. For 
example, if the creditor agrees to lower the rate that was initially 
offered, the new offer may not be accompanied by a reduction in the loan 
originator's compensation.
    6. Periodic changes in loan originator compensation and 
transactions' terms and conditions. This section does not limit a 
creditor or other person from periodically revising the compensation it 
agrees to pay a loan originator. However, the revised compensation 
arrangement must result in payments to the loan originator that do not 
vary based on the terms or conditions of a credit transaction. A 
creditor or other person might periodically review factors such as loan 
performance, transaction volume, as well as current market conditions 
for originator compensation, and prospectively revise the compensation 
it agrees to pay to a loan originator. For example, assume that during 
the first 6 months of the year, a creditor pays $3,000 to a particular 
loan originator for each loan delivered, regardless of the loan terms or 
conditions. After considering the volume of business produced by that 
originator, the creditor could decide that as of July 1, it will pay 
$3,250 for each loan delivered by that particular originator, regardless 
of the loan terms or conditions. No violation occurs even if the loans 
made by the creditor after July 1 generally carry a higher interest rate 
than loans made before that date, to reflect the higher compensation.
    7. Compensation received directly from the consumer. The prohibition 
in Sec. 1026.36(d)(1) does not apply to transactions in which any loan 
originator receives compensation directly from the consumer, in which 
case no other person may provide any compensation to a loan originator, 
directly or indirectly, in connection with that particular transaction 
pursuant to Sec. 1026.36(d)(2). Payments to a loan originator made out 
of loan proceeds are considered compensation received directly from the 
consumer, while payments derived from an increased interest rate are not 
considered compensation received directly from the consumer. However, 
points paid on the loan by the consumer to the creditor are not 
considered payments received directly from the consumer whether they are 
paid in cash or out of the loan proceeds. That is, if the consumer pays 
origination points to the creditor and the creditor compensates the loan 
originator, the loan originator may not also receive compensation 
directly from the consumer. Compensation includes amounts retained by 
the loan originator, but does not include amounts the loan originator 
receives as payment for bona fide and reasonable third-party charges, 
such as title insurance or appraisals. See comment 36(d)(1)-1.
    8. Record retention. See comment 25(a)-5 for guidance on complying 
with the record retention requirements of Sec. 1026.25(a) as they apply 
to Sec. 1026.36(d)(1).
    9. Amount of credit extended. A loan originator's compensation may 
be based on the amount of credit extended, subject to certain 
conditions. Section 1026.36(d)(1) does not prohibit an arrangement under 
which a loan originator is paid compensation based on a percentage of 
the amount of credit extended, provided the percentage is fixed and does 
not vary with the amount of credit extended. However, compensation that 
is based on a fixed percentage of the amount of credit extended may be 
subject to a minimum and/or maximum dollar amount, as long as the 
minimum and maximum dollar amounts do not vary with each credit 
transaction. For example:
    i. A creditor may offer a loan originator 1 percent of the amount of 
credit extended for all loans the originator arranges for the creditor, 
but not less than $1,000 or greater than $5,000 for each loan.
    ii. A creditor may not offer a loan originator 1 percent of the 
amount of credit extended for loans of $300,000 or more, 2 percent of 
the amount of credit extended for loans between $200,000 and $300,000, 
and 3 percent of the amount of credit extended for loans of $200,000 or 
less.

[[Page 909]]

            36(d)(2) Payments by Persons Other Than Consumer

    1. Compensation in connection with a particular transaction. Under 
Sec. 1026.36(d)(2), if any loan originator receives compensation 
directly from a consumer in a transaction, no other person may provide 
any compensation to a loan originator, directly or indirectly, in 
connection with that particular credit transaction. See comment 
36(d)(1)-7 discussing compensation received directly from the consumer. 
The restrictions imposed under Sec. 1026.36(d)(2) relate only to 
payments, such as commissions, that are specific to, and paid solely in 
connection with, the transaction in which the consumer has paid 
compensation directly to a loan originator. Thus, payments by a mortgage 
broker company to an employee in the form of a salary or hourly wage, 
which is not tied to a specific transaction, do not violate Sec. 
1026.36(d)(2) even if the consumer directly pays a loan originator a fee 
in connection with a specific credit transaction. However, if any loan 
originator receives compensation directly from the consumer in 
connection with a specific credit transaction, neither the mortgage 
broker company nor an employee of the mortgage broker company can 
receive compensation from the creditor in connection with that 
particular credit transaction.
    2. Compensation received directly from a consumer. Under Regulation 
X, which implements the Real Estate Settlement Procedures Act (RESPA), a 
yield spread premium paid by a creditor to the loan originator may be 
characterized on the RESPA disclosures as a ``credit'' that will be 
applied to reduce the consumer's settlement charges, including 
origination fees. A yield spread premium disclosed in this manner is not 
considered to be received by the loan originator directly from the 
consumer for purposes of Sec. 1026.36(d)(2).

                           36(d)(3) Affiliates

    1. For purposes of Sec. 1026.36(d), affiliates are treated as a 
single ``person.'' The term ``affiliate'' is defined in Sec. 
1026.32(b)(2). For example, assume a parent company has two mortgage 
lending subsidiaries. Under Sec. 1026.36(d)(1), subsidiary ``A'' could 
not pay a loan originator greater compensation for a loan with an 
interest rate of 8 percent than it would pay for a loan with an interest 
rate of 7 percent. If the loan originator may deliver loans to both 
subsidiaries, they must compensate the loan originator in the same 
manner. Accordingly, if the loan originator delivers the loan to 
subsidiary ``B'' and the interest rate is 8 percent, the originator must 
receive the same compensation that would have been paid by subsidiary A 
for a loan with a rate of either 7 or 8 percent.

                      36(e) Prohibition on Steering

    1. Compensation. See comment 36(d)(1)-1 for guidance on compensation 
that is subject to Sec. 1026.36(e).

                            36(e)(1) General

    1. Steering. For purposes of Sec. 1026.36(e), directing or 
``steering'' a consumer to consummate a particular credit transaction 
means advising, counseling, or otherwise influencing a consumer to 
accept that transaction. For such actions to constitute steering, the 
consumer must actually consummate the transaction in question. Thus, 
Sec. 1026.36(e)(1) does not address the actions of a loan originator if 
the consumer does not actually obtain a loan through that loan 
originator.
    2. Prohibited conduct. Under Sec. 1026.36(e)(1), a loan originator 
may not direct or steer a consumer to consummate a transaction based on 
the fact that the loan originator would increase the amount of 
compensation that the loan originator would receive for that transaction 
compared to other transactions, unless the consummated transaction is in 
the consumer's interest.
    i. In determining whether a consummated transaction is in the 
consumer's interest, that transaction must be compared to other possible 
loan offers available through the originator, if any, and for which the 
consumer was likely to qualify, at the time that transaction was offered 
to the consumer. Possible loan offers are available through the loan 
originator if they could be obtained from a creditor with which the loan 
originator regularly does business. Section 1026.36(e)(1) does not 
require a loan originator to establish a business relationship with any 
creditor with which the loan originator does not already do business. To 
be considered a possible loan offer available through the loan 
originator, an offer need not be extended by the creditor; it need only 
be an offer that the creditor likely would extend upon receiving an 
application from the applicant, based on the creditor's current credit 
standards and its current rate sheets or other similar means of 
communicating its current credit terms to the loan originator. An 
originator need not inform the consumer about a potential transaction if 
the originator makes a good faith determination that the consumer is not 
likely to qualify for it.
    ii. Section 1026.36(e)(1) does not require a loan originator to 
direct a consumer to the transaction that will result in a creditor 
paying the least amount of compensation to the originator. However, if 
the loan originator reviews possible loan offers available from a 
significant number of the creditors with which the originator regularly 
does business, and the originator directs the consumer to the 
transaction that will result in

[[Page 910]]

the least amount of creditor-paid compensation for the loan originator, 
the requirements of Sec. 1026.36(e)(1) are deemed to be satisfied. In 
the case where a loan originator directs the consumer to the transaction 
that will result in a greater amount of creditor-paid compensation for 
the loan originator, Sec. 1026.36(e)(1) is not violated if the terms 
and conditions on that transaction compared to the other possible loan 
offers available through the originator, and for which the consumer 
likely qualifies, are the same. A loan originator who is an employee of 
the creditor on a transaction may not obtain compensation that is based 
on the transaction's terms or conditions pursuant to Sec. 
1026.36(d)(1), and compliance with that provision by such a loan 
originator also satisfies the requirements of Sec. 1026.36(e)(1) for 
that transaction with the creditor. However, if a creditor's employee 
acts as a broker by forwarding a consumer's application to a creditor 
other than the loan originator's employer, such as when the employer 
does not offer any loan products for which the consumer would qualify, 
the loan originator is not an employee of the creditor in that 
transaction and is subject to Sec. 1026.36(e)(1) if the originator is 
compensated for arranging the loan with the other creditor.
    iii. See the commentary under Sec. 1026.36(e)(3) for additional 
guidance on what constitutes a ``significant number of creditors with 
which a loan originator regularly does business'' and guidance on the 
determination about transactions for which ``the consumer likely 
qualifies.''
    3. Examples. Assume a loan originator determines that a consumer 
likely qualifies for a loan from Creditor A that has a fixed interest 
rate of 7 percent, but the loan originator directs the consumer to a 
loan from Creditor B having a rate of 7.5 percent. If the loan 
originator receives more in compensation from Creditor B than the amount 
that would have been paid by Creditor A, the prohibition in Sec. 
1026.36(e) is violated unless the higher-rate loan is in the consumer's 
interest. For example, a higher-rate loan might be in the consumer's 
interest if the lower-rate loan has a prepayment penalty, or if the 
lower-rate loan requires the consumer to pay more in up-front charges 
that the consumer is unable or unwilling to pay or finance as part of 
the loan amount.

                    36(e)(2) Permissible Transactions

    1. Safe harbors. A loan originator that satisfies Sec. 
1026.36(e)(2) is deemed to comply with Sec. 1026.36(e)(1). A loan 
originator that does not satisfy Sec. 1026.36(e)(2) is not subject to 
any presumption regarding the originator's compliance or noncompliance 
with Sec. 1026.36(e)(1).
    2. Minimum number of loan options. To obtain the safe harbor, Sec. 
1026.36(e)(2) requires that the loan originator present loan options 
that meet the criteria in Sec. 1026.36(e)(3)(i) for each type of 
transaction in which the consumer expressed an interest. As required by 
Sec. 1026.36(e)(3)(ii), the loan originator must have a good faith 
belief that the options presented are loans for which the consumer 
likely qualifies. If the loan originator is not able to form such a good 
faith belief for loan options that meet the criteria in Sec. 
1026.36(e)(3)(i) for a given type of transaction, the loan originator 
may satisfy Sec. 1026.36(e)(2) by presenting all loans for which the 
consumer likely qualifies and that meet the other requirements in Sec. 
1026.36(e)(3) for that given type of transaction. A loan originator may 
present to the consumer any number of loan options, but presenting a 
consumer more than four loan options for each type of transaction in 
which the consumer expressed an interest and for which the consumer 
likely qualifies would not likely help the consumer make a meaningful 
choice.

                     36(e)(3) Loan Options Presented

    1. Significant number of creditors. A significant number of the 
creditors with which a loan originator regularly does business is three 
or more of those creditors. If the loan originator regularly does 
business with fewer than three creditors, the originator is deemed to 
comply by obtaining loan options from all the creditors with which it 
regularly does business. Under Sec. 1026.36(e)(3)(i), the loan 
originator must obtain loan options from a significant number of 
creditors with which the loan originator regularly does business, but 
the loan originator need not present loan options from all such 
creditors to the consumer. For example, if three loans available from 
one of the creditors with which the loan originator regularly does 
business satisfy the criteria in Sec. 1026.36(e)(3)(i), presenting 
those and no options from any other creditor satisfies that section.
    2. Creditors with which loan originator regularly does business. To 
qualify for the safe harbor in Sec. 1026.36(e)(2), the loan originator 
must obtain and review loan options from a significant number of the 
creditors with which the loan originator regularly does business. For 
this purpose, a loan originator regularly does business with a creditor 
if:
    i. There is a written agreement between the originator and the 
creditor governing the originator's submission of mortgage loan 
applications to the creditor;
    ii. The creditor has extended credit secured by a dwelling to one or 
more consumers during the current or previous calendar month based on an 
application submitted by the loan originator; or
    iii. The creditor has extended credit secured by a dwelling twenty-
five or more times during the previous twelve calendar months based on 
applications submitted by the loan originator. For this purpose, the

[[Page 911]]

previous twelve calendar months begin with the calendar month that 
precedes the month in which the loan originator accepted the consumer's 
application.
    3. Lowest interest rate. To qualify under the safe harbor in Sec. 
1026.36(e)(2), for each type of transaction in which the consumer has 
expressed an interest, the loan originator must present the consumer 
with loan options that meet the criteria in Sec. 1026.36(e)(3)(i). The 
criteria are: The loan with the lowest interest rate; the loan with the 
lowest total dollar amount for discount points and origination points or 
fees; and a loan with the lowest interest rate without negative 
amortization, a prepayment penalty, a balloon payment in the first seven 
years of the loan term, shared equity, or shared appreciation, or, in 
the case of a reverse mortgage, a loan without a prepayment penalty, 
shared equity, or shared appreciation. To identify the loan with the 
lowest interest rate, for any loan that has an initial rate that is 
fixed for at least five years, the loan originator shall use the initial 
rate that would be in effect at consummation. For a loan with an initial 
rate that is not fixed for at least five years:
    i. If the interest rate varies based on changes to an index, the 
originator shall use the fully-indexed rate that would be in effect at 
consummation without regard to any initial discount or premium.
    ii. For a step-rate loan, the originator shall use the highest rate 
that would apply during the first five years.
    4. Transactions for which the consumer likely qualifies. To qualify 
under the safe harbor in Sec. 1026.36(e)(2), the loan originator must 
have a good faith belief that the loan options presented to the consumer 
pursuant to Sec. 1026.36(e)(3) are transactions for which the consumer 
likely qualifies. The loan originator's belief that the consumer likely 
qualifies should be based on information reasonably available to the 
loan originator at the time the loan options are presented. In making 
this determination, the loan originator may rely on information provided 
by the consumer, even if it subsequently is determined to be inaccurate. 
For purposes of Sec. 1026.36(e)(3), a loan originator is not expected 
to know all aspects of each creditor's underwriting criteria. But 
pricing or other information that is routinely communicated by creditors 
to loan originators is considered to be reasonably available to the loan 
originator, for example, rate sheets showing creditors' current pricing 
and the required minimum credit score or other eligibility criteria.

             Section 1026.39--Mortgage Transfer Disclosures

                               39(a) Scope

                           Paragraph 39(a)(1)

    1. Covered persons. The disclosure requirements of this section 
apply to any ``covered person'' that becomes the legal owner of an 
existing mortgage loan, whether through a purchase, or other transfer or 
assignment, regardless of whether the person also meets the definition 
of a ``creditor'' in Regulation Z. The fact that a person purchases or 
acquires mortgage loans and provides the disclosures under this section 
does not by itself make that person a ``creditor'' as defined in the 
regulation.
    2. Acquisition of legal title. To become a ``covered person'' 
subject to this section, a person must become the owner of an existing 
mortgage loan by acquiring legal title to the debt obligation.
    i. Partial interest. A person may become a covered person by 
acquiring a partial interest in the mortgage loan. If the original 
creditor transfers a partial interest in the loan to one or more 
persons, all such transferees are covered persons under this section.
    ii. Joint acquisitions. All persons that jointly acquire legal title 
to the loan are covered persons under this section, and under Sec. 
1026.39(b)(5), a single disclosure must be provided on behalf of all 
such covered persons. Multiple persons are deemed to jointly acquire 
legal title to the loan if each acquires a partial interest in the loan 
pursuant to the same agreement or by otherwise acting in concert. See 
comments 39(b)(5)-1 and 39(d)(1)(ii)-1 regarding the disclosure 
requirements for multiple persons that jointly acquire a loan.
    iii. Affiliates. An acquiring party that is a separate legal entity 
from the transferor must provide the disclosures required by this 
section even if the parties are affiliated entities.
    3. Exclusions. i. Beneficial interest. Section 1026.39 does not 
apply to a party that acquires only a beneficial interest or a security 
interest in the loan, or to a party that assumes the credit risk without 
acquiring legal title to the loan. For example, an investor that 
acquires mortgage-backed securities, pass-through certificates, or 
participation interests and does not acquire legal title in the 
underlying mortgage loans is not covered by this section.
    ii. Loan servicers. Pursuant to TILA Section 131(f)(2), the servicer 
of a mortgage loan is not the owner of the obligation for purposes of 
this section if the servicer holds title to the loan as a result of the 
assignment of the obligation to the servicer solely for the 
administrative convenience of the servicer in servicing the obligation.
    4. Mergers, corporate acquisitions, or reorganizations. Disclosures 
are required under this

[[Page 912]]

section when, as a result of a merger, corporate acquisition, or 
reorganization, the ownership of a mortgage loan is transferred to a 
different legal entity.

                           Paragraph 39(a)(2)

    1. Mortgage transactions covered. Section 1026.39 applies to closed-
end or open-end consumer credit transactions secured by the principal 
dwelling of a consumer.

                        39(b) Disclosure Required

    1. Generally. A covered person must mail or deliver the disclosures 
required by this section on or before the 30th calendar day following 
the date of transfer, unless an exception in Sec. 1026.39(c) applies. 
For example, if a covered person acquires a mortgage loan on March 15, 
the disclosure must be mailed or delivered on or before April 14.

                      39(b)(1) Form of Disclosures

    1. Combining disclosures. The disclosures under this section can be 
combined with other materials or disclosures, including the transfer of 
servicing notices required by the Real Estate Settlement Procedure Act 
(12 U.S.C. 2601 et seq.) so long as the combined disclosure satisfies 
the timing and other requirements of this section.

                       39(b)(4) Multiple Transfers

    1. Single disclosure for multiple transfers. A mortgage loan might 
be acquired by a covered person and subsequently transferred to another 
entity that is also a covered person required to provide the disclosures 
under this section. In such cases, a single disclosure may be provided 
on behalf of both covered persons instead of providing two separate 
disclosures if the disclosure satisfies the timing and content 
requirements applicable to each covered person. For example, if a 
covered person acquires a loan on March 15 with the intent to assign the 
loan to another entity on April 30, the covered person could mail the 
disclosure on or before April 14 to provide the required information for 
both entities and indicate when the subsequent transfer is expected to 
occur.
    2. Estimating the date. When a covered person provides the 
disclosure required by this section that also describes a subsequent 
transfer, the date of the subsequent transfer may be estimated when the 
exact date is unknown at the time the disclosure is made. Information is 
unknown if it is not reasonably available to the covered person at the 
time the disclosure is made. The ``reasonably available'' standard 
requires that the covered person, acting in good faith, exercise due 
diligence in obtaining information. The covered person normally may rely 
on the representations of other parties in obtaining information. The 
covered person might make the disclosure using an estimated date even 
though the covered person knows that more precise information will be 
available in the future. For example, a covered person may provide a 
disclosure on March 31 stating that it acquired the loan on March 15 and 
that a transfer to another entity is expected to occur ``on or around'' 
April 30, even if more precise information will be available by April 
14.
    3. Duty to comply. Even though one covered person provides the 
disclosures for another covered person, each has a duty to ensure that 
disclosures related to its acquisition are accurate and provided in a 
timely manner unless an exception in Sec. 1026.39(c) applies.

                    39(b)(5) Multiple Covered Person

    1. Single disclosure required. If multiple covered persons jointly 
acquire the loan, a single disclosure must be provided on behalf of all 
covered persons instead of providing separate disclosures. See comment 
39(a)(1)-2.ii regarding a joint acquisition of legal title, and comment 
39(d)(1)(ii)-1 regarding the disclosure requirements for multiple 
persons that jointly acquire a loan. If multiple covered persons jointly 
acquire the loan and complete the acquisition on separate dates, a 
single disclosure must be provided on behalf of all persons on or before 
the 30th day following the earliest acquisition date. For examples, if 
covered persons A and B enter into an agreement with the original 
creditor to jointly acquire the loan, and complete the acquisition on 
March 15 and March 25, respectively, a single disclosure must be 
provided on behalf of both persons on or before April 14. If the two 
acquisition dates are more than 30 days apart, a single disclosure must 
be provided on behalf of both persons on or before the 30th day 
following the earlier acquisition date, even though one person has not 
completed its acquisition. See comment 39(b)(4)-2 regarding use of an 
estimated date of transfer.
    2. Single disclosure not required. If multiple covered persons each 
acquire a partial interest in the loan pursuant to separate and 
unrelated agreements and not jointly, each covered person has a duty to 
ensure that disclosures related to its acquisition are accurate and 
provided in a timely manner unless an exception in Sec. 1026.39(c) 
applies. The parties may, but are not required to, provide a single 
disclosure that satisfies the timing and content requirements applicable 
to each covered person.
    3. Timing requirements. A single disclosure provided on behalf of 
multiple covered persons must satisfy the timing and content 
requirements applicable to each covered person unless an exception in 
Sec. 1026.39(c) applies.
    4. Duty to comply. Even though one covered person provides the 
disclosures for another covered person, each has a duty to ensure that 
disclosures related to its acquisition are accurate and provided in a 
timely manner

[[Page 913]]

unless an exception in Sec. 1026.39(c) applies. See comments 39(c)(1)-
2, 39(c)(3)-1 and 39(c)(3)-2 regarding transfers of a partial interest 
in the mortgage loan.

                            39(c) Exceptions

                           Paragraph 39(c)(1)

    1. Transfer of all interest. A covered person is not required to 
provide the disclosures required by this section if it sells, assigns or 
otherwise transfers all of its interest in the mortgage loan on or 
before the 30th calendar day following the date that it acquired the 
loan. For example, if covered person A acquires the loan on March 15 and 
subsequently transfers all of its interest in the loan to covered person 
B on April 1, person A is not required to provide the disclosures 
required by this section. Person B, however, must provide the 
disclosures required by this section unless an exception in Sec. 
1026.39(c) applies.
    2. Transfer of partial interests. A covered person that subsequently 
transfers a partial interest in the loan is required to provide the 
disclosures required by this section if the covered person retains a 
partial interest in the loan on the 30th calendar day after it acquired 
the loan, unless an exception in Sec. 1026.39(c) applies. For example, 
if covered person A acquires the loan on March 15 and subsequently 
transfers fifty percent of its interest in the loan to covered person B 
on April 1, person A is required to provide the disclosures under this 
section if it retains a partial interest in the loan on April 14. Person 
B in this example must also provide the disclosures required under this 
section unless an exception in Sec. 1026.39(c) applies. Either person A 
or person B could provide the disclosure on behalf of both of them if 
the disclosure satisfies the timing and content requirements applicable 
to each of them. In this example, a single disclosure for both covered 
persons would have to be provided on or before April 14 to satisfy the 
timing requirements for person A's acquisition of the loan on March 15. 
See comment 39(b)(4)-1 regarding a single disclosure for multiple 
transfers.

                           Paragraph 39(c)(2)

    1. Repurchase agreements. The original creditor or owner of the 
mortgage loan might sell, assign or otherwise transfer legal title to 
the loan to secure temporary business financing under an agreement that 
obligates the original creditor or owner to repurchase the loan. The 
covered person that acquires the loan in connection with such a 
repurchase agreement is not required to provide disclosures under this 
section. However, if the transferor does not repurchase the mortgage 
loan, the acquiring party must provide the disclosures required by this 
section within 30 days after the date that the transaction is recognized 
as an acquisition on its books and records.
    2. Intermediary parties. The exception in Sec. 1026.39(c)(2) 
applies regardless of whether the repurchase arrangement involves an 
intermediary party. For example, legal title to the loan may transfer 
from the original creditor to party A through party B as an 
intermediary. If the original creditor is obligated to repurchase the 
loan, neither party A nor party B is required to provide the disclosures 
under this section. However, if the original creditor does not 
repurchase the loan, party A must provide the disclosures required by 
this section within 30 days after the date that the transaction is 
recognized as an acquisition on its books and records unless another 
exception in Sec. 1026.39(c) applies.

                           Paragraph 39(c)(3)

    1. Acquisition of partial interests. This exception applies if the 
covered person acquires only a partial interest in the loan, and there 
is no change in the agent or person authorized to receive notice of the 
right to rescind and resolve issues concerning the consumer's payments. 
If, as a result of the transfer of a partial interest in the loan, a 
different agent or party is authorized to receive notice of the right to 
rescind and resolve issues concerning the consumer's payments, the 
disclosures under this section must be provided.
    2. Examples. i. A covered person is not required to provide the 
disclosures under this section if it acquires a partial interest in the 
loan from the original creditor who remains authorized to receive the 
notice of the right to rescind and resolve issues concerning the 
consumer's payments after the transfer.
    ii. The original creditor transfers fifty percent of its interest in 
the loan to covered person A. Person A does not provide the disclosures 
under this section because the exception in Sec. 1026.39(c)(3) applies. 
The creditor then transfers the remaining fifty percent of its interest 
in the loan to covered person B and does not retain any interest in the 
loan. Person B must provide the disclosures under this section.
    iii. The original creditor transfers fifty percent of its interest 
in the loan to covered person A and also authorizes party X as its agent 
to receive notice of the right to rescind and resolve issues concerning 
the consumer's payments on the loan. Since there is a change in an agent 
or party authorized to receive notice of the right to rescind and 
resolve issues concerning the consumer's payments, person A is required 
to provide the disclosures under this section. Person A then transfers 
all of its interest in the loan to covered person B. Person B is not 
required to provide the disclosures under this section if

[[Page 914]]

the original creditor retains a partial interest in the loan and party X 
retains the same authority.
    iv. The original creditor transfers all of its interest in the loan 
to covered person A. Person A provides the disclosures under this 
section and notifies the consumer that party X is authorized to receive 
notice of the right to rescind and resolve issues concerning the 
consumer's payments on the loan. Person A then transfers fifty percent 
of its interest in the loan to covered person B. Person B is not 
required to provide the disclosures under this section if person A 
retains a partial interest in the loan and party X retains the same 
authority.

                  39(d) Content of Required Disclosures

    1. Identifying the loan. The disclosures required by this section 
must identify the loan that was acquired or transferred. The covered 
person has flexibility in determining what information to provide for 
this purpose and may use any information that would reasonably inform a 
consumer which loan was acquired or transferred. For example, the 
covered person may identify the loan by stating:
    i. The address of the mortgaged property along with the account 
number or loan number previously disclosed to the consumer, which may 
appear in a truncated format;
    ii. The account number alone, or other identifying number, if that 
number has been previously provided to the consumer, such as on a 
statement that the consumer receives monthly; or
    iii. The date on which the credit was extended and the original 
amount of the loan or credit line.

                           Paragraph 39(d)(1)

    1. Identification of covered person. Section 1026.39(d)(1) requires 
a covered person to provide its name, address, and telephone number. The 
party identified must be the covered person who owns the mortgage loan, 
regardless of whether another party services the loan or is the covered 
person's agent. In addition to providing its name, address and telephone 
number, the covered person may, at its option, provide an address for 
receiving electronic mail or an Internet Web site address, but is not 
required to do so.

                          Paragraph 39(d)(1)(i)

    1. Multiple transfers, single disclosure. If a mortgage loan is 
acquired by a covered person and subsequently transferred to another 
covered person, a single disclosure may be provided on behalf of both 
covered persons instead of providing two separate disclosures as long as 
the disclosure satisfies the timing and content requirements applicable 
to each covered person. See comment 39(b)(4)-1 regarding multiple 
transfers. A single disclosure for multiple transfers must state the 
name, address, and telephone number of each covered person unless Sec. 
1026.39(d)(1)(ii) applies.

                         Paragraph 39(d)(1)(ii)

    1. Multiple covered persons, single disclosure. If multiple covered 
persons jointly acquire the loan, a single disclosure must be provided 
on behalf of all covered persons instead of providing separate 
disclosures. The single disclosure must provide the name, address, and 
telephone number of each covered person unless Sec. 1026.39(d)(1)(ii) 
applies and one of the covered persons has been authorized in accordance 
with Sec. 1026.39(d)(3) of this section to receive the consumer's 
notice of the right to rescind and resolve issues concerning the 
consumer's payments on the loan. In such cases, the information required 
by Sec. 1026.39(d)(1) may be provided only for that covered person.
    2. Multiple covered persons, multiple disclosures. If multiple 
covered persons each acquire a partial interest in the loan in separate 
transactions and not jointly, each covered person must comply with the 
disclosure requirements of this section unless an exception in Sec. 
1026.39(c) applies. See comment 39(a)(1)-2.ii regarding a joint 
acquisition of legal title, and comment 39(b)(5)-2 regarding the 
disclosure requirements for multiple covered persons.

                           Paragraph 39(d)(3)

    1. Identifying agents. Under Sec. 1026.39(d)(3), the covered person 
must provide the name, address and telephone number for the agent or 
other party having authority to receive the notice of the right to 
rescind and resolve issues concerning the consumer's payments on the 
loan. If multiple persons are identified under this paragraph, the 
disclosure shall provide the name, address and telephone number for each 
and indicate the extent to which the authority of each person differs. 
Section 1026.39(d)(3) does not require that a covered person designate 
an agent or other party, but if the consumer cannot contact the covered 
person for these purposes, the disclosure must provide the name, address 
and telephone number for an agent or other party that can address these 
matters. If an agent or other party is authorized to receive the notice 
of the right to rescind and resolve issues concerning the consumer's 
payments on the loan, the disclosure can state that the consumer may 
contact that agent regarding any questions concerning the consumer's 
account without specifically mentioning rescission or payment issues. 
However, if multiple agents are listed on the disclosure, the disclosure 
shall state the extent to which the authority of each agent differs by 
indicating if only one of the agents is authorized to receive notice of 
the right to

[[Page 915]]

rescind, or only one of the agents is authorized to resolve issues 
concerning payments.
    2. Other contact information. The covered person may also provide an 
agent's electronic mail address or Internet Web site address, but is not 
required to do so.

                           Paragraph 39(d)(4)

    1. Where recorded. Section 1026.39(d)(4) requires the covered person 
to disclose where transfer of ownership of the debt to the covered 
person is recorded if it has been recorded in public records. 
Alternatively, the disclosure can state that the transfer of ownership 
of the debt has not been recorded in public records at the time the 
disclosure is provided, if that is the case, or the disclosure can state 
where the transfer may later be recorded. An exact address is not 
required and it would be sufficient, for example, to state that the 
transfer of ownership is recorded in the office of public land records 
or the recorder of deeds office for the county or local jurisdiction 
where the property is located.

                       39(e) Optional Disclosures

    1. Generally. Section 1026.39(e) provides that covered persons may, 
at their option, include additional information about the mortgage 
transaction that they consider relevant or helpful to consumers. For 
example, the covered person may choose to inform consumers that the 
location where they should send mortgage payments has not changed. See 
comment 39(b)(1)-1 regarding combined disclosures.

           Section 1026.40--Requirements for Home-Equity Plans

    1. Coverage. This section applies to all open-end credit plans 
secured by the consumer's dwelling, as defined in Sec. 1026.2(a)(19), 
and is not limited to plans secured by the consumer's principal 
dwelling. (See the commentary to Sec. 1026.3(a), which discusses 
whether transactions are consumer or business-purpose credit, for 
guidance on whether a home equity plan is subject to Regulation Z.)
    2. Changes to home equity plans entered into on or after November 7, 
1989. Section 1026.9(c) applies if, by written agreement under Sec. 
1026.40(f)(3)(iii), a creditor changes the terms of a home equity plan--
entered into on or after November 7, 1989--at or before its scheduled 
expiration, for example, by renewing a plan on different terms. A new 
plan results, however, if the plan is renewed (with or without changes 
to the terms) after the scheduled expiration. The new plan is subject to 
all open-end credit rules, including Sec. Sec. 1026.6, 1026.15, and 
1026.40.
    3. Transition rules and renewals of preexisting plans. The 
requirements of this section do not apply to home equity plans entered 
into before November 7, 1989. The requirements of this section also do 
not apply if the original consumer, on or after November 7, 1989, renews 
a plan entered into prior to that date (with or without changes to the 
terms). If, on or after November 7, 1989, a security interest in the 
consumer's dwelling is added to a line of credit entered into before 
that date, the substantive restrictions of this section apply for the 
remainder of the plan, but no new disclosures are required under this 
section.
    4. Disclosure of repayment phase--applicability of requirements. 
Some plans provide in the initial agreement for a period during which no 
further draws may be taken and repayment of the amount borrowed is made. 
All of the applicable disclosures in this section must be given for the 
repayment phase. Thus, for example, a creditor must provide payment 
information about the repayment phase as well as about the draw period, 
as required by Sec. 1026.40(d)(5). If the rate that will apply during 
the repayment phase is fixed at a known amount, the creditor must 
provide an annual percentage rate under Sec. 1026.40(d)(6) for that 
phase. If, however, a creditor uses an index to determine the rate that 
will apply at the time of conversion to the repayment phase--even if the 
rate will thereafter be fixed--the creditor must provide the information 
in Sec. 1026.40(d)(12), as applicable.
    5. Payment terms--applicability of closed-end provisions and 
substantive rules. All payment terms that are provided for in the 
initial agreement are subject to the requirements of subpart B and not 
subpart C of the regulation. Payment terms that are subsequently added 
to the agreement may be subject to subpart B or to subpart C, depending 
on the circumstances. The following examples apply these general rules 
to different situations:
    i. If the initial agreement provides for a repayment phase or for 
other payment terms such as options permitting conversion of part or all 
of the balance to a fixed rate during the draw period, these terms must 
be disclosed pursuant to Sec. Sec. 1026.6 and 1026.40, and not under 
subpart C. Furthermore, the creditor must continue to provide periodic 
statements under Sec. 1026.7 and comply with other provisions of 
subpart B (such as the substantive requirements of Sec. 1026.40(f)) 
throughout the plan, including the repayment phase.
    ii. If the consumer and the creditor enter into an agreement during 
the draw period to repay all or part of the principal balance on 
different terms (for example, with a fixed rate of interest) and the 
amount of available credit will be replenished as the principal balance 
is repaid, the creditor must continue to comply with subpart B. For 
example, the creditor must continue to provide periodic statements and 
comply with the substantive requirements of Sec. 1026.40(f) throughout 
the plan.
    iii. If the consumer and creditor enter into an agreement during the 
draw period to

[[Page 916]]

repay all or part of the principal balance and the amount of available 
credit will not be replenished as the principal balance is repaid, the 
creditor must give closed-end credit disclosures pursuant to subpart C 
for that new agreement. In such cases, subpart B, including the 
substantive rules, does not apply to the closed-end credit transaction, 
although it will continue to apply to any remaining open-end credit 
available under the plan.
    6. Spreader clause. When a creditor holds a mortgage or deed of 
trust on the consumer's dwelling and that mortgage or deed of trust 
contains a spreader clause (also known as a dragnet or cross-
collateralization clause), subsequent occurrences such as the opening of 
an open-end plan are subject to the rules applicable to home equity 
plans to the same degree as if a security interest were taken directly 
to secure the plan, unless the creditor effectively waives its security 
interest under the spreader clause with respect to the subsequent open-
end credit extensions.
    7. Appraisals and other valuations. For consumer credit transactions 
subject to Sec. 1026.40 and secured by the consumer's principal 
dwelling, creditors and other persons must comply with the requirements 
for appraisals and other valuations under Sec. 1026.42.

                        40(a) Form of Disclosures

                            40(a)(1) General

    1. Written disclosures. The disclosures required under this section 
must be clear and conspicuous and in writing, but need not be in a form 
the consumer can keep. (See the commentary to Sec. 1026.6(a)(3) for 
special rules when disclosures required under Sec. 1026.40(d) are given 
in a retainable form.)
    2. Disclosure of annual percentage rate--more conspicuous 
requirement. As provided in Sec. 1026.5(a)(2), when the term annual 
percentage rate is required to be disclosed with a number, it must be 
more conspicuous than other required disclosures.
    3. Segregation of disclosures. i. While most of the disclosures must 
be grouped together and segregated from all unrelated information, the 
creditor is permitted to include information that explains or expands on 
the required disclosures, including, for example:
    A. Any prepayment penalty.
    B. How a substitute index may be chosen.
    C. Actions the creditor may take short of terminating and 
accelerating an outstanding balance.
    D. Renewal terms.
    E. Rebate of fees.
    ii. An example of information that does not explain or expand on the 
required disclosures and thus cannot be included is the creditor's 
underwriting criteria, although the creditor could provide such 
information separately from the required disclosures.
    4. Method of providing disclosures. A creditor may provide a single 
disclosure form for all of its home equity plans, as long as the 
disclosure describes all aspects of the plans. For example, if the 
creditor offers several payment options, all such options must be 
disclosed. (See, however, the commentary to Sec. 1026.40(d)(5)(iii) and 
(d)(12) (x) and (xi) for disclosure requirements relating to these 
provisions.) If any aspects of a plan are linked together, the creditor 
must disclose clearly the relationship of the terms to each other. For 
example, if the consumer can only obtain a particular payment option in 
conjunction with a certain variable-rate feature, this fact must be 
disclosed. A creditor has the option of providing separate disclosure 
forms for multiple options or variations in features. For example, a 
creditor that offers different payment options for the draw period may 
prepare separate disclosure forms for the two payment options. A 
creditor using this alternative, however, must include a statement on 
each disclosure form that the consumer should ask about the creditor's 
other home equity programs. (This disclosure is required only for those 
programs available generally to the public. Thus, if the only other 
programs available are employee preferred-rate plans, for example, the 
creditor would not have to provide this statement.) A creditor that 
receives a request for information about other available programs must 
provide the additional disclosures as soon as reasonably possible.
    5. Form of electronic disclosures provided on or with electronic 
applications. Creditors must provide the disclosures required by this 
section (including the brochure) on or with a blank application that is 
made available to the consumer in electronic form, such as on a 
creditor's Internet Web site. Creditors have flexibility in satisfying 
this requirement. Methods creditors could use to satisfy the requirement 
include, but are not limited to, the following examples (whatever method 
is used, a creditor need not confirm that the consumer has read the 
disclosures):
    i. The disclosures could automatically appear on the screen when the 
application appears;
    ii. The disclosures could be located on the same Web page as the 
application (whether or not they appear on the initial screen), if the 
application contains a clear and conspicuous reference to the location 
of the disclosures and indicates that the disclosures contain rate, fee, 
and other cost information, as applicable;
    iii. Creditors could provide a link to the electronic disclosures on 
or with the application as long as consumers cannot bypass the 
disclosures before submitting the application. The link would take the 
consumer to the disclosures, but the consumer need not be required to 
scroll completely through the disclosures; or
    iv. The disclosures could be located on the same Web page as the 
application without

[[Page 917]]

necessarily appearing on the initial screen, immediately preceding the 
button that the consumer will click to submit the application.

               40(a)(2) Precedence of Certain Disclosures

    1. Precedence rule. The list of conditions provided at the 
creditor's option under Sec. 1026.40(d)(4)(iii) need not precede the 
other disclosures.

                           Paragraph 40(a)(3)

    1. Form of disclosures. Whether disclosures must be in electronic 
form depends upon the following:
    i. If a consumer accesses a home equity credit line application 
electronically (other than as described under ii. below), such as online 
at a home computer, the creditor must provide the disclosures in 
electronic form (such as with the application form on its Web site) in 
order to meet the requirement to provide disclosures in a timely manner 
on or with the application. If the creditor instead mailed paper 
disclosures to the consumer, this requirement would not be met.
    ii. In contrast, if a consumer is physically present in the 
creditor's office, and accesses a home equity credit line application 
electronically, such as via a terminal or kiosk (or if the consumer uses 
a terminal or kiosk located on the premises of an affiliate or third 
party that has arranged with the creditor to provide applications to 
consumers), the creditor may provide disclosures in either electronic or 
paper form, provided the creditor complies with the timing, delivery, 
and retainability requirements of the regulation.

                        40(b) Time of Disclosures

    1. Mail and telephone applications. If the creditor sends 
applications through the mail, the disclosures and a brochure must 
accompany the application. If an application is taken over the 
telephone, the disclosures and brochure may be delivered or mailed 
within three business days of taking the application. If an application 
is mailed to the consumer following a telephone request, however, the 
creditor also must send the disclosures and a brochure along with the 
application.
    2. General purpose applications. The disclosures and a brochure need 
not be provided when a general purpose application is given to a 
consumer unless (1) the application or materials accompanying it 
indicate that it can be used to apply for a home equity plan or (2) the 
application is provided in response to a consumer's specific inquiry 
about a home equity plan. On the other hand, if a general purpose 
application is provided in response to a consumer's specific inquiry 
only about credit other than a home equity plan, the disclosures and 
brochure need not be provided even if the application indicates it can 
be used for a home equity plan, unless it is accompanied by promotional 
information about home equity plans.
    3. Publicly-available applications. Some creditors make applications 
for home equity plans, such as take-ones, available without the need for 
a consumer to request them. These applications must be accompanied by 
the disclosures and a brochure, such as by attaching the disclosures and 
brochure to the application form.
    4. Response cards. A creditor may solicit consumers for its home 
equity plan by mailing a response card which the consumer returns to the 
creditor to indicate interest in the plan. If the only action taken by 
the creditor upon receipt of the response card is to send the consumer 
an application form or to telephone the consumer to discuss the plan, 
the creditor need not send the disclosures and brochure with the 
response card.
    5. Denial or withdrawal of application. In situations where Sec. 
1026.40(b) permits the creditor a three-day delay in providing 
disclosures and the brochure, if the creditor determines within that 
period that an application will not be approved, the creditor need not 
provide the consumer with the disclosures or brochure. Similarly, if the 
consumer withdraws the application within this three-day period, the 
creditor need not provide the disclosures or brochure.
    6. Intermediary agent or broker. In determining whether or not an 
application involves an intermediary agent or broker as discussed in 
Sec. 1026.40(b), creditors should consult the provisions in comment 
19(b)-3.

                      40(c) Duties of Third Parties

    1. Disclosure requirements. Although third parties who give 
applications to consumers for home equity plans must provide the 
brochure required under Sec. 1026.40(e) in all cases, such persons need 
provide the disclosures required under Sec. 1026.40(d) only in certain 
instances. A third party has no duty to obtain disclosures about a 
creditor's home equity plan or to create a set of disclosures based on 
what it knows about a creditor's plan. If, however, a creditor provides 
the third party with disclosures along with its application form, the 
third party must give the disclosures to the consumer with the 
application form. The duties under this section are those of the third 
party; the creditor is not responsible for ensuring that a third party 
complies with those obligations. If an intermediary agent or broker 
takes an application over the telephone or receives an application 
contained in a magazine or other publication, Sec. 1026.40(c) permits 
that person to mail the disclosures and brochure within three business 
days of receipt of the application. (See the commentary to Sec. 
1026.40(h) about imposition of nonrefundable fees.)

[[Page 918]]

                      40(d) Content of Disclosures

    1. Disclosures given as applicable. The disclosures required under 
this section need be made only as applicable. Thus, for example, if 
negative amortization cannot occur in a home equity plan, a reference to 
it need not be made.
    2. Duty to respond to requests for information. If the consumer, 
prior to the opening of a plan, requests information as suggested in the 
disclosures (such as the current index value or margin), the creditor 
must provide this information as soon as reasonably possible after the 
request.

                    40(d)(1) Retention of Information

    1. When disclosure not required. The creditor need not disclose that 
the consumer should make or otherwise retain a copy of the disclosures 
if they are retainable--for example, if the disclosures are not part of 
an application that must be returned to the creditor to apply for the 
plan.

                 40(d)(2) Conditions for Disclosed Terms

                          Paragraph 40(d)(2)(i)

    1. Guaranteed terms. The requirement that the creditor disclose the 
time by which an application must be submitted to obtain the disclosed 
terms does not require the creditor to guarantee any terms. If a 
creditor chooses not to guarantee any terms, it must disclose that all 
of the terms are subject to change prior to opening the plan. The 
creditor also is permitted to guarantee some terms and not others, but 
must indicate which terms are subject to change.
    2. Date for obtaining disclosed terms. The creditor may disclose 
either a specific date or a time period for obtaining the disclosed 
terms. If the creditor discloses a time period, the consumer must be 
able to determine from the disclosure the specific date by which an 
application must be submitted to obtain any guaranteed terms. For 
example, the disclosure might read, ``To obtain the following terms, you 
must submit your application within 60 days after the date appearing on 
this disclosure,'' provided the disclosure form also shows the date.

                         Paragraph 40(d)(2)(ii)

    1. Relation to other provisions. Creditors should consult the rules 
in Sec. 1026.40(g) regarding refund of fees.

                  40(d)(4) Possible Actions by Creditor

                          Paragraph 40(d)(4)(i)

    1. Fees imposed upon termination. This disclosure applies only to 
fees (such as penalty or prepayment fees) that the creditor imposes if 
it terminates the plan prior to normal expiration. The disclosure does 
not apply to fees that are imposed either when the plan expires in 
accordance with the agreement or if the consumer terminates the plan 
prior to its scheduled maturity. In addition, the disclosure does not 
apply to fees associated with collection of the debt, such as attorneys 
fees and court costs, or to increases in the annual percentage rate 
linked to the consumer's failure to make payments. The actual amount of 
the fee need not be disclosed.
    2. Changes specified in the initial agreement. If changes may occur 
pursuant to Sec. 1026.40(f)(3)(i), a creditor must state that certain 
changes will be implemented as specified in the initial agreement.

                         Paragraph 40(d)(4)(iii)

    1. Disclosure of conditions. In making this disclosure, the creditor 
may provide a highlighted copy of the document that contains such 
information, such as the contract or security agreement. The relevant 
items must be distinguished from the other information contained in the 
document. For example, the creditor may provide a cover sheet that 
specifically points out which contract provisions contain the 
information, or may mark the relevant items on the document itself. As 
an alternative to disclosing the conditions in this manner, the creditor 
may simply describe the conditions using the language in Sec. Sec. 
1026.40(f)(2)(i)-(iii), 1026.40(f)(3)(i) (regarding freezing the line 
when the maximum annual percentage rate is reached), and 
1026.40(f)(3)(vi) or language that is substantially similar. The 
condition contained in Sec. 1026.40(f)(2)(iv) need not be stated. In 
describing specified changes that may be implemented during the plan, 
the creditor may provide a disclosure such as ``Our agreement permits us 
to make certain changes to the terms of the line at specified times or 
upon the occurrence of specified events.''
    2. Form of disclosure. The list of conditions under Sec. 
1026.40(d)(4)(iii) may appear with the segregated disclosures or apart 
from them. If the creditor elects to provide the list of conditions with 
the segregated disclosures, the list need not comply with the precedence 
rule in Sec. 1026.40(a)(2).

                         40(d)(5) Payment Terms

                          Paragraph 40(d)(5)(i)

    1. Length of the plan. The combined length of the draw period and 
any repayment period need not be stated. If the length of the repayment 
phase cannot be determined because, for example, it depends on the 
balance outstanding at the beginning of the repayment period, the 
creditor must state that the length is determined by the size of the 
balance. If the length of the plan is indefinite (for example, because 
there is no time limit on the period during which the consumer can take 
advances), the creditor must state that fact.

[[Page 919]]

    2. Renewal provisions. If, under the credit agreement, a creditor 
retains the right to review a line at the end of the specified draw 
period and determine whether to renew or extend the draw period of the 
plan, the possibility of renewal or extension--regardless of its 
likelihood--should be ignored for purposes of the disclosures. For 
example, if an agreement provides that the draw period is five years and 
that the creditor may renew the draw period for an additional five 
years, the possibility of renewal should be ignored and the draw period 
should be considered five years. (See the commentary accompanying Sec. 
1026.9(c)(1) dealing with change in terms requirements.)

                         Paragraph 40(d)(5)(ii)

    1. Determination of the minimum periodic payment. This disclosure 
must reflect how the minimum periodic payment is determined, but need 
only describe the principal and interest components of the payment. 
Other charges that may be part of the payment (as well as the balance 
computation method) may, but need not, be described under this 
provision.
    2. Fixed rate and term payment options during draw period. If the 
home equity plan permits the consumer to repay all or part of the 
balance during the draw period at a fixed rate (rather than a variable 
rate) and over a specified time period, this feature must be disclosed. 
To illustrate, a variable-rate plan may permit a consumer to elect 
during a ten-year draw period to repay all or a portion of the balance 
over a three-year period at a fixed rate. The creditor must disclose the 
rules relating to this feature including the period during which the 
option can be selected, the length of time over which repayment can 
occur, any fees imposed for such a feature, and the specific rate or a 
description of the index and margin that will apply upon exercise of 
this choice. For example, the index and margin disclosure might state: 
``If you choose to convert any portion of your balance to a fixed rate, 
the rate will be the highest prime rate published in the `Wall Street 
Journal' that is in effect at the date of conversion plus a margin.'' If 
the fixed rate is to be determined according to an index, it must be one 
that is outside the creditor's control and is publicly available in 
accordance with Sec. 1026.40(f)(1). The effect of exercising the option 
should not be reflected elsewhere in the disclosures, such as in the 
historical example required in Sec. 1026.40(d)(12)(xi).
    3. Balloon payments. In programs where the occurrence of a balloon 
payment is possible, the creditor must disclose the possibility of a 
balloon payment even if such a payment is uncertain or unlikely. In such 
cases, the disclosure might read, ``Your minimum payments may not be 
sufficient to fully repay the principal that is outstanding on your 
line. If they are not, you will be required to pay the entire 
outstanding balance in a single payment.'' In programs where a balloon 
payment will occur, such as programs with interest-only payments during 
the draw period and no repayment period, the disclosures must state that 
fact. For example, the disclosure might read, ``Your minimum payments 
will not repay the principal that is outstanding on your line. You will 
be required to pay the entire outstanding balance in a single payment.'' 
In making this disclosure, the creditor is not required to use the term 
``balloon payment.'' The creditor also is not required to disclose the 
amount of the balloon payment. (See, however, the requirement under 
Sec. 1026.40(d)(5)(iii).) The balloon payment disclosure does not apply 
in cases where repayment of the entire outstanding balance would occur 
only as a result of termination and acceleration. The creditor also need 
not make a disclosure about balloon payments if the final payment could 
not be more than twice the amount of other minimum payments under the 
plan.

                         Paragraph 40(d)(5)(iii)

    1. Minimum periodic payment example. In disclosing the payment 
example, the creditor may assume that the credit limit as well as the 
outstanding balance is $10,000 if such an assumption is relevant to 
calculating payments. (If the creditor only offers lines of credit for 
less than $10,000, the creditor may assume an outstanding balance of 
$5,000 instead of $10,000 in making this disclosure.) The example should 
reflect the payment comprised only of principal and interest. Creditors 
may provide an additional example reflecting other charges that may be 
included in the payment, such as credit insurance premiums. Creditors 
may assume that all months have an equal number of days, that payments 
are collected in whole cents, and that payments will fall on a business 
day even though they may be due on a non-business day. For variable-rate 
plans, the example must be based on the last rate in the historical 
example required in Sec. 1026.40(d)(12)(xi), or a more recent rate. In 
cases where the last rate shown in the historical example is different 
from the index value and margin (for example, due to a rate cap), 
creditors should calculate the rate by using the index value and margin. 
A discounted rate may not be considered a more recent rate in 
calculating this payment example for either variable- or fixed-rate 
plans.
    2. Representative examples. i. In plans with multiple payment 
options within the draw period or within any repayment period, the 
creditor may provide representative examples as an alternative to 
providing examples for each payment option. The creditor may

[[Page 920]]

elect to provide representative payment examples based on three 
categories of payment options. The first category consists of plans that 
permit minimum payment of only accrued finance charges (interest only 
plans). The second category includes plans in which a fixed percentage 
or a fixed fraction of the outstanding balance or credit limit (for 
example, 2% of the balance or 1/180th of the balance) is used to 
determine the minimum payment. The third category includes all other 
types of minimum payment options, such as a specified dollar amount plus 
any accrued finance charges. Creditors may classify their minimum 
payment arrangements within one of these three categories even if other 
features exist, such as varying lengths of a draw or repayment period, 
required payment of past due amounts, late charges, and minimum dollar 
amounts. The creditor may use a single example within each category to 
represent the payment options in that category. For example, if a 
creditor permits minimum payments of 1%, 2%, 3% or 4% of the outstanding 
balance, it may pick one of these four options and provide the example 
required under Sec. 1026.40(d)(5)(iii) for that option alone.
    ii. The example used to represent a category must be an option 
commonly chosen by consumers, or a typical or representative example. 
(See the commentary to Sec. 1026.40(d)(12)(x) and (xi) for a discussion 
of the use of representative examples for making those disclosures. 
Creditors using a representative example within each category must use 
the same example for purposes of the disclosures under Sec. 
1026.40(d)(5)(iii) and (d)(12)(x) and (xi).) Creditors may use 
representative examples under Sec. 1026.40(d)(5) only with respect to 
the payment example required under paragraph (d)(5)(iii). Creditors must 
provide a full narrative description of all payment options under Sec. 
1026.40(d)(5)(i) and (ii).
    3. Examples for draw and repayment periods. Separate examples must 
be given for the draw and repayment periods unless the payments are 
determined the same way during both periods. In setting forth payment 
examples for any repayment period under this section (and the historical 
example under Sec. 1026.40(d)(12)(xi)), creditors should assume a 
$10,000 advance is taken at the beginning of the draw period and is 
reduced according to the terms of the plan. Creditors should not assume 
an additional advance is taken at any time, including at the beginning 
of any repayment period.
    4. Reverse mortgages. Reverse mortgages, also known as reverse 
annuity or home equity conversion mortgages, in addition to permitting 
the consumer to obtain advances, may involve the disbursement of monthly 
advances to the consumer for a fixed period or until the occurrence of 
an event such as the consumer's death. Repayment of the reverse mortgage 
(generally a single payment of principal and accrued interest) may be 
required to be made at the end of the disbursements or, for example, 
upon the death of the consumer. In disclosing these plans, creditors 
must apply the following rules, as applicable:
    i. If the reverse mortgage has a specified period for advances and 
disbursements but repayment is due only upon occurrence of a future 
event such as the death of the consumer, the creditor must assume that 
disbursements will be made until they are scheduled to end. The creditor 
must assume repayment will occur when disbursements end (or within a 
period following the final disbursement which is not longer than the 
regular interval between disbursements). This assumption should be used 
even though repayment may occur before or after the disbursements are 
scheduled to end. In such cases, the creditor may include a statement 
such as ``The disclosures assume that you will repay the line at the 
time the draw period and our payments to you end. As provided in your 
agreement, your repayment may be required at a different time.'' The 
single payment should be considered the ``minimum periodic payment'' and 
consequently would not be treated as a balloon payment. The example of 
the minimum payment under Sec. 1026.40(d)(5)(iii) should assume a 
single $10,000 draw.
    ii. If the reverse mortgage has neither a specified period for 
advances or disbursements nor a specified repayment date and these terms 
will be determined solely by reference to future events, including the 
consumer's death, the creditor may assume that the draws and 
disbursements will end upon the consumer's death (estimated by using 
actuarial tables, for example) and that repayment will be required at 
the same time (or within a period following the date of the final 
disbursement which is not longer than the regular interval for 
disbursements). Alternatively, the creditor may base the disclosures 
upon another future event it estimates will be most likely to occur 
first. (If terms will be determined by reference to future events which 
do not include the consumer's death, the creditor must base the 
disclosures upon the occurrence of the event estimated to be most likely 
to occur first.)
    iii. In making the disclosures, the creditor must assume that all 
draws and disbursements and accrued interest will be paid by the 
consumer. For example, if the note has a non-recourse provision 
providing that the consumer is not obligated for an amount greater than 
the value of the house, the creditor must nonetheless assume that the 
full amount to be drawn or disbursed will be repaid. In this case, 
however, the creditor may include a statement such as ``The disclosures 
assume full repayment of the amount advanced plus accrued interest, 
although the

[[Page 921]]

amount you may be required to pay is limited by your agreement.''
    iv. Some reverse mortgages provide that some or all of the 
appreciation in the value of the property will be shared between the 
consumer and the creditor. The creditor must disclose the appreciation 
feature, including describing how the creditor's share will be 
determined, any limitations, and when the feature may be exercised.

                     40(d)(6) Annual Percentage Rate

    1. Preferred-rate plans. If a creditor offers a preferential fixed-
rate plan in which the rate will increase a specified amount upon the 
occurrence of a specified event, the creditor must disclose the specific 
amount the rate will increase.

                    40(d)(7) Fees Imposed by Creditor

    1. Applicability. The fees referred to in Sec. 1026.40(d)(7) 
include items such as application fees, points, annual fees, transaction 
fees, fees to obtain checks to access the plan, and fees imposed for 
converting to a repayment phase that is provided for in the original 
agreement. This disclosure includes any fees that are imposed by the 
creditor to use or maintain the plan, whether the fees are kept by the 
creditor or a third party. For example, if a creditor requires an annual 
credit report on the consumer and requires the consumer to pay this fee 
to the creditor or directly to the third party, the fee must be 
specifically stated. Third party fees to open the plan that are 
initially paid by the consumer to the creditor may be included in this 
disclosure or in the disclosure under Sec. 1026.40(d)(8).
    2. Manner of describing fees. Charges may be stated as an estimated 
dollar amount for each fee, or as a percentage of a typical or 
representative amount of credit. The creditor may provide a stepped fee 
schedule in which a fee will increase a specified amount at a specified 
date. (See the discussion contained in the commentary to Sec. 
1026.40(f)(3)(i).)
    3. Fees not required to be disclosed. Fees that are not imposed to 
open, use, or maintain a plan, such as fees for researching an account, 
photocopying, paying late, stopping payment, having a check returned, 
exceeding the credit limit, or closing out an account do not have to be 
disclosed under this section. Credit report and appraisal fees imposed 
to investigate whether a condition permitting a freeze continues to 
exist--as discussed in the commentary to Sec. 1026.40(f)(3)(vi)--are 
not required to be disclosed under this section or Sec. 1026.40(d)(8).
    4. Rebates of closing costs. If closing costs are imposed they must 
be disclosed, regardless of whether such costs may be rebated later (for 
example, rebated to the extent of any interest paid during the first 
year of the plan).
    5. Terms used in disclosure. Creditors need not use the terms 
finance charge or other charge in describing the fees imposed by the 
creditor under this section or those imposed by third parties under 
Sec. 1026.40(d)(8).

          40(d)(8) Fees Imposed by Third Parties to Open a Plan

    1. Applicability. Section 1026.40(d)(8) applies only to fees imposed 
by third parties to open the plan. Thus, for example, this section does 
not require disclosure of a fee imposed by a government agency at the 
end of a plan to release a security interest. Fees to be disclosed 
include appraisal, credit report, government agency, and attorneys fees. 
In cases where property insurance is required by the creditor, the 
creditor either may disclose the amount of the premium or may state that 
property insurance is required. For example, the disclosure might state, 
``You must carry insurance on the property that secures this plan.''
    2. Itemization of third-party fees. In all cases creditors must 
state the total of third-party fees as a single dollar amount or a range 
except that the total need not include costs for property insurance if 
the creditor discloses that such insurance is required. A creditor has 
two options with regard to providing the more detailed information about 
third party fees. Creditors may provide a statement that the consumer 
may request more specific cost information about third party fees from 
the creditor. As an alternative to including this statement, creditors 
may provide an itemization of such fees (by type and amount) with the 
early disclosures. Any itemization provided upon the consumer's request 
need not include a disclosure about property insurance.
    3. Manner of describing fees. A good faith estimate of the amount of 
fees must be provided. Creditors may provide, based on a typical or 
representative amount of credit, a range for such fees or state the 
dollar amount of such fees. Fees may be expressed on a unit cost basis, 
for example, $5 per $1,000 of credit.
    4. Rebates of third party fees. Even if fees imposed by third 
parties may be rebated, they must be disclosed. (See the commentary to 
Sec. 1026.40(d)(7).)

                     40(d)(9) Negative Amortization

    1. Disclosure required. In transactions where the minimum payment 
will not or may not be sufficient to cover the interest that accrues on 
the outstanding balance, the creditor must disclose that negative 
amortization will or may occur. This disclosure is required whether or 
not the unpaid interest is added to the outstanding balance upon which 
interest is computed. A disclosure is not required merely because a loan 
calls for non-

[[Page 922]]

amortizing or partially amortizing payments.

                   40(d)(10) Transaction Requirements

    1. Applicability. A limitation on automated teller machine usage 
need not be disclosed under this paragraph unless that is the only means 
by which the consumer can obtain funds.

              40(d)(12) Disclosures for Variable-Rate Plans

    1. Variable-rate provisions. Sample forms in Appendix G-14 provide 
illustrative guidance on the variable-rate rules.

                         Paragraph 40(d)(12)(iv)

    1. Determination of annual percentage rate. If the creditor adjusts 
its index through the addition of a margin, the disclosure might read, 
``Your annual percentage rate is based on the index plus a margin.'' The 
creditor is not required to disclose a specific value for the margin.

                        Paragraph 40(d)(12)(viii)

    1. Preferred-rate provisions. This paragraph requires disclosure of 
preferred-rate provisions, where the rate will increase upon the 
occurrence of some event, such as the borrower-employee leaving the 
creditor's employ or the consumer closing an existing deposit account 
with the creditor.
    2. Provisions on conversion to fixed rates. The commentary to Sec. 
1026.40(d)(5)(ii) discusses the disclosure requirements for options 
permitting the consumer to convert from a variable rate to a fixed rate.

                         Paragraph 40(d)(12)(ix)

    1. Periodic limitations on increases in rates. The creditor must 
disclose any annual limitations on increases in the annual percentage 
rate. If the creditor bases its rate limitation on 12 monthly billing 
cycles, such a limitation should be treated as an annual cap. Rate 
limitations imposed on less than an annual basis must be stated in terms 
of a specific amount of time. For example, if the creditor imposes rate 
limitations on only a semiannual basis, this must be expressed as a rate 
limitation for a six-month time period. If the creditor does not impose 
periodic limitations (annual or shorter) on rate increases, the fact 
that there are no annual rate limitations must be stated.
    2. Maximum limitations on increases in rates. The maximum annual 
percentage rate that may be imposed under each payment option over the 
term of the plan (including the draw period and any repayment period 
provided for in the initial agreement) must be provided. The creditor 
may disclose this rate as a specific number (for example, 18%) or as a 
specific amount above the initial rate. For example, this disclosure 
might read, ``The maximum annual percentage rate that can apply to your 
line will be 5 percentage points above your initial rate.'' If the 
creditor states the maximum rate as a specific amount above the initial 
rate, the creditor must include a statement that the consumer should 
inquire about the rate limitations that are currently available. If an 
initial discount is not taken into account in applying maximum rate 
limitations, that fact must be disclosed. If separate overall 
limitations apply to rate increases resulting from events such as the 
exercise of a fixed-rate conversion option or leaving the creditor's 
employ, those limitations also must be stated. Limitations do not 
include legal limits in the nature of usury or rate ceilings under state 
or Federal statutes or regulations.
    3. Form of disclosures. The creditor need not disclose each periodic 
or maximum rate limitation that is currently available. Instead, the 
creditor may disclose the range of the lowest and highest periodic and 
maximum rate limitations that may be applicable to the creditor's home 
equity plans. Creditors using this alternative must include a statement 
that the consumer should inquire about the rate limitations that are 
currently available.

                         Paragraph 40(d)(12)(x)

    1. Maximum rate payment example. In calculating the payment 
creditors should assume the maximum rate is in effect. Any discounted or 
premium initial rates or periodic rate limitations should be ignored for 
purposes of this disclosure. If a range is used to disclose the maximum 
cap under Sec. 1026.40(d)(12)(ix), the highest rate in the range must 
be used for the disclosure under this paragraph. As an alternative to 
making disclosures based on each payment option, the creditor may choose 
a representative example within the three categories of payment options 
upon which to base this disclosure. (See the commentary to Sec. 
1026.40(d)(5).) However, separate examples must be provided for the draw 
period and for any repayment period unless the payment is determined the 
same way in both periods. Creditors should calculate the example for the 
repayment period based on an assumed $10,000 balance. (See the 
commentary to Sec. 1026.40(d)(5) for a discussion of the circumstances 
in which a creditor may use a lower outstanding balance.)
    2. Time the maximum rate could be reached. In stating the date or 
time when the maximum rate could be reached, creditors should assume the 
rate increases as rapidly as possible under the plan. In calculating the 
date or time, creditors should factor in any discounted or premium 
initial rates and periodic rate limitations. This disclosure must be 
provided for the draw phase and any repayment phase. Creditors should 
assume the index and margin shown in the last year of

[[Page 923]]

the historical example (or a more recent rate) is in effect at the 
beginning of each phase.

                         Paragraph 40(d)(12)(xi)

    1. Index movement. Index values and annual percentage rates must be 
shown for the entire 15 years of the historical example and must be 
based on the most recent 15 years. The example must be updated annually 
to reflect the most recent 15 years of index values as soon as 
reasonably possible after the new index value becomes available. If the 
values for an index have not been available for 15 years, a creditor 
need only go back as far as the values have been available and may start 
the historical example at the year for which values are first available.
    2. Selection of index values. The historical example must reflect 
the method of choosing index values for the plan. For example, if an 
average of index values is used in the plan, averages must be used in 
the example, but if an index value as of a particular date is used, a 
single index value must be shown. The creditor is required to assume one 
date (or one period, if an average is used) within a year on which to 
base the history of index values. The creditor may choose to use index 
values as of any date or period as long as the index value as of this 
date or period is used for each year in the example. Only one index 
value per year need be shown, even if the plan provides for adjustments 
to the annual percentage rate or payment more than once in a year. In 
such cases, the creditor can assume that the index rate remained 
constant for the full year for the purpose of calculating the annual 
percentage rate and payment.
    3. Selection of margin. A value for the margin must be assumed in 
order to prepare the example. A creditor may select a representative 
margin that it has used with the index during the six months preceding 
preparation of the disclosures and state that the margin is one that it 
has used recently. The margin selected may be used until the creditor 
annually updates the disclosure form to reflect the most recent 15 years 
of index values.
    4. Amount of discount or premium. In reflecting any discounted or 
premium initial rate, the creditor may select a discount or premium that 
it has used during the six months preceding preparation of the 
disclosures, and should disclose that the discount or premium is one 
that the creditor has used recently. The discount or premium should be 
reflected in the example for as long as it is in effect. The creditor 
may assume that a discount or premium that would have been in effect for 
any part of a year was in effect for the full year for purposes of 
reflecting it in the historical example.
    5. Rate limitations. Limitations on both periodic and maximum rates 
must be reflected in the historical example. If ranges of rate 
limitations are provided under Sec. 1026.40(d)(12)(ix), the highest 
rates provided in those ranges must be used in the example. Rate 
limitations that may apply more often than annually should be treated as 
if they were annual limitations. For example, if a creditor imposes a 1% 
cap every six months, this should be reflected in the example as if it 
were a 2% annual cap.
    6. Assumed advances. The creditor should assume that the $10,000 
balance is an advance taken at the beginning of the first billing cycle 
and is reduced according to the terms of the plan, and that the consumer 
takes no subsequent draws. As discussed in the commentary to Sec. 
1026.40(d)(5), creditors should not assume an additional advance is 
taken at the beginning of any repayment period. If applicable, the 
creditor may assume the $10,000 is both the advance and the credit 
limit. (See the commentary to Sec. 1026.40(d)(5) for a discussion of 
the circumstances in which a creditor may use a lower outstanding 
balance.)
    7. Representative payment options. The creditor need not provide an 
historical example for all of its various payment options, but may 
select a representative payment option within each of the three 
categories of payments upon which to base its disclosure. (See the 
commentary to Sec. 1026.40(d)(5).)
    8. Payment information. i. The payment figures in the historical 
example must reflect all significant program terms. For example, 
features such as rate and payment caps, a discounted initial rate, 
negative amortization, and rate carryover must be taken into account in 
calculating the payment figures if these would have applied to the plan. 
The historical example should include payments for as much of the length 
of the plan as would occur during a 15-year period. For example:
    A. If the draw period is 10 years and the repayment period is 15 
years, the example should illustrate the entire 10-year draw period and 
the first 5 years of the repayment period.
    B. If the length of the draw period is 15 years and there is a 15-
year repayment phase, the historical example must reflect the payments 
for the 15-year draw period and would not show any of the repayment 
period. No additional historical example would be required to reflect 
payments for the repayment period.
    C. If the length of the plan is less than 15 years, payments in the 
historical example need only be shown for the number of years in the 
term. In such cases, however, the creditor must show the index values, 
margin and annual percentage rates and continue to reflect all 
significant plan terms such as rate limitations for the entire 15 years.
    ii. A creditor need show only a single payment per year in the 
example, even though

[[Page 924]]

payments may vary during a year. The calculations should be based on the 
actual payment computation formula, although the creditor may assume 
that all months have an equal number of days. The creditor may assume 
that payments are made on the last day of the billing cycle, the billing 
date or the payment due date, but must be consistent in the manner in 
which the period used to illustrate payment information is selected. 
Information about balloon payments and remaining balance may, but need 
not, be reflected in the example.
    9. Disclosures for repayment period. The historical example must 
reflect all features of the repayment period, including the appropriate 
index values, margin, rate limitations, length of the repayment period, 
and payments. For example, if different indices are used during the draw 
and repayment periods, the index values for that portion of the 15 years 
that reflect the repayment period must be the values for the appropriate 
index.
    10. Reverse mortgages. The historical example for reverse mortgages 
should reflect 15 years of index values and annual percentage rates, but 
the payment column should be blank until the year that the single 
payment will be made, assuming that payment is estimated to occur within 
15 years. (See the commentary to Sec. 1026.40(d)(5) for a discussion of 
reverse mortgages.)

                             40(e) Brochure

    1. Substitutes. A brochure is a suitable substitute for the home 
equity brochure, ``What You Should Know About Home Equity Lines of 
Credit,'' (available on the Bureau's Web site) if it is, at a minimum, 
comparable to that brochure in substance and comprehensiveness. 
Creditors are permitted to provide more detailed information than is 
contained in that brochure.
    2. Effect of third party delivery of brochure. If a creditor 
determines that a third party has provided a consumer with the required 
brochure pursuant to Sec. 1026.40(c), the creditor need not give the 
consumer a second brochure.

                 40(f) Limitations on Home Equity Plans

    1. Coverage. Section 1026.40(f) limits both actions that may be 
taken and language that may be included in contracts, and applies to any 
assignee or holder as well as to the original creditor. The limitations 
apply to the draw period and any repayment period, and to any renewal or 
modification of the original agreement.

                           Paragraph 40(f)(1)

    1. External index. A creditor may change the annual percentage rate 
for a plan only if the change is based on an index outside the 
creditor's control. Thus, a creditor may not make rate changes based on 
its own prime rate or cost of funds and may not reserve a contractual 
right to change rates at its discretion. A creditor is permitted, 
however, to use a published prime rate, such as that in the Wall Street 
Journal, even if the bank's own prime rate is one of several rates used 
to establish the published rate.
    2. Publicly available. The index must be available to the public. 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 rates imposed under the plan.
    3. Provisions not prohibited. This paragraph does not prohibit rate 
changes that are specifically set forth in the agreement. For example, 
stepped-rate plans, in which specified rates are imposed for specified 
periods, are permissible. In addition, preferred-rate provisions, in 
which the rate increases by a specified amount upon the occurrence of a 
specified event, also are permissible.

                           Paragraph 40(f)(2)

    1. Limitations on termination and acceleration. In general, 
creditors are prohibited from terminating and accelerating payment of 
the outstanding balance before the scheduled expiration of a plan. 
However, creditors may take these actions in the four circumstances 
specified in Sec. 1026.40(f)(2). Creditors are not permitted to specify 
in their contracts any other events that allow termination and 
acceleration beyond those permitted by the regulation. Thus, for 
example, an agreement may not provide that the balance is payable on 
demand nor may it provide that the account will be terminated and the 
balance accelerated if the rate cap is reached.
    2. Other actions permitted. If an event permitting termination and 
acceleration occurs, a creditor may instead take actions short of 
terminating and accelerating. For example, a creditor could temporarily 
or permanently suspend further advances, reduce the credit limit, change 
the payment terms, or require the consumer to pay a fee. A creditor also 
may provide in its agreement that a higher rate or higher fees will 
apply in circumstances under which it would otherwise be permitted to 
terminate the plan and accelerate the balance. A creditor that does not 
immediately terminate an account and accelerate payment or take another 
permitted action may take such action at a later time, provided one of 
the conditions permitting termination and acceleration exists at that 
time.

                          Paragraph 40(f)(2)(i)

    1. Fraud or material misrepresentation. A creditor may terminate a 
plan and accelerate the balance if there has been fraud or material 
misrepresentation by the consumer

[[Page 925]]

in connection with the plan. This exception includes fraud or 
misrepresentation at any time, either during the application process or 
during the draw period and any repayment period. What constitutes fraud 
or misrepresentation is determined by applicable state law and may 
include acts of omission as well as overt acts, as long as any necessary 
intent on the part of the consumer exists.

                         Paragraph 40(f)(2)(ii)

    1. Failure to meet repayment terms. A creditor may terminate a plan 
and accelerate the balance when the consumer fails to meet the repayment 
terms provided for in the agreement. However, a creditor may terminate 
and accelerate under this provision only if the consumer actually fails 
to make payments. For example, a creditor may not terminate and 
accelerate if the consumer, in error, sends a payment to the wrong 
location, such as a branch rather than the main office of the creditor. 
If a consumer files for or is placed in bankruptcy, the creditor may 
terminate and accelerate under this provision if the consumer fails to 
meet the repayment terms of the agreement. This section does not 
override any state or other law that requires a right-to-cure notice, or 
otherwise places a duty on the creditor before it can terminate a plan 
and accelerate the balance.

                         Paragraph 40(f)(2)(iii)

    1. Impairment of security. A creditor may terminate a plan and 
accelerate the balance if the consumer's action or inaction adversely 
affects the creditor's security for the plan, or any right of the 
creditor in that security. Action or inaction by third parties does not, 
in itself, permit the creditor to terminate and accelerate.
    2. Examples. i. A creditor may terminate and accelerate, for 
example, if:
    A. The consumer transfers title to the property or sells the 
property without the permission of the creditor.
    B. The consumer fails to maintain required insurance on the 
dwelling.
    C. The consumer fails to pay taxes on the property.
    D. The consumer permits the filing of a lien senior to that held by 
the creditor.
    E. The sole consumer obligated on the plan dies.
    F. The property is taken through eminent domain.
    G. A prior lienholder forecloses.
    ii. By contrast, the filing of a judgment against the consumer would 
permit termination and acceleration only if the amount of the judgment 
and collateral subject to the judgment is such that the creditor's 
security is adversely affected. If the consumer commits waste or 
otherwise destructively uses or fails to maintain the property such that 
the action adversely affects the security, the plan may be terminated 
and the balance accelerated. Illegal use of the property by the consumer 
would permit termination and acceleration if it subjects the property to 
seizure. If one of two consumers obligated on a plan dies the creditor 
may terminate the plan and accelerate the balance if the security is 
adversely affected. If the consumer moves out of the dwelling that 
secures the plan and that action adversely affects the security, the 
creditor may terminate a plan and accelerate the balance.

                           Paragraph 40(f)(3)

    1. Scope of provision. In general, a creditor may not change the 
terms of a plan after it is opened. For example, a creditor may not 
increase any fee or impose a new fee once the plan has been opened, even 
if the fee is charged by a third party, such as a credit reporting 
agency, for a service. The change of terms prohibition applies to all 
features of a plan, not only those required to be disclosed under this 
section. For example, this provision applies to charges imposed for late 
payment, although this fee is not required to be disclosed under Sec. 
1026.40(d)(7).
    2. Charges not covered. There are three charges not covered by this 
provision. A creditor may pass on increases in taxes since such charges 
are imposed by a governmental body and are beyond the control of the 
creditor. In addition, a creditor may pass on increases in premiums for 
property insurance that are excluded from the finance charge under Sec. 
1026.4(d)(2), since such insurance provides a benefit to the consumer 
independent of the use of the line and is often maintained 
notwithstanding the line. A creditor also may pass on increases in 
premiums for credit insurance that are excluded from the finance charge 
under Sec. 1026.4(d)(1), since the insurance is voluntary and provides 
a benefit to the consumer.

                          Paragraph 40(f)(3)(i)

    1. Changes provided for in agreement. A creditor may provide in the 
initial agreement that further advances will be prohibited or the credit 
line reduced during any period in which the maximum annual percentage 
rate is reached. A creditor also may provide for other specific changes 
to take place upon the occurrence of specific events. Both the 
triggering event and the resulting modification must be stated with 
specificity. For example, in home equity plans for employees, the 
agreement could provide that a specified higher rate or margin will 
apply if the borrower's employment with the creditor ends. A contract 
could contain a stepped-rate or stepped-fee schedule providing for 
specified changes in the rate or the fees on certain dates or after a 
specified period of time. A creditor also may provide in the initial

[[Page 926]]

agreement that it will be entitled to a share of the appreciation in the 
value of the property as long as the specific appreciation share and the 
specific circumstances which require the payment of it are set forth. A 
contract may permit a consumer to switch among minimum payment options 
during the plan.
    2. Prohibited provisions. A creditor may not include a general 
provision in its agreement permitting changes to any or all of the terms 
of the plan. For example, creditors may not include ``boilerplate'' 
language in the agreement stating that they reserve the right to change 
the fees imposed under the plan. In addition, a creditor may not include 
any ``triggering events'' or responses that the regulation expressly 
addresses in a manner different from that provided in the regulation. 
For example, an agreement may not provide that the margin in a variable-
rate plan will increase if there is a material change in the consumer's 
financial circumstances, because the regulation specifies that 
temporarily freezing the line or lowering the credit limit is the 
permissible response to a material change in the consumer's financial 
circumstances. Similarly a contract cannot contain a provision allowing 
the creditor to freeze a line due to an insignificant decline in 
property value since the regulation allows that response only for a 
significant decline.

                         Paragraph 40(f)(3)(ii)

    1. Substitution of index. A creditor may change the index and margin 
used under the plan if the original index becomes unavailable, as long 
as historical fluctuations in the original and replacement indices were 
substantially similar, and as long as 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. 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.

                         Paragraph 40(f)(3)(iii)

    1. Changes by written agreement. A creditor may change the terms of 
a plan if the consumer expressly agrees in writing to the change at the 
time it is made. For example, a consumer and a creditor could agree in 
writing to change the repayment terms from interest-only payments to 
payments that reduce the principal balance. The provisions of any such 
agreement are governed by the limitations in Sec. 1026.40(f). For 
example, a mutual agreement could not provide for future annual 
percentage rate changes based on the movement of an index controlled by 
the creditor or for termination and acceleration under circumstances 
other than those specified in the regulation. By contrast, a consumer 
could agree to a new credit limit for the plan, although the agreement 
could not permit the creditor to later change the credit limit except by 
a subsequent written agreement or in the circumstances described in 
Sec. 1026.40(f)(3)(vi).
    2. Written agreement. The change must be agreed to in writing by the 
consumer. Creditors are not permitted to assume consent because the 
consumer uses an account, even if use of an account would otherwise 
constitute acceptance of a proposed change under state law.

                         Paragraph 40(f)(3)(iv)

    1. Beneficial changes. After a plan is opened, a creditor may make 
changes that unequivocally benefit the consumer. Under this provision, a 
creditor may offer more options to consumers, as long as existing 
options remain. For example, a creditor may offer the consumer the 
option of making lower monthly payments or could increase the credit 
limit. Similarly, a creditor wishing to extend the length of the plan on 
the same terms may do so. Creditors are permitted to temporarily reduce 
the rate or fees charged during the plan (though a change in terms 
notice may be required under Sec. 1026.9(c) when the rate or fees are 
returned to their original level). Creditors also may offer an 
additional means of access to the line, even if fees are associated with 
using the device, provided the consumer retains the ability to use prior 
access devices on the original terms.

                          Paragraph 40(f)(3)(v)

    1. Insignificant changes. A creditor is permitted to make 
insignificant changes after a plan is opened. This rule accommodates 
operational and similar problems, such as changing the address of the 
creditor for purposes of sending payments. It does not permit a creditor 
to change a term such as a fee charged for late payments.
    2. Examples of insignificant changes. Creditors may make minor 
changes to features such as the billing cycle date, the payment due date 
(as long as the consumer does not have a diminished grace period if one 
is provided), and the day of the month on which index values are 
measured to determine changes to the rate for variable-rate plans. A 
creditor also may change its rounding practice in accordance with the 
tolerance rules set forth in Sec. 1026.14 (for example, stating an 
exact APR of 14.3333 percent as 14.3 percent, even if it had previously 
been stated as 14.33 percent). A creditor may change the balance 
computation method it uses only if the change produces an insignificant 
difference in the finance charge paid by the consumer. For example, a 
creditor may switch from

[[Page 927]]

using the average daily balance method (including new transactions) to 
the daily balance method (including new transactions).

                         Paragraph 40(f)(3)(vi)

    1. Suspension of credit privileges or reduction of credit limit. A 
creditor may prohibit additional extensions of credit or reduce the 
credit limit in the circumstances specified in this section of the 
regulation. In addition, as discussed under Sec. 1026.40(f)(3)(i), a 
creditor may contractually reserve the right to take such actions when 
the maximum annual percentage rate is reached. A creditor may not take 
these actions under other circumstances, unless the creditor would be 
permitted to terminate the line and accelerate the balance as described 
in Sec. 1026.40(f)(2). The creditor's right to reduce the credit limit 
does not permit reducing the limit below the amount of the outstanding 
balance if this would require the consumer to make a higher payment.
    2. Temporary nature of suspension or reduction. Creditors are 
permitted to prohibit additional extensions of credit or reduce the 
credit limit only while one of the designated circumstances exists. When 
the circumstance justifying the creditor's action ceases to exist, 
credit privileges must be reinstated, assuming that no other 
circumstance permitting such action exists at that time.
    3. Imposition of fees. If not prohibited by state law, a creditor 
may collect only bona fide and reasonable appraisal and credit report 
fees if such fees are actually incurred in investigating whether the 
condition permitting the freeze continues to exist. A creditor may not, 
in any circumstances, impose a fee to reinstate a credit line once the 
condition has been determined not to exist.
    4. Reinstatement of credit privileges. Creditors are responsible for 
ensuring that credit privileges are restored as soon as reasonably 
possible after the condition that permitted the creditor's action ceases 
to exist. One way a creditor can meet this responsibility is to monitor 
the line on an ongoing basis to determine when the condition ceases to 
exist. The creditor must investigate the condition frequently enough to 
assure itself that the condition permitting the freeze continues to 
exist. The frequency with which the creditor must investigate to 
determine whether a condition continues to exist depends upon the 
specific condition permitting the freeze. As an alternative to such 
monitoring, the creditor may shift the duty to the consumer to request 
reinstatement of credit privileges by providing a notice in accordance 
with Sec. 1026.9(c)(1)(iii). A creditor may require a reinstatement 
request to be in writing if it notifies the consumer of this requirement 
on the notice provided under Sec. 1026.9(c)(1)(iii). Once the consumer 
requests reinstatement, the creditor must promptly investigate to 
determine whether the condition allowing the freeze continues to exist. 
Under this alternative, the creditor has a duty to investigate only upon 
the consumer's request.
    5. Suspension of credit privileges following request by consumer. A 
creditor may honor a specific request by a consumer to suspend credit 
privileges. If the consumer later requests that the creditor reinstate 
credit privileges, the creditor must do so provided no other 
circumstance justifying a suspension exists at that time. If two or more 
consumers are obligated under a plan and each has the ability to take 
advances, the agreement may permit any of the consumers to direct the 
creditor not to make further advances. A creditor may require that all 
persons obligated under a plan request reinstatement.
    6. Significant decline defined. What constitutes a significant 
decline for purposes of Sec. 1026.40(f)(3)(vi)(A) will vary according 
to individual circumstances. In any event, if the value of the dwelling 
declines such that the initial difference between the credit limit and 
the available equity (based on the property's appraised value for 
purposes of the plan) is reduced by fifty percent, this constitutes a 
significant decline in the value of the dwelling for purposes of Sec. 
1026.40(f)(3)(vi)(A). For example, assume that a house with a first 
mortgage of $50,000 is appraised at $100,000 and the credit limit is 
$30,000. The difference between the credit limit and the available 
equity is $20,000, half of which is $10,000. The creditor could prohibit 
further advances or reduce the credit limit if the value of the property 
declines from $100,000 to $90,000. This provision does not require a 
creditor to obtain an appraisal before suspending credit privileges 
although a significant decline must occur before suspension can occur.
    7. Material change in financial circumstances. Two conditions must 
be met for Sec. 1026.40(f)(3)(vi)(B) to apply. First, there must be a 
``material change'' in the consumer's financial circumstances, such as a 
significant decrease in the consumer's income. Second, as a result of 
this change, the creditor must have a reasonable belief that the 
consumer will be unable to fulfill the payment obligations of the plan. 
A creditor may, but does not have to, rely on specific evidence (such as 
the failure to pay other debts) in concluding that the second part of 
the test has been met. A creditor may prohibit further advances or 
reduce the credit limit under this section if a consumer files for or is 
placed in bankruptcy.
    8. Default of a material obligation. Creditors may specify events 
that would qualify as a default of a material obligation under Sec. 
1026.40(f)(3)(vi)(C). For example, a creditor may provide that default 
of a material obligation will exist if the consumer moves out of the 
dwelling or permits an intervening

[[Page 928]]

lien to be filed that would take priority over future advances made by 
the creditor.
    9. Government limits on the annual percentage rate. Under Sec. 
1026.40(f)(3)(vi)(D), a creditor may prohibit further advances or reduce 
the credit limit if, for example, a state usury law is enacted which 
prohibits a creditor from imposing the agreed-upon annual percentage 
rate.

                          40(g) Refund of Fees

    1. Refund of fees required. If any disclosed term, including any 
term provided upon request pursuant to Sec. 1026.40(d), changes between 
the time the early disclosures are provided to the consumer and the time 
the plan is opened, and the consumer as a result decides to not enter 
into the plan, a creditor must refund all fees paid by the consumer in 
connection with the application. All fees, including credit report fees 
and appraisal fees, must be refunded whether such fees are paid to the 
creditor or directly to third parties. A consumer is entitled to a 
refund of fees under these circumstances whether or not terms are 
guaranteed by the creditor under Sec. 1026.40(d)(2)(i).
    2. Variable-rate plans. The right to a refund of fees does not apply 
to changes in the annual percentage rate resulting from fluctuations in 
the index value in a variable-rate plan. Also, if the maximum annual 
percentage rate is expressed as an amount over the initial rate, the 
right to refund of fees would not apply to changes in the cap resulting 
from fluctuations in the index value.
    3. Changes in terms. If a term, such as the maximum rate, is stated 
as a range in the early disclosures, and the term ultimately applicable 
to the plan falls within that range, a change does not occur for 
purposes of this section. If, however, no range is used and the term is 
changed (for example, a rate cap of 6 rather than 5 percentage points 
over the initial rate), the change would permit the consumer to obtain a 
refund of fees. If a fee imposed by the creditor is stated in the early 
disclosures as an estimate and the fee changes, the consumer could elect 
to not enter into the agreement and would be entitled to a refund of 
fees. On the other hand, if fees imposed by third parties are disclosed 
as estimates and those fees change, the consumer is not entitled to a 
refund of fees paid in connection with the application. Creditors must, 
however, use the best information reasonably available in providing 
disclosures about such fees.
    4. Timing of refunds and relation to other provisions. The refund of 
fees must be made as soon as reasonably possible after the creditor is 
notified that the consumer is not entering into the plan because of the 
changed term, or that the consumer wants a refund of fees. The fact that 
an application fee may be refunded to some applicants under this 
provision does not render such fees finance charges under Sec. 
1026.4(c)(1) of the regulation.

                 40(h) Imposition of Nonrefundable Fees

    1. Collection of fees after consumer receives disclosures. A fee may 
be collected after the consumer receives the disclosures and brochure 
and before the expiration of three days, although the fee must be 
refunded if, within three days of receiving the required information, 
the consumer decides to not enter into the agreement. In such a case, 
the consumer must be notified that the fee is refundable for three days. 
The notice must be clear and conspicuous and in writing, and may be 
included with the disclosures required under Sec. 1026.40(d) or as an 
attachment to them. If disclosures and brochure are mailed to the 
consumer, Sec. 1026.40(h) provides that a nonrefundable fee may not be 
imposed until six business days after the mailing.
    2. Collection of fees before consumer receives disclosures. An 
application fee may be collected before the consumer receives the 
disclosures and brochure (for example, when an application contained in 
a magazine is mailed in with an application fee) provided that it 
remains refundable until three business days after the consumer receives 
the Sec. 1026.40 disclosures. No other fees except a refundable 
membership fee may be collected until after the consumer receives the 
disclosures required under Sec. 1026.40.
    3. Relation to other provisions. A fee collected before disclosures 
are provided may become nonrefundable except that, under Sec. 
1026.40(g), it must be refunded if the consumer elects to not enter into 
the plan because of a change in terms. (Of course, all fees must be 
refunded if the consumer later rescinds under Sec. 1026.15.)

                 Section 1026.42--Valuation Independence

                               42(a) Scope

    1. Open- and closed-end credit. Section 1026.42 applies to both 
open-end and closed-end transactions secured by the consumer's principal 
dwelling.
    2. Consumer's principal dwelling. Section 1026.42 applies only if 
the dwelling that will secure a consumer credit transaction is the 
principal dwelling of the consumer who obtains credit.

                            42(b) Definitions

                           Paragraph 42(b)(1)

    1. Examples of covered persons. ``Covered persons'' include 
creditors, mortgage brokers, appraisers, appraisal management companies, 
real estate agents, and other persons that provide ``settlement 
services'' as defined under the Real Estate Settlement Procedures Act 
and implementing regulations. See 12 U.S.C. 2602(3).

[[Page 929]]

    2. Examples of persons not covered. The following persons are not 
``covered persons'' (unless, of course, they are creditors with respect 
to a covered transaction or perform ``settlement services'' in 
connection with a covered transaction):
    i. The consumer who obtains credit through a covered transaction.
    ii. A person secondarily liable for a covered transaction, such as a 
guarantor.
    iii. A person that resides in or will reside in the consumer's 
principal dwelling but will not be liable on the covered transaction, 
such as a non-obligor spouse.

                           Paragraph 42(b)(2)

    1. Principal dwelling. The term ``principal dwelling'' has the same 
meaning under Sec. 1026.42(b) as under Sec. Sec. 1026.2(a)(24), 
1026.15(a), and 1026.23(a). See comments 2(a)(24)-3, 15(a)-5, and 23(a)-
3.

                           Paragraph 42(b)(3)

    1. Valuation. A ``valuation'' is an estimate of value prepared by a 
natural person, such as an appraisal report prepared by an appraiser or 
an estimate of market value prepared by a real estate agent. The term 
includes photographic or other information included with a written 
estimate of value. A ``valuation'' includes an estimate provided or 
viewed electronically, such as an estimate transmitted via electronic 
mail or viewed using a computer.
    2. Automated model or system. A ``valuation'' does not include an 
estimate of value produced exclusively using an automated model or 
system. However, a ``valuation'' includes an estimate of value developed 
by a natural person based in part on an estimate of value produced using 
an automated model or system.
    3. Estimate. An estimate of the value of the consumer's principal 
dwelling includes an estimate of a range of values for the consumer's 
principal dwelling.

            42(c) Valuation for consumer's principal dwelling

                            42(c)(1) Coercion

    1. State law. The terms ``coercion,'' ``extortion,'' ``inducement,'' 
``bribery,'' ``intimidation,'' ``compensation,'' ``instruction,'' and 
``collusion'' have the meanings given to them by applicable state law or 
contract. See Sec. 1026.2(b)(3).
    2. Purpose. A covered person does not violate Sec. 1026.42(c)(1) if 
the person does not engage in an act or practice set forth in Sec. 
1026.42(c)(1) for the purpose of causing the value assigned to the 
consumer's principal dwelling to be based on a factor other than the 
independent judgment of a person that prepares valuations. For example, 
requesting that a person that prepares a valuation take certain actions, 
such as consider additional, appropriate property information, does not 
violate Sec. 1026.42(c), because such request does not supplant the 
independent judgment of the person that prepares a valuation. See Sec. 
1026.42(c)(3)(i). A covered person also may provide incentives, such as 
additional compensation, to a person that prepares valuations or 
performs valuation management functions under Sec. 1026.42(c)(1), as 
long as the covered person does not cause or attempt to cause the value 
assigned to the consumer's principal dwelling to be based on a factor 
other than the independent judgment of the person that prepares 
valuations.
    3. Person that prepares valuations. For purposes of Sec. 1026.42, 
the term ``valuation'' includes an estimate of value regardless of 
whether it is an appraisal prepared by a state-certified or -licensed 
appraiser. See comment 42(b)(3)-1. A person that prepares valuations may 
or may not be a state-licensed or state-certified appraiser. Thus a 
person violates Sec. 1026.42(c)(1) by engaging in prohibited acts or 
practices directed towards any person that prepares or may prepare a 
valuation of the consumer's principal dwelling for a covered 
transaction. For example, a person violates Sec. 1026.42(c)(1) by 
seeking to coerce a real estate agent to assign a value to the 
consumer's principal dwelling based on a factor other than the 
independent judgment of the real estate agent, in connection with a 
covered transaction.
    4. Indirect acts or practices. Section 1026.42(c)(1) prohibits both 
direct and indirect attempts to cause the value assigned to the 
consumer's principal dwelling to be based on a factor other than the 
independent judgment of the person that prepares the valuation, through 
coercion and certain other acts and practices. For example, a creditor 
violates Sec. 1026.42(c)(1) if the creditor attempts to cause the value 
an appraiser engaged by an appraisal management company assigns to the 
consumer's principal dwelling to be based on a factor other than the 
appraiser's independent judgment, by threatening to withhold future 
business from a title company affiliated with the appraisal management 
company unless the appraiser assigns a value to the dwelling that meets 
or exceeds a minimum threshold.

                          Paragraph 42(c)(1)(i)

    1. Applicability of examples. Section 1026.42(c)(1)(i) provides 
examples of coercion of a person that prepares valuations. However, 
Sec. 1026.42(c)(1)(i) also applies to coercion of a person that 
performs valuation management functions or its affiliate. See Sec. 
1026.42(c)(1); comment 42(c)(1) 4.
    2. Specific value or predetermined threshold. As used in the 
examples of actions prohibited under Sec. 1026.42(c)(1), a ``specific 
value'' and a ``predetermined threshold'' include a predetermined 
minimum, maximum, or range of

[[Page 930]]

values. Further, although the examples assume a covered person's 
prohibited actions are designed to cause the value assigned to the 
consumer's principal dwelling to equal or exceed a certain amount, the 
rule applies equally to cases where a covered person's prohibited 
actions are designed to cause the value assigned to the dwelling to be 
below a certain amount.

                  42(c)(2) Mischaracterization of Value

                      42(c)(2)(i) Misrepresentation

    1. Opinion of value. Section 1026.42(c)(2)(i) prohibits a person 
that performs valuations from misrepresenting the value of the 
consumer's principal dwelling in a valuation. Such person misrepresents 
the value of the consumer's principal dwelling by assigning a value to 
such dwelling that does not reflect the person's opinion of the value of 
such dwelling. For example, an appraiser misrepresents the value of the 
consumer's principal dwelling if the appraiser estimates that the value 
of such dwelling is $250,000 applying the standards required by the 
Uniform Standards of Professional Appraisal Standards but assigns a 
value of $300,000 to such dwelling in a Uniform Residential Appraisal 
Report.

             42(c)(2)(iii) Inducement of Mischaracterization

    1. Inducement. A covered person may not induce a person to 
materially misrepresent the value of the consumer's principal dwelling 
in a valuation or to falsify or alter a valuation. For example, a loan 
originator may not coerce a loan underwriter to alter an appraisal 
report to increase the value assigned to the consumer's principal 
dwelling.

               42(d) Prohibition on Conflicts of Interest

                         42(d)(1)(i) In General

    1. Prohibited interest in the property. A person preparing a 
valuation or performing valuation management functions for a covered 
transaction has a prohibited interest in the property under paragraph 
(d)(1)(i) if the person has any ownership or reasonably foreseeable 
ownership interest in the property. For example, a person who seeks a 
mortgage to purchase a home has a reasonably foreseeable ownership 
interest in the property securing the mortgage, and therefore is not 
permitted to prepare the valuation or perform valuation management 
functions for that mortgage transaction under paragraph (d)(1)(i).
    2. Prohibited interest in the transaction. A person preparing a 
valuation or performing valuation management functions has a prohibited 
interest in the transaction under paragraph (d)(1)(i) if that person or 
an affiliate of that person also serves as a loan officer of the 
creditor, mortgage broker, real estate broker, or other settlement 
service provider for the transaction and the conditions under paragraph 
(d)(4) are not satisfied. A person also has a prohibited interest in the 
transaction if the person is compensated or otherwise receives financial 
or other benefits based on whether the transaction is consummated. Under 
these circumstances, the person is not permitted to prepare the 
valuation or perform valuation management functions for that transaction 
under paragraph (d)(1)(i).

    42(d)(1)(ii) Employees and Affiliates of Creditors; Providers of 
                      Multiple Settlement Services

    1. Employees and affiliates of creditors. In general, a creditor may 
use employees or affiliates to prepare a valuation or perform valuation 
management functions without violating paragraph (d)(1)(i). However, 
whether an employee or affiliate has a direct or indirect interest in 
the property or transaction that creates a prohibited conflict of 
interest under paragraph (d)(1)(i) depends on the facts and 
circumstances of a particular case, including the structure of the 
employment or affiliate relationship.
    2. Providers of multiple settlement services. In general, a person 
who prepares a valuation or perform valuation management functions for a 
covered transaction may perform another settlement service for the same 
transaction, or the person's affiliate may perform another settlement 
service, without violating paragraph (d)(1)(i). However, whether the 
person has a direct or indirect interest in the property or transaction 
that creates a prohibited conflict of interest under paragraph (d)(1)(i) 
depends on the facts and circumstances of a particular case.

42(d)(2) Employees and Affiliates of Creditors with Assets of More than 
          $250 Million for Both of the Past two Calendar Years

    1. Safe harbor. A person who a prepares valuation or performs 
valuation management functions for a covered transaction and is an 
employee or affiliate of the creditor will not be deemed to have an 
interest prohibited under paragraph (d)(1)(i) on the basis of the 
employment or affiliate relationship with the creditor if the conditions 
in paragraph (d)(2) are satisfied. Even if the conditions in paragraph 
(d)(2) are satisfied, however, the person may have a prohibited conflict 
of interest on other grounds, such as if the person performs a valuation 
for a purchase-money mortgage transaction in which the person is the 
buyer or seller of the subject property. Thus, in general, in any 
covered transaction in which the creditor had assets of more than $250 
million for both of the past two years, the creditor may use its own 
employee or affiliate to prepare a valuation or perform valuation 
management

[[Page 931]]

functions for a particular transaction, as long as the conditions 
described in paragraph (d)(2) are satisfied. If the conditions in 
paragraph (d)(2) are not satisfied, whether a person preparing a 
valuation or performing valuation management functions has violated 
paragraph (d)(1)(i) depends on all of the facts and circumstances.

                         Paragraph 42(d)(2)(ii)

    1. Prohibition on reporting to a person who is part of the 
creditor's loan production function. To qualify for the safe harbor 
under paragraph (d)(2), the person preparing a valuation or performing 
valuation management functions may not report to a person who is part of 
the creditor's loan production function (as defined in paragraph 
(d)(5)(i) and comment 42(d)(5)(i)-1). For example, if a person preparing 
a valuation is directly supervised or managed by a loan officer or other 
person in the creditor's loan production function, or by a person who is 
directly supervised or managed by a loan officer, the condition under 
paragraph (d)(2)(ii) is not met.
    2. Prohibition on reporting to a person whose compensation is based 
on the transaction closing. To qualify for the safe harbor under 
paragraph (d)(2), the person preparing a valuation or performing 
valuation management functions may not report to a person whose 
compensation is based on the closing of the transaction to which the 
valuation relates. For example, assume an appraisal management company 
performs valuation management functions for a transaction in which the 
creditor is an affiliate of the appraisal management company. If the 
employee of the appraisal management company who is in charge of 
valuation management functions for that transaction is supervised by a 
person who earns a commission or bonus based on the percentage of closed 
transactions for which the appraisal management company provides 
valuation management functions, the condition under paragraph (d)(2)(ii) 
is not met.

                         Paragraph 42(d)(2)(iii)

    1. Direct or indirect involvement in selection of person who 
prepares a valuation. In any covered transaction, the safe harbor under 
paragraph (d)(2) is available if, among other things, no employee, 
officer or director in the creditor's loan production function (as 
defined in paragraph (d)(4)(ii) and comment 42(d)(4)(ii)-1) is directly 
or indirectly involved in selecting, retaining, recommending or 
influencing the selection of the person to prepare a valuation or 
perform valuation management functions, or to be included in or excluded 
from a list or panel of approved persons who prepare valuations or 
perform valuation management functions. For example, if the person who 
selects the person to prepare the valuation for a covered transaction is 
supervised by an employee of the creditor who also supervises loan 
officers, the condition in paragraph (d)(2)(iii) is not met.

   42(d)(3) Employees and Affiliates of Creditors With Assets of $250 
        Million or Less for Either of the Past Two Calendar Years

    1. Safe harbor. A person who prepares a valuation or performs 
valuation management functions for a covered transaction and is an 
employee or affiliate of the creditor will not be deemed to have 
interest prohibited under paragraph (d)(1)(i) on the basis of the 
employment or affiliate relationship with the creditor if the conditions 
in paragraph (d)(3) are satisfied. Even if the conditions in paragraph 
(d)(3) are satisfied, however, the person may have a prohibited conflict 
of interest on other grounds, such as if the person performs a valuation 
for a purchase-money mortgage transaction in which the person is the 
buyer or seller of the subject property. Thus, in general, in any 
covered transaction in which the creditor had assets of $250 million or 
less for either of the past two calendar years, the creditor may use its 
own employee or affiliate to prepare a valuation or perform valuation 
management functions for a particular transaction, as long as the 
conditions described in paragraph (d)(3) are satisfied. If the 
conditions in paragraph (d)(3) are not satisfied, whether a person 
preparing valuations or performing valuation management functions has 
violated paragraph (d)(1)(i) depends on all of the facts and 
circumstances.

           42(d)(4) Providers of Multiple Settlement Services

                          Paragraph 42(d)(4)(i)

    1. Safe harbor in transactions in which the creditor had assets of 
more than $250 million for both of the past two calendar years. A person 
preparing a valuation or performing valuation management functions in 
addition to performing another settlement service for the same 
transaction, or whose affiliate performs another settlement service for 
the transaction, will not be deemed to have interest prohibited under 
paragraph (d)(1)(i) as a result of the person or the person's affiliate 
performing another settlement service if the conditions in paragraph 
(d)(4)(i) are satisfied. Even if the conditions in paragraph (d)(4)(i) 
are satisfied, however, the person may have a prohibited conflict of 
interest on other grounds, such as if the person performs a valuation 
for a purchase-money mortgage transaction in which the person is the 
buyer or seller of the subject property. Thus, in general, in any 
covered transaction with a creditor that had assets of more than $250 
million for the past two years, a person preparing a valuation or 
performing valuation

[[Page 932]]

management functions, or its affiliate, may provide another settlement 
service for the same transaction, as long as the conditions described in 
paragraph (d)(4)(i) are satisfied. If the conditions in paragraph 
(d)(4)(i) are not satisfied, whether a person preparing valuations or 
performing valuation management functions has violated paragraph 
(d)(1)(i) depends on all of the facts and circumstances.
    2. Reporting. The safe harbor under paragraph (d)(4)(i) is available 
if the condition specified in paragraph (d)(2)(ii), among others, is 
met. Paragraph (d)(2)(ii) prohibits a person preparing a valuation or 
performing valuation management functions from reporting to a person 
whose compensation is based on the closing of the transaction to which 
the valuation relates. For example, assume an appraisal management 
company performs both valuation management functions and title services, 
including providing title insurance, for the same covered transaction. 
If the appraisal management company employee in charge of valuation 
management functions for the transaction is supervised by the title 
insurance agent in the transaction, whose compensation depends in whole 
or in part on whether title insurance is sold at the loan closing, the 
condition in paragraph (d)(2)(ii) is not met.

                         Paragraph 42(d)(4)(ii)

    1. Safe harbor in transactions in which the creditor had assets of 
$250 million or less for either of the past two calendar years. A person 
preparing a valuation or performing valuation management functions in 
addition to performing another settlement service for the same 
transaction, or whose affiliate performs another settlement service for 
the transaction, will not be deemed to have an interest prohibited under 
paragraph (d)(1)(i) as a result of the person or the person's affiliate 
performing another settlement service if the conditions in paragraph 
(d)(4)(ii) are satisfied. Even if the conditions in paragraph (d)(4)(ii) 
are satisfied, however, the person may have a prohibited conflict of 
interest on other grounds, such as if the person performs a valuation 
for a purchase-money mortgage transaction in which the person is the 
buyer or seller of the subject property. Thus, in general, in any 
covered transaction in which the creditor had assets of $250 million or 
less for either of the past two years, a person preparing a valuation or 
performing valuation management functions, or its affiliate, may provide 
other settlement services for the same transaction, as long as the 
conditions described in paragraph (d)(4)(ii) are satisfied. If the 
conditions in paragraph (d)(4)(ii) are not satisfied, whether a person 
preparing valuations or performing valuation management functions has 
violated paragraph (d)(1)(i) depends on all of the facts and 
circumstances.

                          42(d)(5) Definitions

                  42(d)(5)(i) Loan Production Function

    1. Loan production function. One condition of the safe harbors under 
paragraphs (d)(2) and (d)(4)(i), involving transactions in which the 
creditor had assets of more than $250 million for both of the past two 
calendar years, is that the person who prepares a valuation or performs 
valuation management functions must report to a person who is not part 
of the creditor's ``loan production function.'' A creditor's ``loan 
production function'' includes retail sales staff, loan officers, and 
any other employee of the creditor with responsibility for taking a loan 
application, offering or negotiating loan terms or whose compensation is 
based on loan processing volume. A person is not considered part of a 
creditor's loan production function solely because part of the person's 
compensation includes a general bonus not tied to specific transactions 
or a specific percentage of transactions closing, or a profit sharing 
plan that benefits all employees. A person solely responsible for credit 
administration or risk management is also not considered part of a 
creditor's loan production function. Credit administration and risk 
management includes, for example, loan underwriting, loan closing 
functions (e.g., loan documentation), disbursing funds, collecting 
mortgage payments and otherwise servicing the loan (e.g., escrow 
management and payment of taxes), monitoring loan performance, and 
foreclosure processing.

                42(e) When Extension of Credit Prohibited

    1. Reasonable diligence. A creditor will be deemed to have acted 
with reasonable diligence under Sec. 1026.42(e) if the creditor extends 
credit based on a valuation other than the valuation subject to the 
restriction in Sec. 1026.42(e). A creditor need not obtain a second 
valuation to document that the creditor has acted with reasonable 
diligence to determine that the valuation does not materially misstate 
or misrepresent the value of the consumer's principal dwelling, however. 
For example, assume an appraiser notifies a creditor before consummation 
that a loan originator attempted to cause the value assigned to the 
consumer's principal dwelling to be based on a factor other than the 
appraiser's independent judgment, through coercion. If the creditor 
reasonably determines and documents that the appraisal does not 
materially misstate or misrepresent the value of the consumer's 
principal dwelling, for purposes of Sec. 1026.42(e), the creditor may 
extend credit based on the appraisal.

[[Page 933]]

               42(f) Customary and Reasonable Compensation

42(f)(1) Requirement to Provide Customary and Reasonable Compensation to 
                             Fee Appraisers

    1. Agents of the creditor. Whether a person is an agent of the 
creditor is determined by applicable law; however, a ``fee appraiser'' 
as defined in paragraph (f)(4)(i) is not an agent of the creditor for 
purposes of paragraph (f), and therefore is not required to pay other 
fee appraisers customary and reasonable compensation under paragraph 
(f).
    2. Geographic market. For purposes of paragraph (f), the 
``geographic market of the property being appraised'' means the 
geographic market relevant to compensation levels for appraisal 
services. Depending on the facts and circumstances, the relevant 
geographic market may be a state, metropolitan statistical area (MSA), 
metropolitan division, area outside of an MSA, county, or other 
geographic area. For example, assume that fee appraisers who normally 
work only in County A generally accept $400 to appraise an attached 
single-family property in County A. Assume also that very few or no fee 
appraisers who work only in contiguous County B will accept a rate 
comparable to $400 to appraise an attached single-family property in 
County A. The relevant geographic market for an attached single-family 
property in County A may reasonably be defined as County A. On the other 
hand, assume that fee appraisers who normally work only in County A 
generally accept $400 to appraise an attached single-family property in 
County A. Assume also that many fee appraisers who normally work only in 
contiguous County B will accept a rate comparable to $400 to appraise an 
attached single-family property in County A. The relevant geographic 
market for an attached single-family property in County A may reasonably 
be defined to include both County A and County B.
    3. Failure to perform contractual obligations. Paragraph (f)(1) does 
not prohibit a creditor or its agent from withholding compensation from 
a fee appraiser for failing to meet contractual obligations, such as 
failing to provide the appraisal report or violating state or Federal 
appraisal laws in performing the appraisal.
    4. Agreement that fee is ``customary and reasonable.'' A document 
signed by a fee appraiser indicating that the appraiser agrees that the 
fee paid to the appraiser is ``customary and reasonable'' does not by 
itself create a presumption of compliance with Sec. 1026.42(f) or 
otherwise satisfy the requirement to pay a fee appraiser at a customary 
and reasonable rate.
    5. Volume-based discounts. Section 1026.42(f)(1) does not prohibit a 
fee appraiser and a creditor (or its agent) from agreeing to 
compensation based on transaction volume, so long as the compensation is 
customary and reasonable. For example, assume that a fee appraiser 
typically receives $300 for appraisals from creditors with whom it does 
business; the fee appraiser, however, agrees to reduce the fee to $280 
for a particular creditor, in exchange for a minimum number of 
assignments from the creditor.

                   42(f)(2) Presumption of Compliance

    1. In general. A creditor and its agent are presumed to comply with 
paragraph (f)(1) if the creditor or its agent meets the conditions 
specified in paragraph (f)(2) in determining the compensation paid to a 
fee appraiser. These conditions are not requirements for compliance but, 
if met, create a presumption that the creditor or its agent has complied 
with Sec. 1026.42(f)(1). A person may rebut this presumption with 
evidence that the amount of compensation paid to a fee appraiser was not 
customary and reasonable for reasons unrelated to the conditions in 
paragraph (f)(2)(i) or (f)(2)(ii). If a creditor or its agent does not 
meet one of the non-required conditions set forth in paragraph (f)(2), 
the creditor's and its agent's compliance with paragraph (f)(1) is 
determined based on all of the facts and circumstances without a 
presumption of either compliance or violation.

                          Paragraph 42(f)(2)(i)

    1. Two-step process for determining customary and reasonable rates. 
Paragraph (f)(2)(i) sets forth a two-step process for a creditor or its 
agent to determine the amount of compensation that is customary and 
reasonable in a given transaction. First, the creditor or its agent must 
identify recent rates paid for comparable appraisal services in the 
relevant geographic market. Second, once recent rates have been 
identified, the creditor or its agent must review the factors listed in 
paragraph (f)(2)(i)(A)-(F) and make any appropriate adjustments to the 
rates to ensure that the amount of compensation is reasonable.
    2. Identifying recent rates. Whether rates may reasonably be 
considered ``recent'' depends on the facts and circumstances. Generally, 
``recent'' rates would include rates charged within one year of the 
creditor's or its agent's reliance on this information to qualify for 
the presumption of compliance under paragraph (f)(2). For purposes of 
the presumption of compliance under paragraph (f)(2), a creditor or its 
agent may gather information about recent rates by using a reasonable 
method that provides information about rates for appraisal services in 
the geographic market of the relevant property; a creditor or its agent 
may, but is not required to, use or perform a fee survey.
    3. Accounting for factors. Once recent rates in the relevant 
geographic market have been

[[Page 934]]

identified, the creditor or its agent must review the factors listed in 
paragraph (f)(2)(i)(A)-(F) to determine the appropriate rate for the 
current transaction. For example, if the recent rates identified by the 
creditor or its agent were solely for appraisal assignments in which the 
scope of work required consideration of two comparable properties, but 
the current transaction required an appraisal that considered three 
comparable properties, the creditor or its agent might reasonably adjust 
the rate by an amount that accounts for the increased scope of work, in 
addition to making any other appropriate adjustments based on the 
remaining factors.

                        Paragraph 42(f)(2)(i)(A)

    1. Type of property. The type of property may include, for example, 
detached or attached single-family property, condominium or cooperative 
unit, or manufactured home.

                        Paragraph 42(f)(2)(i)(B)

    1. Scope of work. The scope of work may include, for example, the 
type of inspection (such as exterior only or both interior and exterior) 
or number of comparables required for the appraisal.

                        Paragraph 42(f)(2)(i)(D)

    1. Fee appraiser qualifications. The fee appraiser qualifications 
may include, for example, a state license or certification in accordance 
with the minimum criteria issued by the Appraisal Qualifications Board 
of the Appraisal Foundation, or completion of continuing education 
courses on effective appraisal methods and related topics.
    2. Membership in professional appraisal organization. Paragraph 
42(f)(2)(i)(D) does not override state or Federal laws prohibiting the 
exclusion of an appraiser from consideration for an assignment solely by 
virtue of membership or lack of membership in any particular appraisal 
organization. See, e.g., 12 CFR 225.66(a).

                        Paragraph 42(f)(2)(i)(E)

    1. Fee appraiser experience and professional record. The fee 
appraiser's level of experience may include, for example, the fee 
appraiser's years of service as a state-licensed or state-certified 
appraiser, or years of service appraising properties in a particular 
geographical area or of a particular type. The fee appraiser's 
professional record may include, for example, whether the fee appraiser 
has a past record of suspensions, disqualifications, debarments, or 
judgments for waste, fraud, abuse or breach of legal or professional 
standards.

                        Paragraph 42(f)(2)(i)(F)

    1. Fee appraiser work quality. The fee appraiser's work quality may 
include, for example, the past quality of appraisals performed by the 
appraiser based on the written performance and review criteria of the 
creditor or agent of the creditor.

                         Paragraph 42(f)(2)(ii)

    1. Restraining trade. Under Sec. 1026.42(f)(2)(ii)(A), creditor or 
its agent would not qualify for the presumption of compliance under 
paragraph (f)(2) if it engaged in any acts to restrain trade such as 
entering into a price fixing or market allocation agreement that affect 
the compensation of fee appraisers. For example, if appraisal management 
company A and appraisal management company B agreed to compensate fee 
appraisers at no more than a specific rate or range of rates, neither 
appraisal management company would qualify for the presumption of 
compliance. Likewise, if appraisal management company A and appraisal 
management company B agreed that appraisal management company A would 
limit its business to a certain portion of the relevant geographic 
market and appraisal management company B would limit its business to a 
different portion of the relevant geographic market, and as a result 
each appraisal management company unilaterally set the fees paid to fee 
appraisers in their respective portions of the market, neither appraisal 
management company would qualify for the presumption of compliance under 
paragraph (f)(2).
    2. Acts of monopolization. Under Sec. 1026.42(f)(2)(ii)(B), a 
creditor or its agent would not qualify for the presumption of 
compliance under paragraph (f)(2) if it engaged in any act of 
monopolization such as restricting entry into the relevant geographic 
market or causing any person to leave the relevant geographic market, 
resulting in anticompetitive effects that affect the compensation paid 
to fee appraisers. For example, if only one appraisal management company 
exists or is predominant in a particular market area, that appraisal 
management company might not qualify for the presumption of compliance 
if it entered into exclusivity agreements with all creditors in the 
market or all fee appraisers in the market, such that other appraisal 
management companies had to leave or could not enter the market. Whether 
this behavior would be considered an anticompetitive act that affects 
the compensation paid to fee appraisers depends on all of the facts and 
circumstances, including applicable law.

             42(f)(3) Alternative Presumption of Compliance

    1. In general. A creditor and its agent are presumed to comply with 
paragraph (f)(1) if the creditor or its agent determine the compensation 
paid to a fee appraiser based on information about customary and 
reasonable

[[Page 935]]

rates that satisfies the conditions in paragraph (f)(3) for that 
information. Reliance on information satisfying the conditions in 
paragraph (f)(3) is not a requirement for compliance with paragraph 
(f)(1), but creates a presumption that the creditor or its agent has 
complied. A person may rebut this presumption with evidence that the 
rate of compensation paid to a fee appraiser by the creditor or its 
agent is not customary and reasonable based on facts or information 
other than third-party information satisfying the conditions of this 
paragraph (f)(3). If a creditor or its agent does not rely on 
information that meets the conditions in paragraph (f)(3), the 
creditor's and its agent's compliance with paragraph (f)(1) is 
determined based on all of the facts and circumstances without a 
presumption of either compliance or violation.
    2. Geographic market. The meaning of ``geographic market'' for 
purposes of paragraph (f) is explained in comment (f)(1)-1.
    3. Recent rates. Whether rates may reasonably be considered 
``recent'' depends on the facts and circumstances. Generally, ``recent'' 
rates would include rates charged within one year of the creditor's or 
its agent's reliance on this information to qualify for the presumption 
of compliance under paragraph (f)(3).

                          42(f)(4) Definitions

                        42(f)(4)(i) Fee Appraiser

    1. Organization. The term ``organization'' in paragraph 
42(f)(4)(i)(B) includes a corporation, partnership, proprietorship, 
association, cooperative, or other business entity and does not include 
a natural person.

                        42(g) Mandatory Reporting

                       42(g)(1) Reporting Required

    1. Reasonable basis. A person reasonably believes that an appraiser 
has materially failed to comply with the Uniform Standards of 
Professional Appraisal Practice (USPAP) established by the Appraisal 
Standards Board of the Appraisal Foundation (as defined in 12 U.S.C. 
3350(9)) or ethical or professional requirements for appraisers under 
applicable state or Federal statutes or regulations if the person 
possesses knowledge or information that would lead a reasonable person 
in the same circumstances to conclude that the appraiser has materially 
failed to comply with USPAP or such statutory or regulatory 
requirements.
    2. Material failure to comply. For purposes of Sec. 1026.42(g)(1), 
a material failure to comply is one that is likely to affect the value 
assigned to the consumer's principal dwelling. The following are 
examples of a material failure to comply with USPAP or ethical or 
professional requirements:
    i. Mischaracterizing the value of the consumer's principal dwelling 
in violation of Sec. 1026.42(c)(2)(i).
    ii. Performing an assignment in a grossly negligent manner, in 
violation of a rule under USPAP.
    iii. Accepting an appraisal assignment on the condition that the 
appraiser will report a value equal to or greater than the purchase 
price for the consumer's principal dwelling, in violation of a rule 
under USPAP.
    3. Other matters. Section 1026.42(g)(1) does not require reporting 
of a matter that is not material under Sec. 1026.42(g)(1), for example:
    i. An appraiser's disclosure of confidential information in 
violation of applicable state law.
    ii. An appraiser's failure to maintain errors and omissions 
insurance in violation of applicable state law.
    4. Examples of covered persons. ``Covered persons'' include 
creditors, mortgage brokers, appraisers, appraisal management companies, 
real estate agents, and other persons that provide ``settlement 
services'' as defined in section 3(3) of the Real Estate Settlement 
Procedures Act (12 U.S.C. 2602(3)) and the implementing regulation at 12 
CFR 1024.2. See Sec. 1026.42(b)(1).
    5. Examples of persons not covered. The following persons are not 
``covered persons'' (unless, of course, they are creditors with respect 
to a covered transaction or perform ``settlement services'' in 
connection with a covered transaction):
    i. The consumer who obtains credit through a covered transaction.
    ii. A person secondarily liable for a covered transaction, such as a 
guarantor.
    iii. A person that resides in or will reside in the consumer's 
principal dwelling but will not be liable on the covered transaction, 
such as a non-obligor spouse.
    6. Appraiser. For purposes of Sec. 1026.42(g)(1), an ``appraiser'' 
is a natural person who provides opinions of the value of dwellings and 
is required to be licensed or certified under the laws of the state in 
which the consumer's principal dwelling is located or otherwise is 
subject to the jurisdiction of the appraiser certifying and licensing 
agency for that state. See 12 U.S.C. 3350(1).

          Subpart F--Special Rules for Private Education Loans

 Section 1026.46--Special Disclosure Requirements for Private Education 
                                  Loans

                             46(a) Coverage

    1. Coverage. This subpart applies to all private education loans as 
defined in Sec. 1026.46(b)(5). Coverage under this subpart is optional 
for certain extensions of credit that

[[Page 936]]

do not meet the definition of ``private education loan'' because the 
credit is not extended, in whole or in part, for ``postsecondary 
educational expenses'' defined in Sec. 1026.46(b)(3). If a transaction 
is not covered and a creditor opts to comply with any section of this 
subpart, the creditor must comply with all applicable sections of this 
subpart. If a transaction is not covered and a creditor opts not to 
comply with this subpart, the creditor must comply with all applicable 
requirements under Sec. Sec. 1026.17 and 1026.18. Compliance with this 
subpart is optional for an extension of credit for expenses incurred 
after graduation from a law, medical, dental, veterinary, or other 
graduate school and related to relocation, study for a bar or other 
examination, participation in an internship or residency program, or 
similar purposes. However, if any part of such loan is used for 
postsecondary educational expenses as defined in Sec. 1026.46(b)(3), 
then compliance with Subpart F is mandatory not optional.

                            46(b) Definitions

                46(b)(1) Covered Educational Institution

    1. General. A covered educational institution includes any 
educational institution that meets the definition of an institution of 
higher education in Sec. 1026.46(b)(2). An institution is also a 
covered educational institution if it otherwise meets the definition of 
an institution of higher education, except for its lack of 
accreditation. Such an institution may include, for example, a 
university or community college. It may also include an institution, 
whether accredited or unaccredited, offering instruction to prepare 
students for gainful employment in a recognized profession, such as 
flying, culinary arts, or dental assistance. A covered educational 
institution does not include elementary or secondary schools.
    2. Agent. For purposes of Sec. 1026.46(b)(1), the term agent means 
an institution-affiliated organization as defined by Section 151 of the 
Higher Education Act of 1965 (20 U.S.C 1019) or an officer or employee 
of an institution-affiliated organization. Under Section 151 of the 
Higher Education Act, an institution-affiliated organization means any 
organization that is directly or indirectly related to a covered 
institution and is engaged in the practice of recommending, promoting, 
or endorsing education loans for students attending the covered 
institution or the families of such students. An institution-affiliated 
organization may include an alumni organization, athletic organization, 
foundation, or social, academic, or professional organization, of a 
covered institution, but does not include any creditor with respect to 
any private education loan made by that creditor.

                46(b)(2) Institution of Higher Education

    1. General. An institution of higher education includes any 
institution that meets the definitions contained in sections 101 and 102 
of the Higher Education Act of 1965 (20 U.S.C. 1001-1002) and 
implementing Department of Education regulations (34 CFR 600). Such an 
institution may include, for example, a university or community college. 
It may also include an institution offering instruction to prepare 
students for gainful employment in a recognized profession, such as 
flying, culinary arts, or dental assistance. An institution of higher 
education does not include elementary or secondary schools.

               46(b)(3) Postsecondary Educational Expenses

    1. General. The examples listed in Sec. 1026.46(b)(3) are 
illustrative only. The full list of postsecondary educational expenses 
is contained in section 472 of the Higher Education Act of 1965 (20 
U.S.C. 1087ll).

                  46(b)(4) Preferred Lender Arrangement

    1. General. The term ``preferred lender arrangement'' is defined in 
section 151 of the Higher Education Act of 1965 (20 U.S.C. 1019). The 
term refers to an arrangement or agreement between a creditor and a 
covered educational institution (or an institution-affiliated 
organization as defined by section 151 of the Higher Education Act of 
1965 (20 U.S.C 1019)) under which a creditor provides private education 
loans to consumers for students attending the covered educational 
institution and the covered educational institution recommends, 
promotes, or endorses the private education loan products of the 
creditor. It does not include arrangements or agreements with respect to 
Federal Direct Stafford/Ford loans, or Federal PLUS loans made under the 
Federal PLUS auction pilot program.

                     46(b)(5) Private Education Loan

    1. Extended expressly for postsecondary educational expenses. A 
private education loan is one that is extended expressly for 
postsecondary educational expenses. The term includes loans extended for 
postsecondary educational expenses incurred while a student is enrolled 
in a covered educational institution as well as loans extended to 
consolidate a consumer's pre-existing private education loans.
    2. Multiple-purpose loans. i. Definition. A private education loan 
may include an extension of credit not excluded under Sec. 
1026.46(b)(5) that the consumer may use for multiple purposes including, 
but not limited to, postsecondary educational expenses. If the consumer 
expressly indicates that the proceeds of the loan will be used to pay 
for postsecondary educational expenses by indicating the loan's purpose 
on an application, the loan is a private education loan.

[[Page 937]]

    ii. Coverage. A creditor generally will not know before an 
application is received whether the consumer intends to use the loan for 
postsecondary educational expenses. For this reason, the creditor need 
not provide the disclosures required by Sec. 1026.47(a) on or with the 
application or solicitation for a loan that may be used for multiple 
purposes. See Sec. 1026.47(d)(1)(i). However, if the consumer expressly 
indicates that the proceeds of the loan will be used to pay for 
postsecondary educational expenses, the creditor must comply with 
Sec. Sec. 1026.47(b) and (c) and Sec. 1026.48. For purposes of the 
required disclosures, the creditor must calculate the disclosures based 
on the entire amount of the loan, even if only a part of the proceeds is 
intended for postsecondary educational expenses. The creditor may rely 
solely on a check-box, or a purpose line, on a loan application to 
determine whether or not the applicant intends to use loan proceeds for 
postsecondary educational expenses.
    iii. Examples. The creditor must comply only if the extension of 
credit also meets the other parts of the definition of private education 
loan. For example, if the creditor uses a single application form for 
both open-end and closed-end credit, and the consumer applies for open-
end credit to be used for postsecondary educational expenses, the 
extension of credit is not covered. Similarly, if the consumer indicates 
the extension of credit will be used for educational expenses that are 
not postsecondary educational expenses, such as elementary or secondary 
educational expenses, the extension of credit is not covered. These 
examples are only illustrative, not exhaustive.
    3. Short-term loans. Some covered educational institutions offer 
loans to students with terms of 90 days or less to assist the student in 
paying for educational expenses, usually while the student waits for 
other funds to be disbursed. Under Sec. 1026.46(b)(5)(iv)(A) such loans 
are not considered private education loans, even if interest is charged 
on the credit balance. (Because these loans charge interest, they are 
not covered by the exception under Sec. 1026.46(b)(5)(iv)(B).) However, 
these loans are extensions of credit subject to the requirements of 
Sec. Sec. 1026.17 and 18. The legal agreement may provide that 
repayment is required when the consumer or the educational institution 
receives certain funds. If, under the terms of the legal obligation, 
repayment of the loan is required when the certain funds are received by 
the consumer or the educational institution (such as by deposit into the 
consumer's or educational institution's account), the disclosures should 
be based on the creditor's estimate of the time the funds will be 
delivered.
    4. Billing plans. Some covered educational institutions offer 
billing plans that permit a consumer to make payments in installments. 
Such plans are not considered private education loans, if an interest 
rate will not be applied to the credit balance and the term of the 
extension of credit is one year or less, even if the plan is payable in 
more than four installments. However, such plans may be extensions of 
credit subject to the requirements of Sec. Sec. 1026.17 and 1026.18.

                        46(c) Form of Disclosures

    1. Form of disclosures--relation to other sections. Creditors must 
make the disclosures required under this subpart in accordance with 
Sec. 1026.46(c). Section 1026.46(c)(2) requires that the disclosures be 
grouped together and segregated from everything else. In complying with 
this requirement, creditors may follow the rules in Sec. 1026.17, 
except where specifically provided otherwise. For example, although 
Sec. 1026.17(b) requires creditors to provide only one set of 
disclosures before consummation of the transaction, Sec. Sec. 
1026.47(b) and (c) require that the creditor provide the disclosures 
under Sec. 1026.18 both upon approval and after the consumer accepts 
the loan.

                     46(c)(3) Electronic Disclosures

    1. Application and solicitation disclosures--electronic disclosures. 
If the disclosures required under Sec. 1026.47(a) are provided 
electronically, they must be provided on or with the application or 
solicitation reply form. Electronic disclosures are deemed to be on or 
with an application or solicitation if they meet one of the following 
conditions:
    i. They automatically appear on the screen when the application or 
solicitation reply form appears;
    ii. They are located on the same Web ``page'' as the application or 
solicitation reply form without necessarily appearing on the initial 
screen, if the application or reply form contains a clear and 
conspicuous reference to the location of the disclosures and indicates 
that the disclosures contain rate, fee, and other cost information, as 
applicable; or
    iii. They are posted on a Web site and the application or 
solicitation reply form is linked to the disclosures in a manner that 
prevents the consumer from by passing the disclosures before submitting 
the application or reply form.

                       46(d) Timing of Disclosures

    1. Receipt of disclosures. Under Sec. 1026.46(d)(4), if the 
creditor places the disclosures in the mail, the consumer is considered 
to have received them three business days after they are mailed. For 
purposes of Sec. 1026.46(d)(4), ``business day'' means all calendar 
days except Sundays and the legal public holidays referred to in Sec. 
1026.2(a)(6). See comment 2(a)(6)-2. For example, if the creditor places 
the disclosures in the mail on Thursday,

[[Page 938]]

June 4, the disclosures are considered received on Monday, June 8.

            46(d)(1) Application or Solicitation Disclosures

    1. Invitations to apply. A creditor may contact a consumer who has 
not been pre-selected for a private education loan about taking out a 
loan (whether by direct mail, telephone, or other means) and invite the 
consumer to complete an application. Such a contact does not meet the 
definition of solicitation, nor is it covered by this subpart, unless 
the contact itself includes the following:
    i. An application form in a direct mailing, electronic communication 
or a single application form as a ``take-one'' (in racks in public 
locations, for example);
    ii. An oral application in a telephone contact; or
    iii. An application in an in-person contact.

                      46(d)(2) Approval Disclosures

    1. Timing. The creditor must provide the disclosures required by 
Sec. 1026.47(b) at the time the creditor provides to the consumer any 
notice that the loan has been approved. However, nothing in this section 
prevents the creditor from communicating to the consumer that additional 
information is required from the consumer before approval may be 
granted. In such a case, a creditor is not required to provide the 
disclosures at that time. If the creditor communicates notice of 
approval to the consumer by mail, the disclosures must be mailed at the 
same time as the notice of approval. If the creditor communicates notice 
of approval by telephone, the creditor must place the disclosures in the 
mail within three business days of the telephone call. If the creditor 
communicates notice of approval in electronic form, the creditor may 
provide the disclosures in electronic form. If the creditor has complied 
with the consumer consent and other applicable provisions of the 
Electronic Signatures in Global and National Commerce Act (E-Sign Act) 
(15 U.S.C. 7001 et seq.) the creditor may provide the disclosures solely 
in electronic form; otherwise, the creditor must place the disclosures 
in the mail within three business days of the communication.

                    46(g) Effect of Subsequent Events

    1. Approval disclosures. Inaccuracies in the disclosures required 
under Sec. 1026.47(b) are not violations if attributable to events 
occurring after disclosures are made, although creditors are restricted 
under Sec. 1026.48(c)(2) from making certain changes to the loan's rate 
or terms after the creditor provides an approval disclosure to a 
consumer. Since creditors are required provide the final disclosures 
under Sec. 1026.47(c), they need not make new approval disclosures in 
response to an event that occurs after the creditor delivers the 
required approval disclosures, except as specified under Sec. 
1026.48(c)(4). For example, at the time the approval disclosures are 
provided, the creditor may not know the precise disbursement date of the 
loan funds and must provide estimated disclosures based on the best 
information reasonably available and labeled as an estimate. If, after 
the approval disclosures are provided, the creditor learns from the 
educational institution the precise disbursement date, new approval 
disclosures would not be required, unless specifically required under 
Sec. 1026.48(c)(4) if other changes are made. Similarly, the creditor 
may not know the precise amounts of each loan to be consolidated in a 
consolidation loan transaction and information about the precise amounts 
would not require new approval disclosures, unless specifically required 
under Sec. 1026.48(c)(4) if other changes are made.
    2. Final disclosures. Inaccuracies in the disclosures required under 
Sec. 1026.47(c) are not violations if attributable to events occurring 
after disclosures are made. For example, if the consumer initially 
chooses to defer payment of principal and interest while enrolled in a 
covered educational institution, but later chooses to make payments 
while enrolled, such a change does not make the original disclosures 
inaccurate.

                 Section 1026.47--Content of Disclosures

    1. As applicable. The disclosures required by this subpart need be 
made only as applicable, unless specifically required otherwise. The 
creditor need not provide any disclosure that is not applicable to a 
particular transaction. For example, in a transaction consolidating 
private education loans, or in transactions under Sec. 1026.46(a) for 
which compliance with this subpart is optional, the creditor need not 
disclose the information under Sec. Sec. 1026.47(a)(6), and (b)(4), and 
any other information otherwise required to be disclosed under this 
subpart that is not applicable to the transaction. Similarly, creditors 
making loans to consumers where the student is not attending an 
institution of higher education, as defined in Sec. 1026.46(b)(2), need 
not provide the disclosures regarding the self-certification form in 
Sec. 1026.47(a)(8).

              47(a) Application or Solicitation Disclosures

                          Paragraph 47(a)(1)(i)

    1. Rates actually offered. The disclosure may state only those rates 
that the creditor is actually prepared to offer. For example, a creditor 
may not disclose a very low interest rate that will not in fact be 
offered at any time. For a loan with variable interest rates, the ranges 
of rates will be considered actually offered if:
    i. For disclosures in applications or solicitations sent by direct 
mail, the rates were in effect within 60 days before mailing;

[[Page 939]]

    ii. For disclosures in applications or solicitations in electronic 
form, the rates were in effect within 30 days before the disclosures are 
sent to a consumer, or for disclosures made on an Internet Web site, 
within 30 days before being viewed by the public;
    iii. For disclosures in printed applications or solicitations made 
available to the general public, the rates were in effect within 30 days 
before printing; or
    iv. For disclosures provided orally in telephone applications or 
solicitations, the rates are currently available at the time the 
disclosures are provided.
    2. Creditworthiness and other factors. If the rate will depend, at 
least in part, on a later determination of the consumer's 
creditworthiness or other factors, the disclosure must include a 
statement that the rate for which the consumer may qualify at approval 
will depend on the consumer's creditworthiness and other factors. The 
creditor may, but is not required to, specify any additional factors 
that it will use to determine the interest rate. For example, if the 
creditor will determine the interest rate based on information in the 
consumer's or cosigner's credit report and the type of school the 
consumer attends, the creditor may state, ``Your interest rate will be 
based on your credit history and other factors (cosigner credit and 
school type).''
    3. Rates applicable to the loan. For a variable-rate private 
education loan, the disclosure of the interest rate or range of rates 
must reflect the rate or rates calculated based on the index and margin 
that will be used to make interest rate adjustments for the loan. The 
creditor may provide a description of the index and margin or range of 
margins used to make interest rate adjustments, including a reference to 
a source, such as a newspaper, where the consumer may look up the index.

                         Paragraph 47(a)(1)(iii)

    1. Coverage. The interest rate is considered variable if the terms 
of the legal obligation allow the creditor to increase the interest rate 
originally disclosed to the consumer and the requirements of Sec. 
1026.47(a)(1)(iii) apply to all such transactions. The provisions do not 
apply to increases resulting from delinquency (including late payment), 
default, assumption, or acceleration.
    2. Limitations. The creditor must disclose how often the rate may 
change and any limit on the amount that the rate may increase at any one 
time. The creditor must also disclose any maximum rate over the life of 
the transaction. If the legal obligation between the parties does 
specify a maximum rate, the creditor must disclose any legal limits in 
the nature of usury or rate ceilings under state or Federal statutes or 
regulations. However, if the applicable maximum rate is in the form of a 
legal limit, such as a state's usury cap (rather than a maximum rate 
specified in the legal obligation between the parties), the creditor 
must disclose that the maximum rate is determined by applicable law. The 
creditor must also disclose that the consumer's actual rate may be 
higher or lower than the initial rates disclosed under Sec. 
1026.47(a)(1)(i), if applicable.

                         Paragraph 47(a)(1)(iv)

    1. Cosigner or guarantor--changes in applicable interest rate. The 
creditor must state whether the interest rate typically will be higher 
if the loan is not co-signed or guaranteed by a third party. The 
creditor is required to provide a statement of the effect on the 
interest rate and is not required to provide a numerical estimate of the 
effect on the interest rate. For example, a creditor may state: ``Rates 
are typically higher without a cosigner.''

             47(a)(2) Fees and Default or Late Payment Costs

    1. Fees or range of fees. The creditor must itemize fees required to 
obtain the private education loan. The creditor must give a single 
dollar amount for each fee, unless the fee is based on a percentage, in 
which case a percentage must be stated. If the exact amount of the fee 
is not known at the time of disclosure, the creditor may disclose the 
dollar amount or percentage for each fee as an estimated range.
    2. Fees required to obtain the private education loan. The creditor 
must itemize the fees that the consumer must pay to obtain the private 
education loan. Fees disclosed include all finance charges under Sec. 
1026.4, such as loan origination fees, credit report fees, and fees 
charged upon entering repayment, as well as fees not considered finance 
charges but required to obtain credit, such as application fees that are 
charged whether or not credit is extended. Fees disclosed include those 
paid by the consumer directly to the creditor and fees paid to third 
parties by the creditor on the consumer's behalf. Creditors are not 
required to disclose fees that apply if the consumer exercises an option 
under the loan agreement after consummation, such as fees for deferment, 
forbearance, or loan modification.

                        47(a)(3) Repayment Terms

    1. Loan term. The term of the loan is the maximum period of time 
during which regularly scheduled payments of principal and interest will 
be due on the loan.
    2. Payment deferral options--general. The creditor must describe the 
options that the consumer has under the loan agreement to defer payment 
on the loan. When there is no deferment option provided for the loan, 
the creditor must disclose that fact. Payment

[[Page 940]]

deferral options required to be disclosed include options for immediate 
deferral of payments, such as when the student is currently enrolled at 
a covered educational institution. The description may include of the 
length of the maximum initial in-school deferment period, the types of 
payments that may be deferred, and a description of any payments that 
are required during the deferment period. The creditor may, but need 
not, disclose any conditions applicable to the deferment option, such as 
that deferment is permitted only while the student is continuously 
enrolled in school. If payment deferral is not an option while the 
student is enrolled in school, the creditor may disclose that the 
consumer must begin repayment upon disbursement of the loan and that the 
consumer may not defer repayment while enrolled in school. If the 
creditor offers payment deferral options that may apply during the 
repayment period, such as an option to defer payments if the student 
returns to school to pursue an additional degree, the creditor must 
include a statement referring the consumer to the contract document or 
promissory note for more information.
    3. Payment deferral options--in school deferment. For each payment 
deferral option applicable while the student is enrolled at a covered 
educational institution the creditor must disclose whether interest will 
accrue while the student is enrolled at a covered educational 
institution and, if interest does accrue, whether payment of interest 
may be deferred and added to the principal balance.
    4. Combination with cost estimate disclosure. The disclosures of the 
loan term under Sec. 1026.47(a)(3)(i) and of the payment deferral 
options applicable while the student is enrolled at a covered 
educational institution under Sec. Sec. 1026.47(a)(3)(ii) and (iii) may 
be combined with the disclosure of cost estimates required in Sec. 
1026.47(a)(4). For example, the creditor may describe each payment 
deferral option in the same chart or table that provides the cost 
estimates for each payment deferral option. See Appendix H-21.
    5. Bankruptcy limitations. The creditor may comply with Sec. 
1026.47(a)(3)(iv) by disclosing the following statement: ``If you file 
for bankruptcy you may still be required to pay back this loan.''

                         47(a)(4) Cost Estimates

    1. Total cost of the loan. For purposes of Sec. 1026.47(a)(4), the 
creditor must calculate the example of the total cost of the loan in 
accordance with the rules in Sec. 1026.18(h) for calculating the loan's 
total of payments.
    2. Basis for estimates. i. The creditor must calculate the total 
cost estimate by determining all finance charges that would be 
applicable to loans with the highest rate of interest required to be 
disclosed under Sec. 1026.47(a)(1)(i). For example, if a creditor 
charges a range of origination fees from 0% to 3%, but the 3% 
origination fee would apply to loans with the highest initial rate, the 
lender must assume the 3% origination fee is charged. The creditor must 
base the total cost estimate on a total loan amount that includes all 
prepaid finance charges and results in a $10,000 amount financed. For 
example, if the prepaid finance charges are $600, the creditor must base 
the estimate on a $10,600 total loan amount and an amount financed of 
$10,000. The example must reflect an amount provided of $10,000. If the 
creditor only offers a particular private education loan for less than 
$10,000, the creditor may assume a loan amount that results in a $5,000 
amount financed for that loan.
    ii. If a prepaid finance charge is determined as a percentage of the 
amount financed, for purposes of the example, the creditor should assume 
that the fee is determined as a percentage of the total loan amount, 
even if this is not the creditor's usual practice. For example, suppose 
the consumer requires a disbursement of $10,000 and the creditor charges 
a 3% origination fee. In order to calculate the total cost example, the 
creditor must determine the loan amount that will result in a $10,000 
amount financed after the 3% fee is assessed. In this example, the 
resulting loan amount would be $10,309.28. Assessing the 3% origination 
fee on the loan amount of $10,309.28 results in an origination fee of 
$309.28, which is withheld from the loan funds disbursed to the 
consumer. The principal loan amount of $10,309.28 minus the prepaid 
finance charge of $309.28 results in an amount financed of $10,000.
    3. Calculated for each option to defer interest payments. The 
example must include an estimate of the total cost of the loan for each 
in-school deferral option disclosed in Sec. 1026.47(a)(3)(iii). For 
example, if the creditor provides the consumer with the option to begin 
making principal and interest payments immediately, to defer principal 
payments but begin making interest-only payments immediately, or to 
defer all principal and interest payments while in school, the creditor 
is required to disclose three estimates of the total cost of the loan, 
one for each deferral option. If the creditor adds accrued interest to 
the loan balance (i.e., interest is capitalized), the estimate of the 
total loan cost should be based on the capitalization method that the 
creditor actually uses for the loan. For instance, for each deferred 
payment option where the creditor would capitalize interest on a 
quarterly basis, the total loan cost must be calculated assuming 
interest capitalizes on a quarterly basis.
    4. Deferment period assumptions. Creditors may use either of the 
following two methods for estimating the duration of in-school deferment 
periods:

[[Page 941]]

    i. For loan programs intended for educational expenses of 
undergraduate students, the creditor may assume that the consumer defers 
payments for a four-year matriculation period, plus the loan's maximum 
applicable grace period, if any. For all other loans, the creditor may 
assume that the consumer defers for a two-year matriculation period, 
plus the maximum applicable grace period, if any, or the maximum time 
the consumer may defer payments under the loan program, whichever is 
shorter.
    ii. Alternatively, if the creditor knows that the student will be 
enrolled in a program with a standard duration, the creditor may assume 
that the consumer defers payments for the full duration of the program 
(plus any grace period). For example, if a creditor makes loans intended 
for students enrolled in a four-year medical school degree program, the 
creditor may assume that the consumer defers payments for four years 
plus the loan's maximum applicable grace period, if any. However, the 
creditor may not modify the disclosure to correspond to a particular 
student's situation. For example, even if the creditor knows that a 
student will be a second-year medical school student, the creditor must 
assume a four-year deferral period.

                         Paragraph 47(a)(6)(ii)

    1. Terms of Federal student loans. The creditor must disclose the 
interest rates available under each program under Title IV of the Higher 
Education Act of 1965 and whether the rates are fixed or variable, as 
prescribed in the Higher Education Act of 1965 (20 U.S.C. 1077a). Where 
the fixed interest rate for a loan varies by statute depending on the 
date of disbursement or receipt of application, the creditor must 
disclose only the interest rate as of the time the disclosure is 
provided.

                         Paragraph 47(a)(6)(iii)

    1. Web site address. The creditor must include with this disclosure 
an appropriate U.S. Department of Education Web site address such as 
``federalstudentaid.ed.gov.''

                       47(b) Approval Disclosures

                         47(b)(1) Interest Rate

    1. Variable rate disclosures. The interest rate is considered 
variable if the terms of the legal obligation allow the creditor to 
increase the interest rate originally disclosed to the consumer. The 
provisions do not apply to increases resulting from delinquency 
(including late payment), default, assumption, or acceleration. In 
addition to disclosing the information required under Sec. Sec. 
1026.47(b)(ii) and (iii), the creditor must disclose the information 
required under Sec. Sec. 1026.18(f)(1)(i) and (iii)--the circumstances 
under which the rate may increase and the effect of an increase, 
respectively. The creditor is required to disclose the maximum monthly 
payment based on the maximum possible rate in Sec. 1026.47(b)(3)(viii), 
and the creditor need not disclose a separate example of the payment 
terms that would result from an increase under Sec. 1026.18(f)(1)(iv).
    2. Limitations on rate adjustments. The creditor must disclose how 
often the rate may change and any limit on the amount that the rate may 
increase at any one time. The creditor must also disclose any maximum 
rate over the life of the transaction. If the legal obligation between 
the parties does provide a maximum rate, the creditor must disclose any 
legal limits in the nature of usury or rate ceilings under state or 
Federal statutes or regulations. However, if the applicable maximum rate 
is in the form of a legal limit, such as a state's usury cap (rather 
than a maximum rate specified in the legal obligation between the 
parties), the creditor must disclose that the maximum rate is determined 
by applicable law. Compliance with Sec. 1026.18(f)(1)(ii) (requiring 
disclosure of any limitations on the increase of the interest rate) does 
not necessarily constitute compliance with this section. Specifically, 
this section requires that if there are no limitations on interest rate 
increases, the creditor must disclose that fact. By contrast, comment 
18(f)(1)(ii)-1 states that if there are no limitations the creditor need 
not disclose that fact. In addition, under this section, limitations on 
rate increases include, rather than exclude, legal limits in the nature 
of usury or rate ceilings under state or Federal statutes or 
regulations.
    3. Rates applicable to the loan. For a variable-rate loan, the 
disclosure of the interest rate must reflect the index and margin that 
will be used to make interest rate adjustments for the loan. The 
creditor may provide a description of the index and margin or range of 
margins used to make interest rate adjustments, including a reference to 
a source, such as a newspaper, where the consumer may look up the index.

             47(b)(2) Fees and Default or Late Payment Costs

    1. Fees and default or late payment costs. Creditors may follow the 
commentary for Sec. 1026.47(a)(2) in complying with Sec. 
1026.47(b)(2). Creditors must disclose the late payment fees required to 
be disclosed under Sec. 1026.18(l) as part of the disclosure required 
under Sec. 1026.47(b)(2)(ii). If the creditor includes the itemization 
of the amount financed under Sec. 1026.18(c)(1), any fees disclosed as 
part of the itemization need not be separately disclosed elsewhere.

[[Page 942]]

                        47(b)(3) Repayment Terms

    1. Principal amount. The principal amount must equal what the face 
amount of the note would be as of the time of approval, and it must be 
labeled ``Total Loan Amount.'' See Appendix H-18. This amount may be 
different from the ``principal loan amount'' used to calculate the 
amount financed under comment 18(b)(3)-1, because the creditor has the 
option under that comment of using a ``principal loan amount'' that is 
different from the face amount of the note. If the creditor elects to 
provide an itemization of the amount financed under Sec. 1026.18(c)(1) 
the creditor need not disclose the amount financed elsewhere.
    2. Loan term. The term of the loan is the maximum period of time 
during which regularly scheduled payments of principal and interest are 
due on the loan.
    3. Payment deferral options applicable to the consumer. Creditors 
may follow the commentary for Sec. 1026.47(a)(3)(ii) in complying with 
Sec. 1026.47(b)(3)(iii).
    4. Payments required during enrollment. Required payments that must 
be disclosed include payments of interest and principal, interest only, 
or other payments that the consumer must make during the time that the 
student is enrolled. Compliance with Sec. 1026.18(g) constitutes 
compliance with Sec. 1026.47(b)(3)(iv).
    5. Bankruptcy limitations. The creditor may comply with Sec. 
1026.47(b)(3)(vi) by disclosing the following statement: ``If you file 
for bankruptcy you may still be required to pay back this loan.''
    6. An estimate of the total amount for repayment. The creditor must 
disclose an estimate of the total amount for repayment at two interest 
rates:
    i. The interest rate in effect on the date of approval. Compliance 
with the total of payments disclosure requirement of Sec. 1026.18(h) 
constitutes compliance with this requirement.
    ii. The maximum possible rate of interest applicable to the loan or, 
if the maximum rate cannot be determined, a rate of 25%. If the legal 
obligation between the parties specifies a maximum rate of interest, the 
creditor must calculate the total amount for repayment based on that 
rate. If the legal obligation does not specify a maximum rate but a 
usury or rate ceiling under state or Federal statutes or regulations 
applies, the creditor must use that rate. If a there is no maximum rate 
in the legal obligation or under a usury or rate ceiling, the creditor 
must base the disclosure on a rate of 25% and must disclose that there 
is no maximum rate and that the total amount for repayment disclosed 
under Sec. 1026.47(b)(3)(vii)(B) is an estimate and will be higher if 
the applicable interest rate increases.
    iii. If terms of the legal obligation provide a limitation on the 
amount that the interest rate may increase at any one time, the creditor 
may reflect the effect of the interest rate limitation in calculating 
the total cost example. For example, if the legal obligation provides 
that the interest rate may not increase by more than three percentage 
points each year, the creditor may assume that the rate increases by 
three percentage points each year until it reaches that maximum possible 
rate, or if a maximum rate cannot be determined, an interest rate of 
25%.
    7. The maximum monthly payment. The creditor must disclose the 
maximum payment that the consumer could be required to make under the 
loan agreement, calculated using the maximum rate of interest applicable 
to the loan, or if the maximum rate cannot be determined, a rate of 25%. 
The creditor must determine and disclose the maximum rate of interest in 
accordance with comments 47(b)(3)-6.ii and 47(b)(3)-6.iii. In addition, 
if a maximum rate cannot be determined, the creditor must state that 
there is no maximum rate and that the monthly payment amounts disclosed 
under Sec. 1026.47(b)(3)(viii) are estimates and will be higher if the 
applicable interest rate increases.

            47(b)(4) Alternatives to Private Education Loans

    1. General. Creditors may use the guidance provided in the 
commentary for Sec. 1026.47(a)(6) in complying with Sec. 
1026.47(b)(4).

                     47(b)(5) Rights of the Consumer

    1. Notice of acceptance period. The disclosure that the consumer may 
accept the terms of the loan until the acceptance period under Sec. 
1026.48(c)(1) has expired must include the specific date on which the 
acceptance period expires and state that the consumer may accept the 
terms of the loan until that date. Under Sec. 1026.48(c)(1), the date 
on which the acceptance period expires is based on when the consumer 
receives the disclosures. If the creditor mails the disclosures, the 
consumer is considered to have received them three business days after 
the creditor places the disclosures in the mail See Sec. 1026.46(d)(4). 
If the creditor provides an acceptance period longer than the minimum 30 
calendar days, the disclosure must reflect the later date. The 
disclosure must also specify the method or methods by which the consumer 
may communicate acceptance.

                         47(c) Final Disclosures

    1. Notice of right to cancel. The disclosure of the right to cancel 
must include the specific date on which the three-day cancellation 
period expires and state that the consumer has a right to cancel by that 
date. See comments 48(d)-1 and -2. For example, if the disclosures were 
mailed to the consumer on Friday,

[[Page 943]]

June 1, and the consumer is deemed to receive them on Tuesday, June 5, 
the creditor could state: ``You have a right to cancel this transaction, 
without penalty, by midnight on June 8, 2009. No funds will be disbursed 
to you or to your school until after this time. You may cancel by 
calling us at 800-XXX-XXXX.'' If the creditor permits cancellation by 
mail, the statement must specify that the consumer's mailed request will 
be deemed timely if placed in the mail not later than the cancellation 
date specified on the disclosure. The disclosure must also specify the 
method or methods by which the consumer may cancel.
    2. More conspicuous. The statement of the right to cancel must be 
more conspicuous than any other disclosure required under this section 
except for the finance charge, the interest rate, and the creditor's 
identity. See Sec. 1026.46(c)(2)(iii). The statement will be deemed to 
be made more conspicuous if it is segregated from other disclosures, 
placed near or at the top of the disclosure document, and highlighted in 
relation to other required disclosures. For example, the statement may 
be outlined with a prominent, noticeable box; printed in contrasting 
color; printed in larger type, bold print, or different type face; 
underlined; or set off with asterisks.

         Section 1026.48--Limitations on Private Education Loans

    1. Co-branding--definition of marketing. The prohibition on co-
branding in Sec. Sec. 1026.48(a) and (b) applies to the marketing of 
private education loans. The term marketing includes any advertisement 
under Sec. 1026.2(a)(2). In addition, the term marketing includes any 
document provided by the creditor to the consumer related to a specific 
transaction, such as an application or solicitation, a promissory note 
or a contract provided to the consumer. For example, prominently 
displaying the name of the educational institution at the top of the 
application form or promissory note without mentioning the name of the 
creditor, such as by naming the loan product the ``University of ABC 
Loan,'' would be prohibited.
    2. Implied endorsement. A suggestion that a private education loan 
is offered or made by the covered educational institution instead of by 
the creditor is included in the prohibition on implying that the covered 
educational institution endorses the private education loan under Sec. 
1026.48(a)(1). For example, naming the loan the ``University of ABC 
Loan,'' suggests that the loan is offered by the educational 
institution. However, the use of a creditor's full name, even if that 
name includes the name of a covered educational institution, does not 
imply endorsement. For example, a credit union whose name includes the 
name of a covered educational institution is not prohibited from using 
its own name. In addition, the authorized use of a state seal by a state 
or an institution of higher education in the marketing of state 
education loan products does not imply endorsement.
    3. Disclosure. i. A creditor is considered to have complied with 
Sec. 1026.48(a)(2) if the creditor's marketing contains a clear and 
conspicuous statement, equally prominent and closely proximate to the 
reference to the covered educational institution, using the name of the 
creditor and the name of the covered educational institution that the 
covered educational institution does not endorse the creditor's loans 
and that the creditor is not affiliated with the covered educational 
institution. For example, ``[Name of creditor]'s loans are not endorsed 
by [name of school] and [name of creditor] is not affiliated with [name 
of school].'' The statement is considered to be equally prominent and 
closely proximate if it is the same type size and is located immediately 
next to or directly above or below the reference to the educational 
institution, without any intervening text or graphical displays.
    ii. A creditor is considered to have complied with Sec. 1026.48(b) 
if the creditor's marketing contains a clear and conspicuous statement, 
equally prominent and closely proximate to the reference to the covered 
educational institution, using the name of the creditor's loan or loan 
program, the name of the covered educational institution, and the name 
of the creditor, that the creditor's loans are not offered or made by 
the covered educational institution, but are made by the creditor. For 
example, ``[Name of loan or loan program] is not being offered or made 
by [name of school], but by [name of creditor].'' The statement is 
considered to be equally prominent and closely proximate if it is the 
same type size and is located immediately next to or directly above or 
below the reference to the educational institution, without any 
intervening text or graphical displays.

                    48(c) Consumer's Right to Accept

    1. 30 day acceptance period. The creditor must provide the consumer 
with at least 30 calendar days from the date the consumer receives the 
disclosures required under Sec. 1026.47(b) to accept the terms of the 
loan. The creditor may provide the consumer with a longer period of 
time. If the creditor places the disclosures in the mail, the consumer 
is considered to have received them three business days after they are 
mailed under Sec. 1026.46(d)(4). For purposes of determining when a 
consumer receives mailed disclosures, ``business day'' means all 
calendar days except Sundays and the legal public holidays referred to 
in Sec. 1026.2(a)(6). See comment 46(d)-1. The consumer may accept the

[[Page 944]]

loan at any time before the end of the 30-day period.
    2. Method of acceptance. The creditor must specify a method or 
methods by which the consumer can accept the loan at any time within the 
30-day acceptance period. The creditor may require the consumer to 
communicate acceptance orally or in writing. Acceptance may also be 
communicated electronically, but electronic communication must not be 
the only means provided for the consumer to communicate acceptance 
unless the creditor has provided the approval disclosure electronically 
in compliance with the consumer consent and other applicable provisions 
of the Electronic Signatures in Global and National Commerce Act (E-Sign 
Act) (15 U.S.C. 7001 et seq.). If acceptance by mail is allowed, the 
consumer's communication of acceptance is considered timely if placed in 
the mail within the 30-day period.
    3. Prohibition on changes to rates and terms. The prohibition on 
changes to the rates and terms of the loan applies to changes that 
affect those terms that are required to be disclosed under Sec. Sec. 
1026.47(b) and (c). The creditor is permitted to make changes that do 
not affect any of the terms disclosed to the consumer under those 
sections.
    4. Permissible changes to rates and terms--re-disclosure not 
required. Creditors are not required to consummate a loan where the 
extension of credit would be prohibited by law or where the creditor has 
reason to believe that the consumer has committed fraud. A creditor may 
make changes to the rate based on adjustments to the index used for the 
loan and changes that will unequivocally benefit the consumer. For 
example, a creditor is permitted to reduce the interest rate or lower 
the amount of a fee. A creditor may also reduce the loan amount based on 
a certification or other information received from a covered educational 
institution or from the consumer indicating that the student's cost of 
attendance has decreased or the amount of other financial aid has 
increased. A creditor may also withdraw the loan approval based on a 
certification or other information received from a covered educational 
institution or from the consumer indicating that the student is not 
enrolled in the institution. For these changes permitted by Sec. 
1026.48(c)(3), the creditor is not required to provide a new set of 
approval disclosures required under Sec. 1026.47(b) or provide the 
consumer with a new 30-day acceptance period under Sec. 1026.48(c)(1). 
The creditor must provide the final disclosures under Sec. 1026.47(c).
    5. Permissible changes to rates and terms--school certification. If 
the creditor reduces the loan amount based on information that the 
student's cost of attendance has decreased or the amount of other 
financial aid has increased, the creditor may make certain corresponding 
changes to the rate and terms. The creditor may change the rate or terms 
to those that the consumer would have received if the consumer had 
applied for the reduced loan amount. For example, assume a consumer 
applies for, and is approved for, a $10,000 loan at a 7% interest rate. 
However, after the consumer receives the approval disclosures, the 
consumer's school certifies that the consumer's financial need is only 
$8,000. The creditor may reduce the loan amount for which the consumer 
is approved to $8,000. The creditor may also, for example, increase the 
interest rate on the loan to 7.125%, but only if the consumer would have 
received a rate of 7.125% if the consumer had originally applied for an 
$8,000 loan.
    6. Permissible changes to rates and terms--re-disclosure required. A 
creditor may make changes to the interest rate or terms to accommodate a 
request from a consumer. For example, assume a consumer applies for a 
$10,000 loan and is approved for the $10,000 amount at an interest rate 
of 6%. After the creditor has provided the approval disclosures, the 
consumer's financial need increases, and the consumer requests to a loan 
amount of $15,000. In this situation, the creditor is permitted to offer 
a $15,000 loan, and to make any other changes such as raising the 
interest rate to 7%, in response to the consumer's request. The creditor 
must provide a new set of disclosures under Sec. 1026.47(b) and provide 
the consumer with 30 days to accept the offer under Sec. 1026.48(c) for 
the $15,000 loan offered in response to the consumer's request. However, 
because the consumer may choose not to accept the offer for the $15,000 
loan at the higher interest rate, the creditor may not withdraw or 
change the rate or terms of the offer for the $10,000 loan, except as 
permitted under Sec. 1026.48(c)(3), unless the consumer accepts the 
$15,000 loan.

                    48(d) Consumer's Right to Cancel

    1. Right to cancel. If the creditor mails the disclosures, the 
disclosures are considered received by the consumer three business days 
after the disclosures were mailed. For purposes of determining when the 
consumer receives the disclosures, the term ``business day'' is defined 
as all calendar days except Sunday and the legal public holidays 
referred to in Sec. 1026.2(a)(6). See Sec. 1026.46(d)(4). The consumer 
has three business days from the date on which the disclosures are 
deemed received to cancel the loan. For example, if the creditor places 
the disclosures in the mail on Thursday, June 4, the disclosures are 
considered received on Monday, June 8. The consumer may cancel any time 
before midnight Thursday, June 11. The creditor may provide the consumer 
with more time to cancel the loan than the minimum three business days 
required under this section. If the creditor provides the consumer with 
a longer period of time in which to cancel the loan, the creditor may 
disburse the funds three

[[Page 945]]

business days after the consumer has received the disclosures required 
under this section, but the creditor must honor the consumer's later 
timely cancellation request.
    2. Method of cancellation. The creditor must specify a method or 
methods by which the consumer may cancel. For example, the creditor may 
require the consumer to communicate cancellation orally or in writing. 
Cancellation may also be communicated electronically, but electronic 
communication must not be the only means by which the consumer may 
cancel unless the creditor provided the final disclosure electronically 
in compliance with the consumer consent and other applicable provisions 
of the Electronic Signatures in Global and National Commerce Act (E-Sign 
Act) (15 U.S.C. 7001 et seq.). If the creditor allows cancellation by 
mail, the creditor must specify an address or the name and address of an 
agent of the creditor to receive notice of cancellation. The creditor 
must wait to disburse funds until it is reasonably satisfied that the 
consumer has not canceled. For example, the creditor may satisfy itself 
by waiting a reasonable time after expiration of the cancellation period 
to allow for delivery of a mailed notice. The creditor may also satisfy 
itself by obtaining a written statement from the consumer, which must be 
provided to and signed by the consumer only at the end of the three-day 
period, that the right has not been exercised.
    3. Cancellation without penalty. The creditor may not charge the 
consumer a fee for exercising the right to cancel under Sec. 
1026.48(d). The prohibition extends only to fees charged specifically 
for canceling the loan. The creditor is not required to refund fees, 
such as an application fee, that are charged to all consumers whether or 
not the consumer cancels the loan.

                      48(e) Self-Certification Form

    1. General. Section 1026.48(e) requires that the creditor obtain the 
self-certification form, signed by the consumer, before consummating the 
private education loan. The rule applies only to private education loans 
that will be used for the postsecondary educational expenses of a 
student while that student is attending an institution of higher 
education as defined in Sec. 1026.46(b)(2). It does not apply to all 
covered educational institutions. The requirement applies even if the 
student is not currently attending an institution of higher education, 
but will use the loan proceeds for postsecondary educational expenses 
while attending such institution. For example, a creditor is required to 
obtain the form before consummating a private education loan provided to 
a high school senior for expenses to be incurred during the consumer's 
first year of college. This provision does not require that the creditor 
obtain the self-certification form in instances where the loan is not 
intended for a student attending an institution of higher education, 
such as when the consumer is consolidating loans after graduation. 
Section 155(a)(2) of the Higher Education Act of 1965 provides that the 
form shall be made available to the consumer by the relevant institution 
of higher education. However, Sec. 1026.48(e) provides flexibility to 
institutions of higher education and creditors as to how the completed 
self-certification form is provided to the lender. The creditor may 
receive the form directly from the consumer, or the creditor may receive 
the form from the consumer through the institution of higher education. 
In addition, the creditor may provide the form, and the information the 
consumer will require to complete the form, directly to the consumer.
    2. Electronic signature. Under section 155(a)(2) of the Higher 
Education Act of 1965, the institution of higher education may provide 
the self-certification form to the consumer in written or electronic 
form. Under section 155(a)(5) of the Higher Education Act of 1965, the 
form may be signed electronically by the consumer. A creditor may accept 
the self-certification form from the consumer in electronic form. A 
consumer's electronic signature is considered valid if it meets the 
requirements issued by the Department of Education under section 
155(a)(5) of the Higher Education Act of 1965.

           48(f) Provision of Information by Preferred Lenders

    1. General. Section 1026.48(f) does not specify the format in which 
creditors must provide the required information to the covered 
educational institution. Creditors may choose to provide only the 
required information or may provide copies of the form or forms the 
lender uses to comply with Sec. 1026.47(a). A creditor is only required 
to provide the required information if the creditor is aware that it is 
a party to a preferred lender arrangement. For example, if a creditor is 
placed on a covered educational institution's preferred lender list 
without the creditor's knowledge, the creditor is not required to comply 
with Sec. 1026.48(f).

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

                     Section 1026.51 Ability To Pay

                           51(a) General Rule

               51(a)(1)(i) Consideration of Ability to Pay

    1. Consideration of additional factors. Section 1026.51(a) requires 
a card issuer to consider a consumer's independent ability to make the 
required minimum periodic payments under the terms of an account based

[[Page 946]]

on the consumer's independent income or assets and current obligations. 
The card issuer may also consider consumer reports, credit scores, and 
other factors, consistent with Regulation B (12 CFR part 1002).
    2. Ability to pay as of application or consideration of increase. A 
card issuer complies with Sec. 1026.51(a) if it bases its determination 
regarding a consumer's independent ability to make the required minimum 
periodic payments on the 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.
    3. Credit line increase. When a card issuer considers increasing the 
credit line on an existing account, Sec. 1026.51(a) applies whether the 
consideration is based upon a request of the consumer or is initiated by 
the card issuer.
    4. Income and assets. i. Sources of information. For purposes of 
Sec. 1026.51(a), a card issuer may consider the consumer's income and 
assets based on:
    A. Information provided by the consumer in connection with the 
credit card account under an open-end (not home-secured) consumer credit 
plan;
    B. Information provided by the consumer in connection with any other 
financial relationship the card issuer or its affiliates have with the 
consumer (subject to any applicable information-sharing rules);
    C. Information obtained through third parties (subject to any 
applicable information-sharing rules); and
    D. Information obtained through any empirically derived, 
demonstrably and statistically sound model that reasonably estimates a 
consumer's income and assets.
    ii. Income and assets of persons liable for debts incurred on 
account. For purposes of Sec. 1026.51(a), a card issuer may consider 
any current or reasonably expected income and assets of the consumer or 
consumers who are applying for a new account and will be liable for 
debts incurred on that account. Similarly, when a card issuer is 
considering whether to increase the credit limit on an existing account, 
the card issuer may consider any current or reasonably expected income 
and assets of the consumer or consumers who are accountholders and are 
liable for debts incurred on that account. A card issuer may also 
consider any current or reasonably expected income and assets of a 
cosigner or guarantor who is or will be liable for debts incurred on the 
account. However, a card issuer may not use the income and assets of an 
authorized user or other person who is not liable for debts incurred on 
the account to satisfy the requirements of Sec. 1026.51, unless a 
Federal or state statute or regulation grants a consumer who is liable 
for debts incurred on the account an ownership interest in such income 
and assets. Information about current or reasonably expected income and 
assets includes, for example, information about current or expected 
salary, wages, bonus pay, tips, and commissions. Employment may be full-
time, part-time, seasonal, irregular, military, or self-employment. 
Other sources of income could include interest or dividends, retirement 
benefits, public assistance, alimony, child support, or separate 
maintenance payments. A card issuer may also take into account assets 
such as savings accounts or investments.
    iii. Household income and assets. Consideration of information 
regarding a consumer's household income does not by itself satisfy the 
requirement in Sec. 1026.51(a) to consider the consumer's independent 
ability to pay. For example, if a card issuer requests on its 
application forms that applicants provide their ``household income,'' 
the card issuer may not rely solely on the information provided by 
applicants to satisfy the requirements of Sec. 1026.51(a). Instead, the 
card issuer would need to obtain additional information about an 
applicant's independent income (such as by contacting the applicant). 
However, if a card issuer requests on its application forms that 
applicants provide their income without reference to household income 
(such as by requesting ``income'' or ``salary''), the card issuer may 
rely on the information provided by applicants to satisfy the 
requirements of Sec. 1026.51(a).
    5. Current obligations. A card issuer may consider the consumer's 
current obligations based on information provided by the consumer or in 
a consumer report. In evaluating a consumer's current obligations, a 
card issuer need not assume that credit lines for other obligations are 
fully utilized.
    6. Joint applicants and joint accountholders. With respect to the 
opening of a joint account for two or more consumers or a credit line 
increase on such an account, the card issuer may consider the collective 
ability of all persons who are or will be liable for debts incurred on 
the account to make the required payments.

                   51(a)(2) Minimum Periodic Payments

    1. Applicable minimum payment formula. For purposes of estimating 
required minimum periodic payments under the safe harbor set forth in 
Sec. 1026.51(a)(2)(ii), if the 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.
    2. Interest rate for purchases. For purposes of estimating required 
minimum periodic payments under the safe harbor set forth in

[[Page 947]]

Sec. 1026.51(a)(2)(ii), if the interest rate for purchases is or may be 
a promotional rate, the issuer must use the post-promotional rate to 
estimate interest charges.
    3. Mandatory fees. For purposes of estimating required minimum 
periodic payments under the safe harbor set forth in Sec. 
1026.51(a)(2)(ii), mandatory fees that must be assumed to be charged 
include those fees the card issuer knows the consumer will be required 
to pay under the terms of the account if the account is opened, such as 
an annual fee. If a mandatory fee is a promotional fee (as defined in 
Sec. 1026.16(g)), the issuer must use the post-promotional fee amount 
for purposes of Sec. 1026.51(a)(2)(ii).

                  51(b) Rules Affecting Young Consumers

    1. Age as of date of application or consideration of credit line 
increase. Sections 1026.51(b)(1) and (b)(2) apply only to a consumer who 
has not attained the age of 21 as of the date of submission of the 
application under Sec. 1026.51(b)(1) or the date the credit line 
increase is requested by the consumer (or if no request has been made, 
the date the credit line increase is considered by the card issuer) 
under Sec. 1026.51(b)(2).
    2. Liability of cosigner, guarantor, or joint accountholder. 
Sections 1026.51(b)(1)(ii) and (b)(2) require the signature or written 
consent of a cosigner, guarantor, or joint accountholder agreeing either 
to be secondarily liable for any debt on the account incurred by the 
consumer before the consumer has attained the age of 21 or to be jointly 
liable with the consumer for any debt on the account. Sections 
1026.51(b)(1)(ii) and (b)(2) do not prohibit a card issuer from also 
requiring the cosigner, guarantor, or joint accountholder to assume 
liability for debts incurred after the consumer has attained the age of 
21, consistent with any agreement made between the parties.
    3. Authorized users exempt. If a consumer who has not attained the 
age of 21 is being added to another person's account as an authorized 
user and has no liability for debts incurred on the account, Sec. 
1026.51(b)(1) and (b)(2) do not apply.
    4. Electronic application. Consistent with Sec. 1026.5(a)(1)(iii), 
an application may be provided to the consumer in electronic form 
without regard to the consumer consent or other provisions of the 
Electronic Signatures in Global and National Commerce Act (E-Sign Act) 
(15 U.S.C. 7001 et seq.) in the circumstances set forth in Sec. 
1026.60. The electronic submission of an application from a consumer or 
a consent to a credit line increase from a cosigner, guarantor, or joint 
accountholder to a card issuer would constitute a written application or 
consent for purposes of Sec. 1026.51(b) and would not be considered a 
consumer disclosure for purposes of the E-Sign Act.

               51(b)(1) Applications from young consumers

    1. Relation to Regulation B. In considering an application or credit 
line increase on the credit card account of a consumer who is less than 
21 years old, creditors must comply with the applicable rules in 
Regulation B (12 CFR part 1002).
    2. Financial information. Information regarding income and assets 
that satisfies the requirements of Sec. 1026.51(a) also satisfies the 
requirements of Sec. 1026.51(b)(1). See comment 51(a)(1)-4.

           51(b)(2) Credit line increases for young consumers

    1. Credit line request by joint accountholder aged 21 or older. The 
requirement under Sec. 1026.51(b)(2) that a cosigner, guarantor, or 
joint accountholder for a credit card account opened pursuant to Sec. 
1026.51(b)(1)(ii) must agree in writing to assume liability for the 
increase before a credit line is increased, does not apply if the 
cosigner, guarantor or joint accountholder who is at least 21 years old 
initiates the request for the increase.

                  Section 1026.52--Limitations on Fees

 52(a) Limitations prior to account opening and 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

[[Page 948]]

one, the consumer uses the account for a $50 cash advance. Section 
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 prior 
to account opening or 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 prior to the opening of the 
credit card account or during the first year after the credit card 
account is opened.
    iii. Assume that, on January 1 of year one, a consumer is required 
to pay a $100 fee in order to apply for a credit card account. On 
January 5, the card issuer approves the consumer's application, assigns 
the account a credit limit of $1,000, and provides the consumer with 
account-opening disclosures consistent with Sec. 1026.6. The date on 
which the account may first be used by the consumer to engage in 
transactions is January 5. The consumer is required to pay $150 in fees 
for the issuance or availability of credit, which Sec. 1026.52(a)(1) 
permits the card issuer to charge to the account on January 5. However, 
because the $100 application fee is subject to the 25 percent limit in 
Sec. 1026.52(a)(1), the card issuer is prohibited from requiring the 
consumer to pay any additional non-exempt fees with respect to the 
account until January 5 of year two.
    2. Fees that exceed 25 percent limit. A card issuer that charges a 
fee to a credit card account that exceeds the 25 percent limit complies 
with Sec. 1026.52(a)(1) if the card issuer waives or removes the fee 
and any associated interest charges or credits the account for an amount 
equal to the fee and any associated interest charges 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 example, 
assuming the facts in the example in comment 52(a)(1)-1.i above, the 
card issuer complies with Sec. 1026.52(a)(1) if the card issuer charged 
the $2.50 cash advance fee to the account on July 15 of year one but 
waived or removed the fee or credited the account for $2.50 (plus any 
interest charges on that $2.50) at the end of the billing cycle.
    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:
    A. 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 $500. Section 1026.52(a)(1) requires the 
card issuer to waive or remove $175 in fees from the account or to 
credit the account for an amount equal to $175 within a reasonable 
amount of time but no later than August 31.
    B. Assume that, on June 25 of year one, a consumer is required to 
pay a $75 fee in order to apply for a credit card account. At account 
opening on July 1 of year one, the credit limit for the account is $500 
and the consumer is required to pay $50 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 February 
15 of year two, the card issuer decreases the credit limit for the 
account to $250. Section 1026.52(a)(1) requires the card issuer to waive 
or remove fees from the account or to credit the account for an amount 
equal to $62.50 within a reasonable amount of time but no later than 
March 31 of year two.
    4. Date on which account may first be used by consumer to engage in 
transactions. i. Methods of compliance. For purposes of Sec. 
1026.52(a)(1), an account is considered open no earlier than

[[Page 949]]

the date on which the account may first be used by the consumer to 
engage in transactions. A card issuer may consider an account open for 
purposes of Sec. 1026.52(a)(1) on any of the following dates:
    A. The date the account is first used by the consumer for a 
transaction (such as when an account is established in connection with 
financing the purchase of goods or services).
    B. The date the consumer complies with any reasonable activation 
procedures imposed by the card issuer for preventing fraud or 
unauthorized use of a new account (such as requiring the consumer to 
provide information that verifies his or her identity), provided that 
the account may be used for transactions on that date.
    C. The date that is seven days after the card issuer mails or 
delivers to the consumer account-opening disclosures that comply with 
Sec. 1026.6, provided that the consumer may use the account for 
transactions after complying with any reasonable activation procedures 
imposed by the card issuer for preventing fraud or unauthorized use of 
the new account (such as requiring the consumer to provide information 
that verifies his or her identity). If a card issuer has reasonable 
procedures designed to ensure that account-opening disclosures that 
comply with Sec. 1026.6 are mailed or delivered to consumers no later 
than a certain number of days after the card issuer establishes the 
account, the card issuer may add that number of days to the seven-day 
period for purposes of determining the date on which the account was 
opened.
    ii. Examples. A. Assume that, on July 1 of year one, a credit card 
account under an open-end (not home-secured) consumer credit plan is 
established in connection with financing the purchase of goods or 
services and a $500 transaction is charged to the account by the 
consumer. The card issuer may consider the account open on July 1 of 
year one for purposes of Sec. 1026.52(a)(1). Accordingly, Sec. 
1026.52(a)(1) ceases to apply to the account on July 1 of year two.
    B. Assume that, on July 1 of year one, a card issuer approves a 
consumer's application for a credit card account under an open-end (not 
home-secured) consumer credit plan and establishes the account on its 
internal systems. On July 5, the card issuer mails or delivers to the 
consumer account-opening disclosures that comply with Sec. 1026.6. If 
the consumer may use the account for transactions on the date the 
consumer complies with any reasonable procedures imposed by the card 
issuer for preventing fraud or unauthorized use, the card issuer may 
consider the account open on July 12 of year one for purposes of Sec. 
1026.52(a)(1). Accordingly, Sec. 1026.52(a)(1) ceases to apply to the 
account on July 12 of year two.
    C. Same facts as in paragraph B above except that the card issuer 
has adopted reasonable procedures designed to ensure that account-
opening disclosures that comply with Sec. 1026.6 are mailed or 
delivered to consumers no later than three days after an account is 
established on its systems. If the consumer may use the account for 
transactions on the date the consumer complies with any reasonable 
procedures imposed by the card issuer for preventing fraud or 
unauthorized use, the card issuer may consider the account open on July 
11 of year one for purposes of Sec. 1026.52(a)(1). Accordingly, Sec. 
1026.52(a)(1) ceases to apply to the account on July 11 of year two. 
However, if the consumer uses the account for a transaction or complies 
with the card issuer's reasonable procedures for preventing fraud or 
unauthorized use on July 8 of year one, the card issuer may, at its 
option, consider the account open on that date for purposes of Sec. 
1026.52(a)(1) and Sec. 1026.52(a)(1) therefore ceases to apply to the 
account on July 8 of year two.

                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 
prior to account opening and 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.
    2. Fees the consumer is not required to pay. Section 
1026.52(a)(2)(ii) provides that Sec. 1026.52(a) does not apply to fees 
that the consumer is not required to pay with respect to the account. 
For example, Sec. 1026.52(a) generally does not apply to fees for 
making an expedited payment (to the extent permitted

[[Page 950]]

by Sec. 1026.10(e)), fees for optional services (such as travel 
insurance), fees for reissuing a lost or stolen card, or statement 
reproduction fees.
    3. Security deposits. A security deposit that is charged to a credit 
card account is a fee for purposes of Sec. 1026.52(a). In contrast, 
however, a security deposit is not subject to the 25 percent limit in 
Sec. 1026.52(a)(1) if it is not charged to the account. For example, 
Sec. 1026.52(a)(1) does not prohibit a card issuer from requiring a 
consumer to provide funds at account opening pledged as security for the 
account that exceed 25 percent of the credit limit at account opening so 
long as those funds are not obtained from the account.

                      52(a)(3) Rule of Construction

    1. Fees or charges otherwise prohibited by law. Section 1026.52(a) 
does not authorize the imposition or payment of fees or charges 
otherwise prohibited by law. For example, see 16 CFR 310.4(a)(4).

                    52(b) Limitations on Penalty Fees

    1. Fees for violating the account terms or other requirements. For 
purposes of Sec. 1026.52(b), a fee includes any charge imposed by a 
card issuer based on an act or omission that violates the terms of the 
account or any other requirements imposed by the card issuer with 
respect to the account, other than charges attributable to periodic 
interest rates. Accordingly, for purposes of Sec. 1026.52(b), a fee 
does not include charges attributable to an increase in an annual 
percentage rate based on an act or omission that violates the terms or 
other requirements of an account.
    i. The following are examples of fees that are subject to the 
limitations in Sec. 1026.52(b) or are prohibited by Sec. 1026.52(b):
    A. Late payment fees and any other fees imposed by a card issuer if 
an account becomes delinquent or if a payment is not received by a 
particular date.
    B. Returned payment fees and any other fees imposed by a card issuer 
if a payment received via check, automated clearing house, or other 
payment method is returned.
    C. Any fee or charge for an over-the-limit transaction as defined in 
Sec. 1026.56(a), to the extent the imposition of such a fee or charge 
is permitted by Sec. 1026.56.
    D. Any fee imposed by a card issuer if payment on a check that 
accesses a credit card account is declined.
    E. Any fee or charge for a transaction that the card issuer declines 
to authorize. See Sec. 1026.52(b)(2)(i)(B).
    F. Any fee imposed by a card issuer based on account inactivity 
(including the consumer's failure to use the account for a particular 
number or dollar amount of transactions or a particular type of 
transaction). See Sec. 1026.52(b)(2)(i)(B).
    G. Any fee imposed by a card issuer based on the closure or 
termination of an account. See Sec. 1026.52(b)(2)(i)(B).
    ii. The following are examples of fees to which Sec. 1026.52(b) 
does not apply:
    A. Balance transfer fees.
    B. Cash advance fees.
    C. Foreign transaction fees.
    D. Annual fees and other fees for the issuance or availability of 
credit described in Sec. 1026.60(b)(2), except to the extent that such 
fees are based on account inactivity. See Sec. 1026.52(b)(2)(i)(B).
    E. 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, provided 
that such fees are not imposed as a result of a violation of the account 
terms or other requirements of an account.
    F. Fees for making an expedited payment (to the extent permitted by 
Sec. 1026.10(e)).
    G. Fees for optional services (such as travel insurance).
    H. Fees for reissuing a lost or stolen card.
    2. Rounding to nearest whole dollar. A card issuer may round any fee 
that complies with Sec. 1026.52(b) to the nearest whole dollar. For 
example, if Sec. 1026.52(b) permits a card issuer to impose a late 
payment fee of $21.50, the card issuer may round that amount up to the 
nearest whole dollar and impose a late payment fee of $22. However, if 
the late payment fee permitted by Sec. 1026.52(b) were $21.49, the card 
issuer would not be permitted to round that amount up to $22, although 
the card issuer could round that amount down and impose a late payment 
fee of $21.

                          52(b)(1) General Rule

    1. Relationship between Sec. 1026.52(b)(1)(i), (b)(1)(ii), and 
(b)(2). i. Relationship between Sec. 1026.52(b)(1)(i) and (b)(1)(ii). A 
card issuer may impose a fee for violating the terms or other 
requirements of an account pursuant to either Sec. 1026.52(b)(1)(i) or 
(b)(1)(ii).
    A. A card issuer that complies with the safe harbors in Sec. 
1026.52(b)(1)(ii) is not required to determine that its fees represent a 
reasonable proportion of the total costs incurred by the card issuer as 
a result of a type of violation under Sec. 1026.52(b)(1)(i).
    B. A card issuer may impose a fee for one type of violation pursuant 
to Sec. 1026.52(b)(1)(i) and may impose a fee for a different type of 
violation pursuant to Sec. 1026.52(b)(1)(ii). For example, a card 
issuer may impose a late payment fee of $30 based on a cost 
determination pursuant to Sec. 1026.52(b)(1)(i) but impose returned 
payment and over-the-limit fees of $25 or $35 pursuant to the safe 
harbors in Sec. 1026.52(b)(1)(ii).
    C. A card issuer that previously based the amount of a penalty fee 
for a particular type

[[Page 951]]

of violation on a cost determination pursuant to Sec. 1026.52(b)(1)(i) 
may begin to impose a penalty fee for that type of violation that is 
consistent with Sec. 1026.52(b)(1)(ii) at any time (subject to the 
notice requirements in Sec. 1026.9), provided that the first fee 
imposed pursuant to Sec. 1026.52(b)(1)(ii) is consistent with Sec. 
1026.52(b)(1)(ii)(A). For example, assume that a late payment occurs on 
January 15 and that, based on a cost determination pursuant to Sec. 
1026.52(b)(1)(i), the card issuer imposes a $30 late payment fee. 
Another late payment occurs on July 15. The card issuer may impose 
another $30 late payment fee pursuant to Sec. 1026.52(b)(1)(i) or may 
impose a $25 late payment fee pursuant to Sec. 1026.52(b)(1)(ii)(A). 
However, the card issuer may not impose a $35 late payment fee pursuant 
to Sec. 1026.52(b)(1)(ii)(B). If the card issuer imposes a $25 fee 
pursuant to Sec. 1026.52(b)(1)(ii)(A) for the July 15 late payment and 
another late payment occurs on September 15, the card issuer may impose 
a $35 fee for the September 15 late payment pursuant to Sec. 
1026.52(b)(1)(ii)(B).
    ii. Relationship between Sec. 1026.52(b)(1) and (b)(2). Section 
1026.52(b)(1) does not permit a card issuer to impose a fee that is 
inconsistent with the prohibitions in Sec. 1026.52(b)(2). For example, 
if Sec. 1026.52(b)(2)(i) prohibits the card issuer from imposing a late 
payment fee that exceeds $15, Sec. 1026.52(b)(1)(ii) does not permit 
the card issuer to impose a higher late payment fee.

                     52(b)(1)(i) Fees Based on Costs

    1. Costs incurred as a result of violations. Section 
1026.52(b)(1)(i) does not require a card issuer to base a fee on the 
costs incurred as a result of a specific violation of the terms or other 
requirements of an account. Instead, for purposes of Sec. 
1026.52(b)(1)(i), a card issuer must have determined that a fee for 
violating the terms or other requirements of an account represents a 
reasonable proportion of the costs incurred by the card issuer as a 
result of that type of violation. A card issuer may make a single 
determination for all of its credit card portfolios or may make separate 
determinations for each portfolio. The factors relevant to this 
determination include:
    i. The number of violations of a particular type experienced by the 
card issuer during a prior period of reasonable length (for example, a 
period of twelve months).
    ii. The costs incurred by the card issuer during that period as a 
result of those violations.
    iii. At the card issuer's option, the number of fees imposed by the 
card issuer as a result of those violations during that period that the 
card issuer reasonably estimates it will be unable to collect. See 
comment 52(b)(1)(i)-5.
    iv. At the card issuer's option, reasonable estimates for an 
upcoming period of changes in the number of violations of that type, the 
resulting costs, and the number of fees that the card issuer will be 
unable to collect. See illustrative examples in comments 52(b)(1)(i)-6 
through -9.
    2. Amounts excluded from cost analysis. The following amounts are 
not costs incurred by a card issuer as a result of violations of the 
terms or other requirements of an account for purposes of Sec. 
1026.52(b)(1)(i):
    i. Losses and associated costs (including the cost of holding 
reserves against potential losses and the cost of funding delinquent 
accounts).
    ii. Costs associated with evaluating whether consumers who have not 
violated the terms or other requirements of an account are likely to do 
so in the future (such as the costs associated with underwriting new 
accounts). However, once a violation of the terms or other requirements 
of an account has occurred, the costs associated with preventing 
additional violations for a reasonable period of time are costs incurred 
by a card issuer as a result of violations of the terms or other 
requirements of an account for purposes of Sec. 1026.52(b)(1)(i).
    3. Third party charges. As a general matter, amounts charged to the 
card issuer by a third party as a result of a violation of the terms or 
other requirements of an account are costs incurred by the card issuer 
for purposes of Sec. 1026.52(b)(1)(i). For example, if a card issuer is 
charged a specific amount by a third party for each returned payment, 
that amount is a cost incurred by the card issuer as a result of 
returned payments. However, if the amount is charged to the card issuer 
by an affiliate or subsidiary of the card issuer, the card issuer must 
have determined that the charge represents a reasonable proportion of 
the costs incurred by the affiliate or subsidiary as a result of the 
type of violation. For example, if an affiliate of a card issuer 
provides collection services to the card issuer on delinquent accounts, 
the card issuer must have determined that the amounts charged to the 
card issuer by the affiliate for such services represent a reasonable 
proportion of the costs incurred by the affiliate as a result of late 
payments.
    4. Amounts charged by other card issuers. The fact that a card 
issuer's fees for violating the terms or other requirements of an 
account are comparable to fees assessed by other card issuers does not 
satisfy the requirements of Sec. 1026.52(b)(1)(i).
    5. Uncollected fees. For purposes of Sec. 1026.52(b)(1)(i), a card 
issuer may consider fees that it is unable to collect when determining 
the appropriate fee amount. Fees that the card issuer is unable to 
collect include fees imposed on accounts that have been charged off by 
the card issuer, fees that have been discharged in bankruptcy, and fees 
that the card issuer is required to waive in order to comply with a 
legal requirement

[[Page 952]]

(such as a requirement imposed by 12 CFR Part 1026 or 50 U.S.C. app. 
527). However, fees that the card issuer chooses not to impose or 
chooses not to collect (such as fees the card issuer chooses to waive at 
the request of the consumer or under a workout or temporary hardship 
arrangement) are not relevant for purposes of this determination. See 
illustrative examples in comments 52(b)(2)(i)-6 through -9.
    6. Late payment fees. i. Costs incurred as a result of late 
payments. For purposes of Sec. 1026.52(b)(1)(i), the costs incurred by 
a card issuer as a result of late payments include the costs associated 
with the collection of late payments, such as the costs associated with 
notifying consumers of delinquencies and resolving delinquencies 
(including the establishment of workout and temporary hardship 
arrangements).
    ii. Examples. A. Late payment fee based on past delinquencies and 
costs. Assume that, during year one, a card issuer experienced 1 million 
delinquencies and incurred $26 million in costs as a result of those 
delinquencies. For purposes of Sec. 1026.52(b)(1)(i), a $26 late 
payment fee would represent a reasonable proportion of the total costs 
incurred by the card issuer as a result of late payments during year 
two.
    B. Adjustment based on fees card issuer is unable to collect. Same 
facts as above except that the card issuer imposed a late payment fee 
for each of the 1 million delinquencies experienced during year one but 
was unable to collect 25% of those fees (in other words, the card issuer 
was unable to collect 250,000 fees, leaving a total of 750,000 late 
payments for which the card issuer did collect or could have collected a 
fee). For purposes of Sec. 1026.52(b)(2)(i), a late payment fee of $35 
would represent a reasonable proportion of the total costs incurred by 
the card issuer as a result of late payments during year two.
    C. Adjustment based on reasonable estimate of future changes. Same 
facts as paragraphs A and B above except the card issuer reasonably 
estimates that--based on past delinquency rates and other factors 
relevant to potential delinquency rates for year two--it will experience 
a 2% decrease in delinquencies during year two (in other words, 20,000 
fewer delinquencies for a total of 980,000). The card issuer also 
reasonably estimates that it will be unable to collect the same 
percentage of fees (25%) during year two as during year one (in other 
words, the card issuer will be unable to collect 245,000 fees, leaving a 
total of 735,000 late payments for which the card issuer will be able to 
collect a fee). The card issuer also reasonably estimates that--based on 
past changes in costs incurred as a result of delinquencies and other 
factors relevant to potential costs for year two--it will experience a 
5% increase in costs during year two (in other words, $1.3 million in 
additional costs for a total of $27.3 million). For purposes of Sec. 
1026.52(b)(1)(i), a $37 late payment fee would represent a reasonable 
proportion of the total costs incurred by the card issuer as a result of 
late payments during year two.
    7. Returned payment fees. i. Costs incurred as a result of returned 
payments. For purposes of Sec. 1026.52(b)(1)(i), the costs incurred by 
a card issuer as a result of returned payments include:
    A. Costs associated with processing returned payments and 
reconciling the card issuer's systems and accounts to reflect returned 
payments;
    B. Costs associated with investigating potential fraud with respect 
to returned payments; and
    C. Costs associated with notifying the consumer of the returned 
payment and arranging for a new payment.
    ii. Examples. A. Returned payment fee based on past returns and 
costs. Assume that, during year one, a card issuer experienced 150,000 
returned payments and incurred $3.1 million in costs as a result of 
those returned payments. For purposes of Sec. 1026.52(b)(1)(i), a $21 
returned payment fee would represent a reasonable proportion of the 
total costs incurred by the card issuer as a result of returned payments 
during year two.
    B. Adjustment based on fees card issuer is unable to collect. Same 
facts as above except that the card issuer imposed a returned payment 
fee for each of the 150,000 returned payments experienced during year 
one but was unable to collect 15% of those fees (in other words, the 
card issuer was unable to collect 22,500 fees, leaving a total of 
127,500 returned payments for which the card issuer did collect or could 
have collected a fee). For purposes of Sec. 1026.52(b)(2)(i), a 
returned payment fee of $24 would represent a reasonable proportion of 
the total costs incurred by the card issuer as a result of returned 
payments during year two.
    C. Adjustment based on reasonable estimate of future changes. Same 
facts as paragraphs A and B above except the card issuer reasonably 
estimates that--based on past returned payment rates and other factors 
relevant to potential returned payment rates for year two--it will 
experience a 2% increase in returned payments during year two (in other 
words, 3,000 additional returned payments for a total of 153,000). The 
card issuer also reasonably estimates that it will be unable to collect 
25% of returned payment fees during year two (in other words, the card 
issuer will be unable to collect 38,250 fees, leaving a total of 114,750 
returned payments for which the card issuer will be able to collect a 
fee). The card issuer also reasonably estimates that--based on past 
changes in costs incurred as a result of returned payments and other 
factors relevant to potential costs for year two--it will experience a 
1% decrease in costs during year two (in other words, a

[[Page 953]]

$31,000 reduction in costs for a total of $3.069 million). For purposes 
of Sec. 1026.52(b)(1)(i), a $27 returned payment fee would represent a 
reasonable proportion of the total costs incurred by the card issuer as 
a result of returned payments during year two.
    8. Over-the-limit fees. i. Costs incurred as a result of over-the-
limit transactions. For purposes of Sec. 1026.52(b)(1)(i), the costs 
incurred by a card issuer as a result of over-the-limit transactions 
include:
    A. Costs associated with determining whether to authorize over-the-
limit transactions; and
    B. Costs associated with notifying the consumer that the credit 
limit has been exceeded and arranging for payments to reduce the balance 
below the credit limit.
    ii. Costs not incurred as a result of over-the-limit transactions. 
For purposes of Sec. 1026.52(b)(1)(i), costs associated with obtaining 
the affirmative consent of consumers to the card issuer's payment of 
transactions that exceed the credit limit consistent with Sec. 1026.56 
are not costs incurred by a card issuer as a result of over-the-limit 
transactions.
    iii. Examples. A. Over-the-limit fee based on past fees and costs. 
Assume that, during year one, a card issuer authorized 600,000 over-the-
limit transactions and incurred $4.5 million in costs as a result of 
those over-the-limit transactions. However, because of the affirmative 
consent requirements in Sec. 1026.56, the card issuer was only 
permitted to impose 200,000 over-the-limit fees during year one. For 
purposes of Sec. 1026.52(b)(1)(i), a $23 over-the-limit fee would 
represent a reasonable proportion of the total costs incurred by the 
card issuer as a result of over-the-limit transactions during year two.
    B. Adjustment based on fees card issuer is unable to collect. Same 
facts as above except that the card issuer was unable to collect 30% of 
the 200,000 over-the-limit fees imposed during year one (in other words, 
the card issuer was unable to collect 60,000 fees, leaving a total of 
140,000 over-the-limit transactions for which the card issuer did 
collect or could have collected a fee). For purposes of Sec. 
1026.52(b)(2)(i), an over-the-limit fee of $32 would represent a 
reasonable proportion of the total costs incurred by the card issuer as 
a result of over-the-limit transactions during year two.
    C. Adjustment based on reasonable estimate of future changes. Same 
facts as paragraphs A and B above except the card issuer reasonably 
estimates that--based on past over-the-limit transaction rates, the 
percentages of over-the-limit transactions that resulted in an over-the-
limit fee in the past (consistent with Sec. 1026.56), and factors 
relevant to potential changes in those rates and percentages for year 
two--it will authorize approximately the same number of over-the-limit 
transactions during year two (600,000) and impose approximately the same 
number of over-the-limit fees (200,000). The card issuer also reasonably 
estimates that it will be unable to collect the same percentage of fees 
(30%) during year two as during year one (in other words, the card 
issuer was unable to collect 60,000 fees, leaving a total of 140,000 
over-the-limit transactions for which the card issuer will be able to 
collect a fee). The card issuer also reasonably estimates that--based on 
past changes in costs incurred as a result of over-the-limit 
transactions and other factors relevant to potential costs for year 
two--it will experience a 6% decrease in costs during year two (in other 
words, a $270,000 reduction in costs for a total of $4.23 million). For 
purposes of Sec. 1026.52(b)(1)(i), a $30 over-the-limit fee would 
represent a reasonable proportion of the total costs incurred by the 
card issuer as a result of over-the-limit transactions during year two.
    9. Declined access check fees. i. Costs incurred as a result of 
declined access checks. For purposes of Sec. 1026.52(b)(1)(i), the 
costs incurred by a card issuer as a result of declining payment on a 
check that accesses a credit card account include:
    A. Costs associated with determining whether to decline payment on 
access checks;
    B. Costs associated with processing declined access checks and 
reconciling the card issuer's systems and accounts to reflect declined 
access checks;
    C. Costs associated with investigating potential fraud with respect 
to declined access checks; and
    D. Costs associated with notifying the consumer and the merchant or 
other party that accepted the access check that payment on the check has 
been declined.
    ii. Example. Assume that, during year one, a card issuer declined 
100,000 access checks and incurred $2 million in costs as a result of 
those declined checks. The card issuer imposed a fee for each declined 
access check but was unable to collect 10% of those fees (in other 
words, the card issuer was unable to collect 10,000 fees, leaving a 
total of 90,000 declined access checks for which the card issuer did 
collect or could have collected a fee). For purposes of Sec. 
1026.52(b)(1)(i), a $22 declined access check fee would represent a 
reasonable proportion of the total costs incurred by the card issuer as 
a result of declined access checks during year two.

                        52(b)(1)(ii) Safe harbors

    1. Multiple violations of same type. i. Same billing cycle or next 
six billing cycles. A card issuer cannot impose a fee for a violation 
pursuant to Sec. 1026.52(b)(1)(ii)(B) unless a fee has previously been 
imposed for the same type of violation pursuant to Sec. 
1026.52(b)(1)(ii)(A). Once a fee has been imposed for a violation 
pursuant to

[[Page 954]]

Sec. 1026.52(b)(1)(ii)(A), the card issuer may impose a fee pursuant to 
Sec. 1026.52(b)(1)(ii)(B) for any subsequent violation of the same type 
until that type of violation has not occurred for a period of six 
consecutive complete billing cycles. A fee has been imposed for purposes 
of Sec. 1026.52(b)(1)(ii) even if the card issuer waives or rebates all 
or part of the fee.
    A. Late payments. For purposes of Sec. 1026.52(b)(1)(ii), a late 
payment occurs during the billing cycle in which the payment may first 
be treated as late consistent with the requirements of this part and the 
terms or other requirements of the account.
    B. Returned payments. For purposes of Sec. 1026.52(b)(1)(ii), a 
returned payment occurs during the billing cycle in which the payment is 
returned to the card issuer.
    C. Transactions that exceed the credit limit. For purposes of Sec. 
1026.52(b)(1)(ii), a transaction that exceeds the credit limit for an 
account occurs during the billing cycle in which the transaction occurs 
or is authorized by the card issuer.
    D. Declined access checks. For purposes of Sec. 1026.52(b)(1)(ii), 
a check that accesses a credit card account is declined during the 
billing cycle in which the card issuer declines payment on the check.
    ii. Relationship to Sec. Sec. 1026.52(b)(2)(ii) and 1026.56(j)(1). 
If multiple violations are based on the same event or transaction such 
that Sec. 1026.52(b)(2)(ii) prohibits the card issuer from imposing 
more than one fee, the event or transaction constitutes a single 
violation for purposes of Sec. 1026.52(b)(1)(ii). Furthermore, 
consistent with Sec. 1026.56(j)(1)(i), no more than one violation for 
exceeding an account's credit limit can occur during a single billing 
cycle for purposes of Sec. 1026.52(b)(1)(ii). However, Sec. 
1026.52(b)(2)(ii) does not prohibit a card issuer from imposing fees for 
exceeding the credit limit in consecutive billing cycles based on the 
same over-the-limit transaction to the extent permitted by Sec. 
1026.56(j)(1). In these circumstances, the second and third over-the-
limit fees permitted by Sec. 1026.56(j)(1) may be imposed pursuant to 
Sec. 1026.52(b)(1)(ii)(B). See comment 52(b)(2)(ii)-1.
    iii. Examples. The following examples illustrate the application of 
Sec. 1026.52(b)(1)(ii)(A) and (b)(1)(ii)(B) with respect to credit card 
accounts under an open-end (not home-secured) consumer credit plan that 
are not charge card accounts. For purposes of these examples, assume 
that the billing cycles for the account begin on the first day of the 
month and end on the last day of the month and that the payment due date 
for the account is the twenty-fifth day of the month.
    A. Violations of same type (late payments). A required minimum 
periodic payment of $50 is due on March 25. On March 26, a late payment 
has occurred because no payment has been received. Accordingly, 
consistent with Sec. 1026.52(b)(1)(ii)(A), the card issuer imposes a 
$25 late payment fee on March 26. In order for the card issuer to impose 
a $35 late payment fee pursuant to Sec. 1026.52(b)(1)(ii)(B), a second 
late payment must occur during the April, May, June, July, August, or 
September billing cycles.
    1. The card issuer does not receive any payment during the March 
billing cycle. A required minimum periodic payment of $100 is due on 
April 25. On April 20, the card issuer receives a $50 payment. No 
further payment is received during the April billing cycle. Accordingly, 
consistent with Sec. 1026.52(b)(1)(ii)(B), the card issuer may impose a 
$35 late payment fee on April 26. Furthermore, the card issuer may 
impose a $35 late payment fee for any late payment that occurs during 
the May, June, July, August, September, or October billing cycles.
    2. Same facts as in paragraph A above. On March 30, the card issuer 
receives a $50 payment and the required minimum periodic payments for 
the April, May, June, July, August, and September billing cycles are 
received on or before the payment due date. A required minimum periodic 
payment of $60 is due on October 25. On October 26, a late payment has 
occurred because the required minimum periodic payment due on October 25 
has not been received. However, because this late payment did not occur 
during the six billing cycles following the March billing cycle, Sec. 
1026.52(b)(1)(ii) only permits the card issuer to impose a late payment 
fee of $25.
    B. Violations of different types (late payment and over the credit 
limit). The credit limit for an account is $1,000. Consistent with Sec. 
1026.56, the consumer has affirmatively consented to the payment of 
transactions that exceed the credit limit. A required minimum periodic 
payment of $30 is due on August 25. On August 26, a late payment has 
occurred because no payment has been received. Accordingly, consistent 
with Sec. 1026.52(b)(1)(ii)(A), the card issuer imposes a $25 late 
payment fee on August 26. On August 30, the card issuer receives a $30 
payment. On September 10, a transaction causes the account balance to 
increase to $1,150, which exceeds the account's $1,000 credit limit. On 
September 11, a second transaction increases the account balance to 
$1,350. On September 23, the card issuer receives the $50 required 
minimum periodic payment due on September 25, which reduces the account 
balance to $1,300. On September 30, the card issuer imposes a $25 over-
the-limit fee, consistent with Sec. 1026.52(b)(1)(ii)(A). On October 
26, a late payment has occurred because the $60 required minimum 
periodic payment due on October 25 has not been received. Accordingly, 
consistent with Sec. 1026.52(b)(1)(ii)(B), the card issuer imposes a 
$35 late payment fee on October 26.
    C. Violations of different types (late payment and returned 
payment). A required minimum periodic payment of $50 is due on July 25. 
On

[[Page 955]]

July 26, a late payment has occurred because no payment has been 
received. Accordingly, consistent with Sec. 1026.52(b)(1)(ii)(A), the 
card issuer imposes a $25 late payment fee on July 26. On July 30, the 
card issuer receives a $50 payment. A required minimum periodic payment 
of $50 is due on August 25. On August 24, a $50 payment is received. On 
August 27, the $50 payment is returned to the card issuer for 
insufficient funds. In these circumstances, Sec. 1026.52(b)(2)(ii) 
permits the card issuer to impose either a late payment fee or a 
returned payment fee but not both because the late payment and the 
returned payment result from the same event or transaction. Accordingly, 
for purposes of Sec. 1026.52(b)(1)(ii), the event or transaction 
constitutes a single violation. However, if the card issuer imposes a 
late payment fee, Sec. 1026.52(b)(1)(ii)(B) permits the issuer to 
impose a fee of $35 because the late payment occurred during the six 
billing cycles following the July billing cycle. In contrast, if the 
card issuer imposes a returned payment fee, the amount of the fee may be 
no more than $25 pursuant to Sec. 1026.52(b)(1)(ii)(A).
    2. Adjustments based on Consumer Price Index. For purposes of Sec. 
1026.52(b)(1)(ii)(A) and (b)(1)(ii)(B), the Bureau shall calculate each 
year price level adjusted amounts using the Consumer Price Index in 
effect on June 1 of that year. When the cumulative change in the 
adjusted minimum value derived from applying the annual Consumer Price 
level to the current amounts in Sec. 1026.52(b)(1)(ii)(A) and 
(b)(1)(ii)(B) has risen by a whole dollar, those amounts will be 
increased by $1.00. Similarly, when the cumulative change in the 
adjusted minimum value derived from applying the annual Consumer Price 
level to the current amounts in Sec. 1026.52(b)(1)(ii)(A) and 
(b)(1)(ii)(B) has decreased by a whole dollar, those amounts will be 
decreased by $1.00. The Bureau will publish adjustments to the amounts 
in Sec. 1026.52(b)(1)(ii)(A) and (b)(1)(ii)(B).
    3. Delinquent balance for charge card accounts. Section 
1026.52(b)(1)(ii)(C) provides that, when a charge card issuer that 
requires payment of outstanding balances in full at the end of each 
billing cycle has not received the required payment for two or more 
consecutive billing cycles, the card issuer may impose a late payment 
fee that does not exceed three percent of the delinquent balance. For 
purposes of Sec. 1026.52(b)(1)(ii)(C), the delinquent balance is any 
previously billed amount that remains unpaid at the time the late 
payment fee is imposed pursuant to Sec. 1026.52(b)(1)(ii)(C). 
Consistent with Sec. 1026.52(b)(2)(ii), a charge card issuer that 
imposes a fee pursuant to Sec. 1026.52(b)(1)(ii)(C) with respect to a 
late payment may not impose a fee pursuant to Sec. 1026.52(b)(1)(ii)(B) 
with respect to the same late payment. The following examples illustrate 
the application of Sec. 1026.52(b)(1)(ii)(C):
    i. Assume that a charge card issuer requires payment of outstanding 
balances in full at the end of each billing cycle and that the billing 
cycles for the account begin on the first day of the month and end on 
the last day of the month. At the end of the June billing cycle, the 
account has a balance of $1,000. On July 5, the card issuer provides a 
periodic statement disclosing the $1,000 balance consistent with Sec. 
1026.7. During the July billing cycle, the account is used for $300 in 
transactions, increasing the balance to $1,300. At the end of the July 
billing cycle, no payment has been received and the card issuer imposes 
a $25 late payment fee consistent with Sec. 1026.52(b)(1)(ii)(A). On 
August 5, the card issuer provides a periodic statement disclosing the 
$1,325 balance consistent with Sec. 1026.7. During the August billing 
cycle, the account is used for $200 in transactions, increasing the 
balance to $1,525. At the end of the August billing cycle, no payment 
has been received. Consistent with Sec. 1026.52(b)(1)(ii)(C), the card 
issuer may impose a late payment fee of $40, which is 3% of the $1,325 
balance that was due at the end of the August billing cycle. Section 
1026.52(b)(1)(ii)(C) does not permit the card issuer to include the $200 
in transactions that occurred during the August billing cycle.
    ii. Same facts as above except that, on August 25, a $100 payment is 
received. Consistent with Sec. 1026.52(b)(1)(ii)(C), the card issuer 
may impose a late payment fee of $37, which is 3% of the unpaid portion 
of the $1,325 balance that was due at the end of the August billing 
cycle ($1,225).
    iii. Same facts as in paragraph A above except that, on August 25, a 
$200 payment is received. Consistent with Sec. 1026.52(b)(1)(ii)(C), 
the card issuer may impose a late payment fee of $34, which is 3% of the 
unpaid portion of the $1,325 balance that was due at the end of the 
August billing cycle ($1,125). In the alternative, the card issuer may 
impose a late payment fee of $35 consistent with Sec. 
1026.52(b)(1)(ii)(B). However, Sec. 1026.52(b)(2)(ii) prohibits the 
card issuer from imposing both fees.

                        52(b)(2) Prohibited fees

    1. Relationship to Sec. 1026.52(b)(1). A card issuer does not 
comply with Sec. 1026.52(b) if it imposes a fee that is inconsistent 
with the prohibitions in Sec. 1026.52(b)(2). Thus, the prohibitions in 
Sec. 1026.52(b)(2) apply even if a fee is consistent with Sec. 
1026.52(b)(1)(i) or (b)(1)(ii). For example, even if a card issuer has 
determined for purposes of Sec. 1026.52(b)(1)(i) that a $27 fee 
represents a reasonable proportion of the total costs incurred by the 
card issuer as a result of a particular type of violation, Sec. 
1026.52(b)(2)(i) prohibits the card issuer from imposing that fee if the 
dollar amount associated with the violation is less than $27.

[[Page 956]]

Similarly, even if Sec. 1026.52(b)(1)(ii) permits a card issuer to 
impose a $25 fee, Sec. 1026.52(b)(2)(i) prohibits the card issuer from 
imposing that fee if the dollar amount associated with the violation is 
less than $25.

  52(b)(2)(i) Fees That Exceed Dollar Amount Associated With Violation

    1. Late payment fees. For purposes of Sec. 1026.52(b)(2)(i), the 
dollar amount associated with a late payment is the amount of the 
required minimum periodic payment due immediately prior to assessment of 
the late payment fee. Thus, Sec. 1026.52(b)(2)(i)(A) prohibits a card 
issuer from imposing a late payment fee that exceeds the amount of that 
required minimum periodic payment. For example:
    i. Assume that a $15 required minimum periodic payment is due on 
September 25. The card issuer does not receive any payment on or before 
September 25. On September 26, the card issuer imposes a late payment 
fee. For purposes of Sec. 1026.52(b)(2)(i), the dollar amount 
associated with the late payment is the amount of the required minimum 
periodic payment due on September 25 ($15). Thus, under Sec. 
1026.52(b)(2)(i)(A), the amount of that fee cannot exceed $15 (even if a 
higher fee would be permitted under Sec. 1026.52(b)(1)).
    ii. Same facts as above except that, on September 25, the card 
issuer receives a $10 payment. No further payments are received. On 
September 26, the card issuer imposes a late payment fee. For purposes 
of Sec. 1026.52(b)(2)(i), the dollar amount associated with the late 
payment is the full amount of the required minimum periodic payment due 
on September 25 ($15), rather than the unpaid portion of that payment 
($5). Thus, under Sec. 1026.52(b)(2)(i)(A), the amount of the late 
payment fee cannot exceed $15 (even if a higher fee would be permitted 
under Sec. 1026.52(b)(1)).
    iii. Assume that a $15 required minimum periodic payment is due on 
October 28 and the billing cycle for the account closes on October 31. 
The card issuer does not receive any payment on or before November 3. On 
November 3, the card issuer determines that the required minimum 
periodic payment due on November 28 is $50. On November 5, the card 
issuer imposes a late payment fee. For purposes of Sec. 
1026.52(b)(2)(i), the dollar amount associated with the late payment is 
the amount of the required minimum periodic payment due on October 28 
($15), rather than the amount of the required minimum periodic payment 
due on November 28 ($50). Thus, under Sec. 1026.52(b)(2)(i)(A), the 
amount of that fee cannot exceed $15 (even if a higher fee would be 
permitted under Sec. 1026.52(b)(1)).
    2. Returned payment fees. For purposes of Sec. 1026.52(b)(2)(i), 
the dollar amount associated with a returned payment is the amount of 
the required minimum periodic payment due immediately prior to the date 
on which the payment is returned to the card issuer. Thus, Sec. 
1026.52(b)(2)(i)(A) prohibits a card issuer from imposing a returned 
payment fee that exceeds the amount of that required minimum periodic 
payment. However, if a payment has been returned and is submitted again 
for payment by the card issuer, there is no additional dollar amount 
associated with a subsequent return of that payment and Sec. 
1026.52(b)(2)(i)(B) prohibits the card issuer from imposing an 
additional returned payment fee. For example:
    i. Assume that the billing cycles for an account begin on the first 
day of the month and end on the last day of the month and that the 
payment due date is the twenty-fifth day of the month. A minimum payment 
of $15 is due on March 25. The card issuer receives a check for $100 on 
March 23, which is returned to the card issuer for insufficient funds on 
March 26. For purposes of Sec. 1026.52(b)(2)(i), the dollar amount 
associated with the returned payment is the amount of the required 
minimum periodic payment due on March 25 ($15). Thus, Sec. 
1026.52(b)(2)(i)(A) prohibits the card issuer from imposing a returned 
payment fee that exceeds $15 (even if a higher fee would be permitted 
under Sec. 1026.52(b)(1)). Furthermore, Sec. 1026.52(b)(2)(ii) 
prohibits the card issuer from assessing both a late payment fee and a 
returned payment fee in these circumstances. See comment 52(b)(2)(ii)-1.
    ii. Same facts as above except that the card issuer receives the 
$100 check on March 31 and the check is returned for insufficient funds 
on April 2. The minimum payment due on April 25 is $30. For purposes of 
Sec. 1026.52(b)(2)(i), the dollar amount associated with the returned 
payment is the amount of the required minimum periodic payment due on 
March 25 ($15), rather than the amount of the required minimum periodic 
payment due on April 25 ($30). Thus, Sec. 1026.52(b)(2)(i)(A) prohibits 
the card issuer from imposing a returned payment fee that exceeds $15 
(even if a higher fee would be permitted under Sec. 1026.52(b)(1)). 
Furthermore, Sec. 1026.52(b)(2)(ii) prohibits the card issuer from 
assessing both a late payment fee and a returned payment fee in these 
circumstances. See comment 52(b)(2)(ii)-1.
    iii. Same facts as paragraph i above except that, on March 28, the 
card issuer presents the $100 check for payment a second time. On April 
1, the check is again returned for insufficient funds. Section 
1026.52(b)(2)(i)(B) prohibits the card issuer from imposing a returned 
payment fee based on the return of the payment on April 1.
    iv. Assume that the billing cycles for an account begin on the first 
day of the month and end on the last day of the month and that the 
payment due date is the twenty-fifth day of the month. A minimum payment

[[Page 957]]

of $15 is due on August 25. The card issuer receives a check for $15 on 
August 23, which is not returned. The card issuer receives a check for 
$50 on September 5, which is returned to the card issuer for 
insufficient funds on September 7. Section 1026.52(b)(2)(i)(B) does not 
prohibit the card issuer from imposing a returned payment fee in these 
circumstances. Instead, for purposes of Sec. 1026.52(b)(2)(i), the 
dollar amount associated with the returned payment is the amount of the 
required minimum periodic payment due on August 25 ($15). Thus, Sec. 
1026.52(b)(2)(i)(A) prohibits the card issuer from imposing a returned 
payment fee that exceeds $15 (even if a higher fee would be permitted 
under Sec. 1026.52(b)(1)).
    3. Over-the-limit fees. For purposes of Sec. 1026.52(b)(2)(i), the 
dollar amount associated with extensions of credit in excess of the 
credit limit for an account is the total amount of credit extended by 
the card issuer in excess of the credit limit during the billing cycle 
in which the over-the-limit fee is imposed. Thus, Sec. 
1026.52(b)(2)(i)(A) prohibits a card issuer from imposing an over-the-
limit fee that exceeds that amount. Nothing in Sec. 1026.52(b) permits 
a card issuer to impose an over-the-limit fee if imposition of the fee 
is inconsistent with Sec. 1026.56. The following examples illustrate 
the application of Sec. 1026.52(b)(2)(i)(A) to over-the-limit fees:
    i. Assume that the billing cycles for a credit card account with a 
credit limit of $5,000 begin on the first day of the month and end on 
the last day of the month. Assume also that, consistent with Sec. 
1026.56, the consumer has affirmatively consented to the payment of 
transactions that exceed the credit limit. On March 1, the account has a 
$4,950 balance. On March 6, a $60 transaction is charged to the account, 
increasing the balance to $5,010. On March 25, a $5 transaction is 
charged to the account, increasing the balance to $5,015. On the last 
day of the billing cycle (March 31), the card issuer imposes an over-
the-limit fee. For purposes of Sec. 1026.52(b)(2)(i), the dollar amount 
associated with the extensions of credit in excess of the credit limit 
is the total amount of credit extended by the card issuer in excess of 
the credit limit during the March billing cycle ($15). Thus, Sec. 
1026.52(b)(2)(i)(A) prohibits the card issuer from imposing an over-the-
limit fee that exceeds $15 (even if a higher fee would be permitted 
under Sec. 1026.52(b)(1)).
    ii. Same facts as above except that, on March 26, the card issuer 
receives a payment of $20, reducing the balance below the credit limit 
to $4,995. Nevertheless, for purposes of Sec. 1026.52(b)(2)(i), the 
dollar amount associated with the extensions of credit in excess of the 
credit limit is the total amount of credit extended by the card issuer 
in excess of the credit limit during the March billing cycle ($15). 
Thus, consistent with Sec. 1026.52(b)(2)(i)(A), the card issuer may 
impose an over-the-limit fee of $15.
    4. Declined access check fees. For purposes of Sec. 
1026.52(b)(2)(i), the dollar amount associated with declining payment on 
a check that accesses a credit card account is the amount of the check. 
Thus, when a check that accesses a credit card account is declined, 
Sec. 1026.52(b)(2)(i)(A) prohibits a card issuer from imposing a fee 
that exceeds the amount of that check. For example, assume that a check 
that accesses a credit card account is used as payment for a $50 
transaction, but payment on the check is declined by the card issuer 
because the transaction would have exceeded the credit limit for the 
account. For purposes of Sec. 1026.52(b)(2)(i), the dollar amount 
associated with the declined check is the amount of the check ($50). 
Thus, Sec. 1026.52(b)(2)(i)(A) prohibits the card issuer from imposing 
a fee that exceeds $50. However, the amount of this fee must also comply 
with Sec. 1026.52(b)(1)(i) or (b)(1)(ii).
    5. Inactivity fees. Section 1026.52(b)(2)(i)(B)(2) prohibits a card 
issuer from imposing a fee with respect to a credit card account under 
an open-end (not home-secured) consumer credit plan based on inactivity 
on that account (including the consumer's failure to use the account for 
a particular number or dollar amount of transactions or a particular 
type of transaction). For example, Sec. 1026.52(b)(2)(i)(B)(2) 
prohibits a card issuer from imposing a $50 fee when a credit card 
account under an open-end (not home-secured) consumer credit plan is not 
used for at least $2,000 in purchases over the course of a year. 
Similarly, Sec. 1026.52(b)(2)(i)(B)(2) prohibits a card issuer from 
imposing a $50 annual fee on all accounts of a particular type but 
waiving the fee on any account that is used for at least $2,000 in 
purchases over the course of a year if the card issuer promotes the 
waiver or rebate of the annual fee for purposes of Sec. 1026.55(e). 
However, if the card issuer does not promote the waiver or rebate of the 
annual fee for purposes of Sec. 1026.55(e), Sec. 
1026.52(b)(2)(i)(B)(2) does not prohibit a card issuer from considering 
account activity along with other factors when deciding whether to waive 
or rebate annual fees on individual accounts (such as in response to a 
consumer's request).
    6. Closed account fees. Section 1026.52(b)(2)(i)(B)(3) prohibits a 
card issuer from imposing a fee based on the closure or termination of 
an account. For example, Sec. 1026.52(b)(2)(i)(B)(3) prohibits a card 
issuer from:
    i. Imposing a one-time fee to consumers who close their accounts.
    ii. Imposing a periodic fee (such as an annual fee, a monthly 
maintenance fee, or a closed account fee) after an account is closed or 
terminated if that fee was not imposed

[[Page 958]]

prior to closure or termination. This prohibition applies even if the 
fee was disclosed prior to closure or termination. See also comment 
55(d)-1.
    iii. Increasing a periodic fee (such as an annual fee or a monthly 
maintenance fee) after an account is closed or terminated. However, a 
card issuer is not prohibited from continuing to impose a periodic fee 
that was imposed before the account was closed or terminated.

    52(b)(2)(ii) Multiple Fees Based on a Single Event or Transaction

    1. Single event or transaction. Section 1026.52(b)(2)(ii) prohibits 
a card issuer from imposing more than one fee for violating the terms or 
other requirements of an account based on a single event or transaction. 
If Sec. 1026.56(j)(1) permits a card issuer to impose fees for 
exceeding the credit limit in consecutive billing cycles based on the 
same over-the-limit transaction, those fees are not based on a single 
event or transaction for purposes of Sec. 1026.52(b)(2)(ii). The 
following examples illustrate the application of Sec. 
1026.52(b)(2)(ii). Assume for purposes of these examples 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 and that the payment due date 
for the account is the twenty-fifth day of the month.
    i. Assume that the required minimum periodic payment due on March 25 
is $20. On March 26, the card issuer has not received any payment and 
imposes a late payment fee. Consistent with Sec. Sec. 
1026.52(b)(1)(ii)(A) and (b)(2)(i), the card issuer may impose a $20 
late payment fee on March 26. However, Sec. 1026.52(b)(2)(ii) prohibits 
the card issuer from imposing an additional late payment fee if the $20 
minimum payment has not been received by a subsequent date (such as 
March 31).
    A. On April 3, the card issuer provides a periodic statement 
disclosing that a $70 required minimum periodic payment is due on April 
25. This minimum payment includes the $20 minimum payment due on March 
25 and the $20 late payment fee imposed on March 26. On April 20, the 
card issuer receives a $20 payment. No additional payments are received 
during the April billing cycle. Section 1026.52(b)(2)(ii) does not 
prohibit the card issuer from imposing a late payment fee based on the 
consumer's failure to make the $70 required minimum periodic payment on 
or before April 25. Accordingly, consistent with Sec. 
1026.52(b)(1)(ii)(B) and (b)(2)(i), the card issuer may impose a $35 
late payment fee on April 26.
    B. On April 3, the card issuer provides a periodic statement 
disclosing that a $20 required minimum periodic payment is due on April 
25. This minimum payment does not include the $20 minimum payment due on 
March 25 or the $20 late payment fee imposed on March 26. On April 20, 
the card issuer receives a $20 payment. No additional payments are 
received during the April billing cycle. Because the card issuer has 
received the required minimum periodic payment due on April 25 and 
because Sec. 1026.52(b)(2)(ii) prohibits the card issuer from imposing 
a second late payment fee based on the consumer's failure to make the 
$20 minimum payment due on March 25, the card issuer cannot impose a 
late payment fee in these circumstances.
    ii. Assume that the required minimum periodic payment due on March 
25 is $30.
    A. On March 25, the card issuer receives a check for $50, but the 
check is returned for insufficient funds on March 27. Consistent with 
Sec. Sec. 1026.52(b)(1)(ii)(A) and (b)(2)(i)(A), the card issuer may 
impose a late payment fee of $25 or a returned payment fee of $25. 
However, Sec. 1026.52(b)(2)(ii) prohibits the card issuer from imposing 
both fees because those fees would be based on a single event or 
transaction.
    B. Same facts as paragraph ii.A above except that that card issuer 
receives the $50 check on March 27 and the check is returned for 
insufficient funds on March 29. Consistent with Sec. Sec. 
1026.52(b)(1)(ii)(A) and (b)(2)(i)(A), the card issuer may impose a late 
payment fee of $25 or a returned payment fee of $25. However, Sec. 
1026.52(b)(2)(ii) prohibits the card issuer from imposing both fees 
because those fees would be based on a single event or transaction. If 
no payment is received on or before the next payment due date (April 
25), Sec. 1026.52(b)(2)(ii) does not prohibit the card issuer from 
imposing a late payment fee.
    iii. Assume that the required minimum periodic payment due on July 
25 is $30. On July 10, the card issuer receives a $50 payment, which is 
not returned. On July 20, the card issuer receives a $100 payment, which 
is returned for insufficient funds on July 24. Consistent with Sec. 
1026.52(b)(1)(ii)(A) and (b)(2)(i)(A), the card issuer may impose a 
returned payment fee of $25. Nothing in Sec. 1026.52(b)(2)(ii) 
prohibits the imposition of this fee.
    iv. Assume that the credit limit for an account is $1,000 and that, 
consistent with Sec. 1026.56, the consumer has affirmatively consented 
to the payment of transactions that exceed the credit limit. On March 
31, the balance on the account is $970 and the card issuer has not 
received the $35 required minimum periodic payment due on March 25. On 
that same date (March 31), a $70 transaction is charged to the account, 
which increases the balance to $1,040. Consistent with Sec. 
1026.52(b)(1)(ii)(A) and (b)(2)(i)(A), the card issuer may impose a late 
payment fee of $25 and an over-the-limit fee of $25. Section 
1026.52(b)(2)(ii) does not prohibit the imposition of both fees because 
those fees are based

[[Page 959]]

on different events or transactions. No additional transactions are 
charged to the account during the March, April, or May billing cycles. 
If the account balance remains more than $35 above the credit limit on 
April 26, the card issuer may impose an over-the-limit fee of $35 
pursuant to Sec. 1026.52(b)(1)(ii)(B), to the extent consistent with 
Sec. 1026.56(j)(1). Furthermore, if the account balance remains more 
than $35 above the credit limit on May 26, the card issuer may again 
impose an over-the-limit fee of $35 pursuant to Sec. 
1026.52(b)(1)(ii)(B), to the extent consistent with Sec. 1026.56(j)(1). 
Thereafter, Sec. 1026.56(j)(1) does not permit the card issuer to 
impose additional over-the-limit fees unless another over-the-limit 
transaction occurs. However, if an over-the-limit transaction occurs 
during the six billing cycles following the May billing cycle, the card 
issuer may impose an over-the-limit fee of $35 pursuant to Sec. 
1026.52(b)(1)(ii)(B).
    v. Assume that the credit limit for an account is $5,000 and that, 
consistent with Sec. 1026.56, the consumer has affirmatively consented 
to the payment of transactions that exceed the credit limit. On July 23, 
the balance on the account is $4,950. On July 24, the card issuer 
receives the $100 required minimum periodic payment due on July 25, 
reducing the balance to $4,850. On July 26, a $75 transaction is charged 
to the account, which increases the balance to $4,925. On July 27, the 
$100 payment is returned for insufficient funds, increasing the balance 
to $5,025. Consistent with Sec. Sec. 1026.52(b)(1)(ii)(A) and 
(b)(2)(i)(A), the card issuer may impose a returned payment fee of $25 
or an over-the-limit fee of $25. However, Sec. 1026.52(b)(2)(ii) 
prohibits the card issuer from imposing both fees because those fees 
would be based on a single event or transaction.
    vi. Assume that the required minimum periodic payment due on March 
25 is $50. On March 20, the card issuer receives a check for $50, but 
the check is returned for insufficient funds on March 22. Consistent 
with Sec. Sec. 1026.52(b)(1)(ii)(A) and (b)(2)(i)(A), the card issuer 
may impose a returned payment fee of $25. On March 25, the card issuer 
receives a second check for $50, but the check is returned for 
insufficient funds on March 27. Consistent with Sec. Sec. 
1026.52(b)(1)(ii)(A), (b)(1)(ii)(B), and (b)(2)(i)(A), the card issuer 
may impose a late payment fee of $25 or a returned payment fee of $35. 
However, Sec. 1026.52(b)(2)(ii) prohibits the card issuer from imposing 
both fees because those fees would be based on a single event or 
transaction.
    vii. Assume that the required minimum periodic payment due on 
February 25 is $100. On February 25, the card issuer receives a check 
for $100. On March 3, the card issuer provides a periodic statement 
disclosing that a $120 required minimum periodic payment is due on March 
25. On March 4, the $100 check is returned to the card issuer for 
insufficient funds. Consistent with Sec. Sec. 1026.52(b)(1)(ii)(A) and 
(b)(2)(i)(A), the card issuer may impose a late payment fee of $25 or a 
returned payment fee of $25 with respect to the $100 payment. However, 
Sec. 1026.52(b)(2)(ii) prohibits the card issuer from imposing both 
fees because those fees would be based on a single event or transaction. 
On March 20, the card issuer receives a $120 check, which is not 
returned. No additional payments are received during the March billing 
cycle. Because the card issuer has received the required minimum 
periodic payment due on March 25 and because Sec. 1026.52(b)(2)(ii) 
prohibits the card issuer from imposing a second fee based on the $100 
payment that was returned for insufficient funds, the card issuer cannot 
impose a late payment fee in these circumstances.

                 Section 1026.53--Allocation of Payments

    1. Required minimum periodic payment. Section 1026.53 addresses the 
allocation of amounts paid by the consumer in excess of the minimum 
periodic payment required by the card issuer. Section 1026.53 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. 
A card issuer may, but is not required to, allocate the required minimum 
periodic payment consistent with the requirements in Sec. 1026.53 to 
the extent consistent with other applicable law or regulatory guidance.
    2. Applicable rates and balances. Section 1026.53 permits a card 
issuer to allocate an amount paid by the consumer in excess of the 
required minimum periodic payment based on the annual percentage rates 
and balances on the day the preceding billing cycle ends, on the day the 
payment is credited to the account, or on any day in between those two 
dates. The day used by the card issuer to determine the applicable 
annual percentage rates and balances for purposes of Sec. 1026.53 
generally must be consistent from billing cycle to billing cycle, 
although the card issuer may adjust this day from time to time. For 
example:
    i. Assume that the billing cycles for a credit card account start on 
the first day of the month and end on the last day of the month. On the 
date the March billing cycle ends (March 31), the account has a purchase 
balance of $500 at a promotional annual percentage rate of 5% and 
another purchase balance of $200 at a non-promotional annual percentage 
rate of 15%. On April 5, a $100 purchase to which the 15% rate applies 
is charged to the account. On April 15, the promotional rate expires and 
Sec. 1026.55(b)(1) permits the card issuer to increase the rate that 
applies to the $500 balance from 5% to 18%. On April 25, the card issuer 
credits to the account $400

[[Page 960]]

paid by the consumer in excess of the required minimum periodic payment. 
If the card issuer's practice is to allocate payments based on the rates 
and balances on the last day of the prior billing cycle, the card issuer 
would allocate the $400 payment to pay in full the $200 balance to which 
the 15% rate applied on March 31 and then allocate the remaining $200 to 
the $500 balance to which the 5% rate applied on March 31. In the 
alternative, if the card issuer's practice is to allocate payments based 
on the rates and balances on the day a payment is credited to the 
account, the card issuer would allocate the $400 payment to the $500 
balance to which the 18% rate applied on April 25.
    ii. Same facts as above except that, on April 25, the card issuer 
credits to the account $750 paid by the consumer in excess of the 
required minimum periodic payment. If the card issuer's practice is to 
allocate payments based on the rates and balances on the last day of the 
prior billing cycle, the card issuer would allocate the $750 payment to 
pay in full the $200 balance to which the 15% rate applied on March 31 
and the $500 balance to which the 5% rate applied on March 31 and then 
allocate the remaining $50 to the $100 purchase made on April 5. In the 
alternative, if the card issuer's practice is to allocate payments based 
on the rates and balances on the day a payment is credited to the 
account, the card issuer would allocate the $750 payment to pay in full 
the $500 balance to which the 18% rate applied on April 25 and then 
allocate the remaining $250 to the $300 balance to which the 15% rate 
applied on April 25.
    3. Claims or defenses under Sec. 1026.12(c) and billing error 
disputes under Sec. 1026.13. When a consumer has asserted a claim or 
defense against the card issuer pursuant to Sec. 1026.12(c) or alleged 
a billing error under Sec. 1026.13, the card issuer must apply the 
consumer's payment in a manner that avoids or minimizes any reduction in 
the amount subject to that claim, defense, or dispute. For example:
    i. Assume that a credit card account has a $500 cash advance balance 
at an annual percentage rate of 25% and a $1,000 purchase balance at an 
annual percentage rate of 17%. Assume also that $200 of the cash advance 
balance is subject to a claim or defense under Sec. 1026.12(c) or a 
billing error dispute under Sec. 1026.13. If the consumer pays $900 in 
excess of the required minimum periodic payment, the card issuer must 
allocate $300 of the excess payment to pay in full the portion of the 
cash advance balance that is not subject to the claim, defense, or 
dispute and then allocate the remaining $600 to the $1,000 purchase 
balance.
    ii. Same facts as above except that the consumer pays $1,400 in 
excess of the required minimum periodic payment. The card issuer must 
allocate $1,300 of the excess payment to pay in full the $300 cash 
advance balance that is not subject to the claim, defense, or dispute 
and the $1,000 purchase balance. If there are no new transactions or 
other amounts to which the remaining $100 can be allocated, the card 
issuer may apply that amount to the $200 cash advance balance that is 
subject to the claim, defense, or dispute. However, if the card issuer 
subsequently determines that a billing error occurred as asserted by the 
consumer, the card issuer must credit the account for the disputed 
amount and any related finance or other charges and send a correction 
notice consistent with Sec. 1026.13(e).
    4. Balances with the same rate. When the same annual percentage rate 
applies to more than one balance on an account and a different annual 
percentage rate applies to at least one other balance on that account, 
Sec. 1026.53 generally does not require that any particular method be 
used when allocating among the balances with the same annual percentage 
rate. Under these circumstances, a card issuer may treat the balances 
with the same rate as a single balance or separate balances. See example 
in comment 53-5.iv. However, 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. 1026.53 during 
that period of time. 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. 1026.53 until July 1. In addition, unless the card 
issuer allocates amounts paid by the consumer in excess of the required 
minimum periodic payment in the manner requested by the consumer 
pursuant to Sec. 1026.53(b)(1)(ii), Sec. 1026.53(b)(1)(i) requires the 
card issuer to apply any excess payments 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 example in comment 53-5.v.
    5. Examples. For purposes of the following examples, assume that 
none of the required minimum periodic payment is allocated to the 
balances discussed (unless otherwise stated).
    i. Assume that a credit card account has a cash advance balance of 
$500 at an annual percentage rate of 20% and a purchase balance of 
$1,500 at an annual percentage rate of

[[Page 961]]

15% and that the consumer pays $800 in excess of the required minimum 
periodic payment. Under Sec. 1026.53(a), the card issuer must allocate 
$500 to pay off the cash advance balance and then allocate the remaining 
$300 to the purchase balance.
    ii. Assume that a credit card account has a cash advance balance of 
$500 at an annual percentage rate of 20% and a purchase balance of 
$1,500 at an annual percentage rate of 15% and that the consumer pays 
$400 in excess of the required minimum periodic payment. Under Sec. 
1026.53(a), the card issuer must allocate the entire $400 to the cash 
advance balance.
    iii. Assume that a credit card account has a cash advance balance of 
$100 at an annual percentage rate of 20%, a purchase balance of $300 at 
an annual percentage rate of 18%, and a $600 protected balance on which 
the 12% annual percentage rate cannot be increased pursuant to Sec. 
1026.55. If the consumer pays $500 in excess of the required minimum 
periodic payment, Sec. 1026.53(a) requires the card issuer to allocate 
$100 to pay off the cash advance balance, $300 to pay off the purchase 
balance, and $100 to the protected balance.
    iv. Assume that a credit card account has a cash advance balance of 
$500 at an annual percentage rate of 20%, a purchase balance of $1,000 
at an annual percentage rate of 15%, and a transferred balance of $2,000 
that was previously at a discounted annual percentage rate of 5% but is 
now at an annual percentage rate of 15%. Assume also that the consumer 
pays $800 in excess of the required minimum periodic payment. Under 
Sec. 1026.53(a), the card issuer must allocate $500 to pay off the cash 
advance balance and allocate the remaining $300 among the purchase 
balance and the transferred balance in the manner the card issuer deems 
appropriate.
    v. Assume that on January 1 a consumer uses a credit card account to 
make a $1,200 purchase subject to a deferred interest program under 
which interest accrues at an annual percentage rate of 15% but the 
consumer will not be obligated to pay that interest if the balance is 
paid in full on or before June 30. The billing cycles for this account 
begin on the first day of the month and end on the last day of the 
month. Each month from January through June, the consumer uses the 
account to make $200 in purchases that are not subject to the deferred 
interest program but are subject to the 15% rate.
    A. Each month from February through June, the consumer pays $400 in 
excess of the required minimum periodic payment on the payment due date, 
which is the twenty-fifth of the month. Any interest that accrues on the 
purchases not subject to the deferred interest program is paid by the 
required minimum periodic payment. The card issuer does not accept 
requests from consumers regarding the allocation of excess payments 
pursuant to Sec. 1026.53(b)(1)(ii). Thus, Sec. 1026.53(b)(1)(i) 
requires the card issuer to allocate the $400 excess payments received 
on February 25, March 25, and April 25 consistent with Sec. 1026.53(a). 
In other words, the card issuer must allocate those payments as follows: 
$200 to pay off the balance not subject to the deferred interest program 
(which is subject to the 15% rate) and the remaining $200 to the 
deferred interest balance (which is treated as a balance with a rate of 
zero). However, Sec. 1026.53(b)(1)(i) requires the card issuer to 
allocate the entire $400 excess payment received on May 25 to the 
deferred interest balance. Similarly, Sec. 1026.53(b)(1)(i) requires 
the card issuer to allocate the $400 excess payment received on June 25 
as follows: $200 to the deferred interest balance (which pays that 
balance in full) and the remaining $200 to the balance not subject to 
the deferred interest program.
    B. Same facts as above, except that the card issuer does accept 
requests from consumers regarding the allocation of excess payments 
pursuant to Sec. 1026.53(b)(1)(ii). In addition, on April 25, the card 
issuer receives an excess payment of $800, which the consumer requests 
be allocated to pay off the $800 balance subject to the deferred 
interest program. Section 1026.53(b)(1)(ii) permits the card issuer to 
allocate the $800 excess payment in the manner requested by the 
consumer.

                           53(b) Special Rules

    1. Deferred interest and similar programs. Section 1026.53(b)(1) 
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. For purposes of Sec. 1026.53(b)(1), ``deferred 
interest'' has the same meaning as in Sec. 1026.16(h)(2) and associated 
commentary. Section 1026.53(b)(1) applies regardless of whether the 
consumer is required to make payments with respect to that balance 
during the specified period. However, 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. 1026.53(b)(1). Similarly, a temporary annual 
percentage rate of zero percent that applies for a specified period of 
time consistent with Sec. 1026.55(b)(1) is not a deferred interest or 
similar program for purposes of Sec. 1026.53(b)(1) 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.
    2. Expiration of deferred interest or similar program during billing 
cycle. For purposes of

[[Page 962]]

Sec. 1026.53(b)(1)(i), 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. For example, assume 
that a credit card account has a balance subject to a deferred interest 
program that expires on June 15. Assume also that the billing cycles for 
the account begin on the first day of the month and end on the last day 
of the month and that the required minimum periodic payment is due on 
the twenty-fifth day of the month. The card issuer does not accept 
requests from consumers regarding the allocation of excess payments 
pursuant to Sec. 1026.53(b)(1)(ii). Because the expiration date for the 
deferred interest program (June 15) precedes the due date in the June 
billing cycle (June 25), Sec. 1026.53(b)(1)(i) requires the card issuer 
to allocate first to the deferred interest balance any amount paid by 
the consumer in excess of the required minimum periodic payment during 
the April and May billing cycles (as well as any amount paid by the 
consumer before June 15). However, if the deferred interest program 
expired on June 25 or on June 30 (or on any day in between), Sec. 
1026.53(b)(1)(i) would apply only to the May and June billing cycles.
    3. Consumer requests. i. Generally. Section 1026.53(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. 1026.53(a) or (b)(1)(i), as applicable. 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. 1026.53(a) or (b)(1)(i), as 
applicable. Similarly, a card issuer that accepts requests pursuant to 
Sec. 1026.53(b)(1)(ii) or (b)(2) must allocate amounts paid by a 
consumer in excess of the required minimum periodic payment consistent 
with Sec. 1026.53(a) or (b)(1)(i), as applicable, if the consumer does 
not submit a request. Furthermore, a card issuer that accepts requests 
pursuant to Sec. 1026.53(b)(1)(ii) or (b)(2) must allocate consistent 
with Sec. 1026.53(a) or (b)(1)(i), as applicable, if the consumer 
submits a request with which the card issuer cannot comply (such as a 
request that contains a mathematical error), unless the consumer submits 
an additional request with which the card issuer can comply.
    ii. Examples of consumer requests that satisfy Sec. 
1026.53(b)(1)(ii) or (b)(2). A consumer has made a request for purposes 
of Sec. 1026.53(b)(1)(ii) or (b)(2) if:
    A. The consumer contacts the card issuer orally, electronically, or 
in writing 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 
or the period of time that a balance on the account is secured.
    B. The consumer completes and submits to the card issuer 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 during 
the period of time that the deferred interest or similar program applies 
to a balance on the account or the period of time that a balance on the 
account is secured.
    C. The consumer contacts the card issuer orally, electronically, or 
in writing and specifically requests that a payment that the card issuer 
has previously allocated consistent with Sec. 1026.53(a) or (b)(1)(i), 
as applicable, instead be allocated in a different manner.
    iii. Examples of consumer requests that do not satisfy Sec. 
1026.53(b)(1)(ii) or (b)(2). A consumer has not made a request for 
purposes of Sec. 1026.53(b)(1)(ii) or (b)(2) if:
    A. The terms and conditions of the account agreement contain 
preprinted language stating that by applying to open an account, by 
using that account for transactions subject to a deferred interest or 
similar program, or by using the account to purchase property in which 
the card issuer holds a security interest the consumer requests that 
payments be allocated in a particular manner.
    B. The card issuer's online 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.
    C. 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.
    D. The card issuer requires a consumer to accept a particular 
payment allocation method as a condition of using a deferred interest or 
similar program, purchasing property in which the card issuer holds a 
security interest, making a payment, or receiving account services or 
features.

[[Page 963]]

    Section 1026.54--Limitations on the Imposition of Finance Charges

54(a) Limitations on imposing finance charges as a result of the loss of 
                             a grace period

                          54(a)(1) General Rule

    1. Eligibility for grace period. Section 1026.54 prohibits the 
imposition of finance charges as a result of the loss of a grace period 
in certain specified circumstances. Section 1026.54 does not require the 
card issuer to provide a grace period. Furthermore, Sec. 1026.54 does 
not prohibit the card issuer from placing limitations and conditions on 
a grace period (such as limiting application of the grace period to 
certain types of transactions or conditioning eligibility for the grace 
period on certain transactions being paid in full by a particular date), 
provided that such limitations and conditions are consistent with Sec. 
1026.5(b)(2)(ii)(B) and Sec. 1026.54. Finally, Sec. 1026.54 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. For 
example:
    i. 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 and that 
the payment due date is the twenty-fifth day of the month. Assume also 
that, for purchases made during the current billing cycle (for purposes 
of this example, the June billing cycle), the grace period applies from 
the date of the purchase until the payment due date in the following 
billing cycle (July 25), subject to two conditions. First, the purchase 
balance at the end of the preceding billing cycle (the May billing 
cycle) must have been paid in full by the payment due date in the 
current billing cycle (June 25). Second, the purchase balance at the end 
of the current billing cycle (the June billing cycle) must be paid in 
full by the following payment due date (July 25). Finally, assume that 
the consumer was eligible for a grace period at the start of the June 
billing cycle (in other words, assume that the purchase balance for the 
April billing cycle was paid in full by May 25).
    A. If the consumer pays the purchase balance for the May billing 
cycle in full by June 25, then at the end of the June billing cycle the 
consumer is eligible for a grace period with respect to purchases made 
during that billing cycle. Therefore, Sec. 1026.54 limits the 
imposition of finance charges with respect to purchases made during the 
June billing cycle if the consumer does not pay the purchase balance for 
the June billing cycle in full by July 25. Specifically, Sec. 
1026.54(a)(1)(i) prohibits the card issuer from imposing finance charges 
based on the purchase balance at the end of the June billing cycle for 
days that precede the July billing cycle. Furthermore, Sec. 
1026.54(a)(1)(ii) prohibits the card issuer from imposing finance 
charges based on any portion of the balance at the end of the June 
billing cycle that was paid on or before July 25.
    B. If the consumer does not pay the purchase balance for the May 
billing cycle in full by June 25, then the consumer is not eligible for 
a grace period with respect to purchases made during the June billing 
cycle at the end of that cycle. Therefore, Sec. 1026.54 does not limit 
the imposition of finance charges with respect to purchases made during 
the June billing cycle regardless of whether the consumer pays the 
purchase balance for the June billing cycle in full by July 25.
    ii. Same facts as above except that the card issuer places only one 
condition on the provision of a grace period for purchases made during 
the current billing cycle (the June billing cycle): that the purchase 
balance at the end of the current billing cycle (the June billing cycle) 
be paid in full by the following payment due date (July 25). In these 
circumstances, Sec. 1026.54 applies to the same extent as discussed in 
paragraphs i.A and i.B above regardless of whether the purchase balance 
for the April billing cycle was paid in full by May 25.
    2. Definition of grace period. For purposes of Sec. Sec. 
1026.5(b)(2)(ii)(B) and 1026.54, 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. The following are not grace periods for 
purposes of Sec. 1026.54:
    i. Deferred interest and similar programs. A deferred interest or 
similar promotional program under which a consumer will not be obligated 
to pay interest that accrues on a balance if that balance is paid in 
full prior to the expiration of a specified period of time is not a 
grace period for purposes of Sec. 1026.54. Thus, Sec. 1026.54 does not 
prohibit the card issuer from charging accrued interest to an account 
upon expiration of a deferred interest or similar program if the balance 
was not paid in full prior to expiration (to the extent consistent with 
Sec. 1026.55 and other applicable law and regulatory guidance).
    ii. Waivers or rebates of interest. As a general matter, a card 
issuer has not provided a grace period with respect to transactions for 
purposes of Sec. 1026.54 if, on an individualized basis (such as in 
response to a consumer's request), the card issuer waives or rebates 
finance charges that have accrued on transactions. In addition, when a 
balance at the end of the preceding billing cycle is paid in full on or 
before the payment due date in the current billing cycle, a card issuer 
that waives or rebates trailing or residual interest accrued on that 
balance or any other transactions during the current billing cycle has 
not provided a grace period with respect to that balance or any other 
transactions for

[[Page 964]]

purposes of Sec. 1026.54. However, if the terms of the account provide 
that all interest accrued on transactions will be waived or rebated if 
the balance for those transactions at the end of the billing cycle 
during which the transactions occurred is paid in full by the following 
payment due date, the card issuer is providing a grace period with 
respect to those transactions for purposes of Sec. 1026.54. For 
example:
    A. 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 and that 
the payment due date is the twenty-fifth day of the month. On March 31, 
the balance on the account is $1,000 and the consumer is not eligible 
for a grace period with respect to that balance because the balance at 
the end of the prior billing cycle was not paid in full on March 25. On 
April 15, the consumer uses the account for a $500 purchase. On April 
25, the card issuer receives a payment of $1,000. On May 3, the card 
issuer mails or delivers a periodic statement reflecting trailing or 
residual interest that accrued on the $1,000 balance from April 1 
through April 24 as well as interest that accrued on the $500 purchase 
from April 15 through April 30. On May 10, the consumer requests that 
the trailing or residual interest charges be waived and the card issuer 
complies. By waiving these interest charges, the card issuer has not 
provided a grace period with respect to the $1,000 balance or the $500 
purchase.
    B. Same facts as in paragraph ii.A above except that the terms of 
the account state that trailing or residual interest will be waived in 
these circumstances or it is the card issuer's practice to waive 
trailing or residual interest in these circumstances. By waiving these 
interest charges, the card issuer has not provided a grace period with 
respect to the $1,000 balance or the $500 purchase.
    C. 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 and that 
the payment due date is the twenty-fifth day of the month. Assume also 
that, for purchases made during the current billing cycle (for purposes 
of this example, the June billing cycle), the terms of the account 
provide that interest accrued on those purchases from the date of the 
purchase until the payment due date in the following billing cycle (July 
25) will be waived or rebated, subject to two conditions. First, the 
purchase balance at the end of the preceding billing cycle (the May 
billing cycle) must have been paid in full by the payment due date in 
the current billing cycle (June 25). Second, the purchase balance at the 
end of the current billing cycle (the June billing cycle) must be paid 
in full by the following payment due date (July 25). Under these 
circumstances, the card issuer is providing a grace period on purchases 
for purposes of Sec. 1026.54. Therefore, assuming that the consumer was 
eligible for this grace period at the start of the June billing cycle 
(in other words, assuming that the purchase balance for the April 
billing cycle was paid in full by May 25) and assuming that the consumer 
pays the purchase balance for the May billing cycle in full by June 25, 
Sec. 1026.54 applies to the imposition of finance charges with respect 
to purchases made during the June billing cycle. Specifically, Sec. 
1026.54(a)(1)(i) prohibits the card issuer from imposing finance charges 
based on the purchase balance at the end of the June billing cycle for 
days that precede the July billing cycle. Furthermore, Sec. 
1026.54(a)(1)(ii) prohibits the card issuer from imposing finance 
charges based on any portion of the balance at the end of the June 
billing cycle that was paid on or before July 25.
    3. Relationship to payment allocation requirements in Sec. 1026.53. 
Card issuers must comply with the payment allocation requirements in 
Sec. 1026.53 even if doing so will result in the loss of a grace 
period.
    4. Prohibition on two-cycle balance computation method. When a 
consumer ceases to be eligible for a grace period, Sec. 
1026.54(a)(1)(i) prohibits the card issuer from computing the finance 
charge using the two-cycle average daily balance computation method. 
This method calculates the finance charge using a balance that is the 
sum of the average daily balances for two billing cycles. The first 
balance is for the current billing cycle, and is calculated by adding 
the total balance (including or excluding new purchases and deducting 
payments and credits) for each day in the billing cycle, and then 
dividing by the number of days in the billing cycle. The second balance 
is for the preceding billing cycle.
    5. Prohibition on imposing finance charges on amounts paid within 
grace period. When a balance on a credit card account is eligible for a 
grace period and the card issuer receives payment for some but not all 
of that balance prior to the expiration of the grace period, Sec. 
1026.54(a)(1)(ii) prohibits the card issuer from imposing finance 
charges on the portion of the balance paid. Card issuers are not 
required to use a particular method to comply with Sec. 
1026.54(a)(1)(ii). However, when Sec. 1026.54(a)(1)(ii) applies, a card 
issuer is in compliance if, for example, it applies the consumer's 
payment to the balance subject to the grace period at the end of the 
preceding billing cycle (in a manner consistent with the payment 
allocation requirements in Sec. 1026.53) and then calculates interest 
charges based on the amount of the balance that remains unpaid.
    6. Examples. Assume that the annual percentage rate for purchases on 
a credit card account is 15%. The billing cycle starts on the first day 
of the month and ends on the

[[Page 965]]

last day of the month. The payment due date for the account is the 
twenty-fifth day of the month. For purchases made during the current 
billing cycle, the card issuer provides a grace period from the date of 
the purchase until the payment due date in the following billing cycle, 
provided that the purchase balance at the end of the current billing 
cycle is paid in full by the following payment due date. For purposes of 
this example, assume that none of the required minimum periodic payment 
is allocated to the balances discussed. During the March billing cycle, 
the following transactions are charged to the account: A $100 purchase 
on March 10, a $200 purchase on March 15, and a $300 purchase on March 
20. On March 25, the purchase balance for the February billing cycle is 
paid in full. Thus, for purposes of Sec. 1026.54, the consumer is 
eligible for a grace period on the March purchases. At the end of the 
March billing cycle (March 31), the consumer's total purchase balance is 
$600 and the consumer will not be charged interest on that balance if it 
is paid in full by the following due date (April 25).
    i. On April 10, a $150 purchase is charged to the account. On April 
25, the card issuer receives $500 in excess of the required minimum 
periodic payment. Section 1026.54(a)(1)(i) prohibits the card issuer 
from reaching back and charging interest on any of the March 
transactions from the date of the transaction through the end of the 
March billing cycle (March 31). In these circumstances, the card issuer 
may comply with Sec. 1026.54(a)(1)(ii) by applying the $500 excess 
payment to the $600 purchase balance and then charging interest only on 
the portion of the $600 purchase balance that remains unpaid ($100) from 
the start of the April billing cycle (April 1) through the end of the 
April billing cycle (April 30). In addition, the card issuer may charge 
interest on the $150 purchase from the date of the transaction (April 
10) through the end of the April billing cycle (April 31).
    ii. Same facts as in paragraph 6 above except that, on March 18, a 
$250 cash advance is charged to the account at an annual percentage rate 
of 25%. The card issuer's grace period does not apply to cash advances, 
but the card issuer does provide a grace period on the March purchases 
because the purchase balance for the February billing cycle is paid in 
full on March 25. On April 25, the card issuer receives $600 in excess 
of the required minimum periodic payment. As required by Sec. 1026.53, 
the card issuer allocates the $600 excess payment first to the balance 
with the highest annual percentage rate (the $250 cash advance balance). 
Although Sec. 1026.54(a)(1)(i) prohibits the card issuer from charging 
interest on the March purchases based on days in the March billing 
cycle, the card issuer may charge interest on the $250 cash advance from 
the date of the transaction (March 18) through April 24. In these 
circumstances, the card issuer may comply with Sec. 1026.54(a)(1)(ii) 
by applying the remainder of the excess payment ($350) to the $600 
purchase balance and then charging interest only on the portion of the 
$600 purchase balance that remains unpaid ($250) from the start of the 
April billing cycle (April 1) through the end of the April billing cycle 
(April 30).
    iii. Same facts as in paragraph 6 above except that the consumer 
does not pay the balance for the February billing cycle in full on March 
25 and therefore is not eligible for a grace period on the March 
purchases. Under these circumstances, Sec. 1026.54 does not apply and 
the card issuer may charge interest from the date of each transaction 
through April 24 and interest on the remaining $100 from April 25 
through the end of the April billing cycle (April 25).

  Section 1026.55--Limitations on Increasing Annual Percentage Rates, 
                            Fees, and Charges

                           55(a) General Rule

    1. Increase in rate, fee, or charge. Section 1026.55(a) prohibits 
card issuers from increasing an annual percentage rate or any fee or 
charge required to be disclosed under Sec. 1026.6(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. 1026.55(b). Except as 
specifically provided in Sec. 1026.55(b), this prohibition applies even 
if the circumstances under which an increase will occur are disclosed in 
advance. The following examples illustrate the general application of 
Sec. 1026.55(a) and (b). Additional examples illustrating specific 
aspects of the exceptions in Sec. 1026.55(b) are provided in the 
commentary to those exceptions.
    i. Account-opening disclosure of non-variable rate for six months, 
then variable rate. Assume that, at account opening on January 1 of year 
one, a card issuer discloses that the annual percentage rate for 
purchases is a non-variable rate of 15% and will apply for six months. 
The card issuer also discloses that, after six months, the annual 
percentage rate for purchases will be a variable rate that is currently 
18% and will be adjusted quarterly by adding a margin of 8 percentage 
points to a publicly-available index not under the card issuer's 
control. Furthermore, the card issuer discloses that the annual 
percentage rate for cash advances is the same variable rate that will 
apply to purchases after six months. Finally, the card issuer discloses 
that, to the extent consistent with Sec. 1026.55 and other applicable 
law, a non-variable penalty rate of 30% may apply if the consumer makes 
a late payment. The payment due date for the account is the twenty-fifth 
day of the month and the required minimum periodic payments are applied 
to accrued interest and fees but do not reduce the purchase and cash 
advance balances.

[[Page 966]]

    A. Change-in-terms rate increase for new transactions after first 
year. On January 15 of year one, the consumer uses the account to make a 
$2,000 purchase and a $500 cash advance. No other transactions are made 
on the account. At the start of each quarter, the card issuer may adjust 
the variable rate that applies to the $500 cash advance consistent with 
changes in the index (pursuant to Sec. 1026.55(b)(2)). All required 
minimum periodic payments are received on or before the payment due date 
until May of year one, when the payment due on May 25 is received by the 
creditor on May 28. At this time, the card issuer is prohibited by Sec. 
1026.55 from increasing the rates that apply to the $2,000 purchase, the 
$500 cash advance, or future purchases and cash advances. Six months 
after account opening (July 1), the card issuer may begin to accrue 
interest on the $2,000 purchase at the previously-disclosed variable 
rate determined using an 8-point margin (pursuant to Sec. 
1026.55(b)(1)). Because no other increases in rate were disclosed at 
account opening, the card issuer may not subsequently increase the 
variable rate that applies to the $2,000 purchase and the $500 cash 
advance (except due to increases in the index pursuant to Sec. 
1026.55(b)(2)). On November 16, the card issuer provides a notice 
pursuant to Sec. 1026.9(c) informing the consumer of a new variable 
rate that will apply on January 1 of year two (calculated using the same 
index and an increased margin of 12 percentage points). On December 15, 
the consumer makes a $100 purchase. On January 1 of year two, the card 
issuer may increase the margin used to determine the variable rate that 
applies to new purchases to 12 percentage points (pursuant to Sec. 
1026.55(b)(3)). However, Sec. 1026.55(b)(3)(ii) does not permit the 
card issuer to apply the variable rate determined using the 12-point 
margin to the $2,000 purchase balance. Furthermore, although the $100 
purchase occurred more than 14 days after provision of the Sec. 
1026.9(c) notice, Sec. 1026.55(b)(3)(iii) does not permit the card 
issuer to apply the variable rate determined using the 12-point margin 
to that purchase because it occurred during the first year after account 
opening. On January 15 of year two, the consumer makes a $300 purchase. 
The card issuer may apply the variable rate determined using the 12-
point margin to the $300 purchase.
    B. Account becomes more than 60 days delinquent during first year. 
Same facts as above except that the required minimum periodic payment 
due on May 25 of year one is not received by the card issuer until July 
30 of year one. Because the card issuer received the required minimum 
periodic payment more than 60 days after the payment due date, Sec. 
1026.55(b)(4) permits the card issuer to increase the annual percentage 
rate applicable to the $2,000 purchase, the $500 cash advance, and 
future purchases and cash advances. However, Sec. 1026.55(b)(4)(i) 
requires the card issuer to first comply with the notice requirements in 
Sec. 1026.9(g). Thus, if the card issuer provided a Sec. 1026.9(g) 
notice on July 25 stating that all rates on the account would be 
increased to the 30% penalty rate, the card issuer could apply that rate 
beginning on September 8 to all balances and to future transactions.
    ii. Account-opening disclosure of non-variable rate for six months, 
then increased non-variable rate for six months, then variable rate; 
change-in-terms rate increase for new transactions after first year. 
Assume that, at account opening on January 1 of year one, a card issuer 
discloses that the annual percentage rate for purchases will increase as 
follows: A non-variable rate of 5% for six months; a non-variable rate 
of 10% for an additional six months; and thereafter a variable rate that 
is currently 15% and will be adjusted monthly by adding a margin of 5 
percentage points to a publicly-available index not under the card 
issuer's control. The payment due date for the account is the fifteenth 
day of the month and the required minimum periodic payments are applied 
to accrued interest and fees but do not reduce the purchase balance. On 
January 15 of year one, the consumer uses the account to make a $1,500 
purchase. Six months after account opening (July 1), the card issuer may 
begin to accrue interest on the $1,500 purchase at the previously-
disclosed 10% non-variable rate (pursuant to Sec. 1026.55(b)(1)). On 
September 15, the consumer uses the account for a $700 purchase. On 
November 16, the card issuer provides a notice pursuant to Sec. 
1026.9(c) informing the consumer of a new variable rate that will apply 
on January 1 of year two (calculated using the same index and an 
increased margin of 8 percentage points). One year after account opening 
(January 1 of year two), the card issuer may begin accruing interest on 
the $2,200 purchase balance at the previously-disclosed variable rate 
determined using a 5-point margin (pursuant to Sec. 1026.55(b)(1)). 
Section 1026.55 does not permit the card issuer to apply the variable 
rate determined using the 8-point margin to the $2,200 purchase balance. 
Furthermore, Sec. 1026.55 does not permit the card issuer to 
subsequently increase the variable rate determined using the 5-point 
margin that applies to the $2,200 purchase balance (except due to 
increases in the index pursuant to Sec. 1026.55(b)(2)). The card issuer 
may, however, apply the variable rate determined using the 8-point 
margin to purchases made on or after January 1 of year two (pursuant to 
Sec. 1026.55(b)(3)).
    iii. Change-in-terms rate increase for new transactions after first 
year; penalty rate increase after first year. Assume that, at account 
opening on January 1 of year one, a card issuer discloses that the 
annual percentage rate for purchases is a variable rate

[[Page 967]]

determined by adding a margin of 6 percentage points to a publicly-
available index outside of the card issuer's control. The card issuer 
also discloses that, to the extent consistent with Sec. 1026.55 and 
other applicable law, a non-variable penalty rate of 28% may apply if 
the consumer makes a late payment. The due date for the account is the 
fifteenth of the month. On May 30 of year two, the account has a 
purchase balance of $1,000. On May 31, the card issuer provides a notice 
pursuant to Sec. 1026.9(c) informing the consumer of a new variable 
rate that will apply on July 16 for all purchases made on or after June 
15 (calculated by using the same index and an increased margin of 8 
percentage points). On June 14, the consumer makes a $500 purchase. On 
June 15, the consumer makes a $200 purchase. On July 1, the card issuer 
has not received the payment due on June 15 and provides the consumer 
with a notice pursuant to Sec. 1026.9(g) stating that the 28% penalty 
rate will apply as of August 15 to all transactions made on or after 
July 16 and that, if the consumer becomes more than 60 days late, the 
penalty rate will apply to all balances on the account. On July 17, the 
consumer makes a $300 purchase.
    A. Account does not become more than 60 days delinquent. The payment 
due on June 15 of year two is received on July 2. On July 16, Sec. 
1026.55(b)(3)(ii) permits the card issuer to apply the variable rate 
determined using the 8-point margin disclosed in the Sec. 1026.9(c) 
notice to the $200 purchase made on June 15 but does not permit the card 
issuer to apply this rate to the $1,500 purchase balance. On August 15, 
Sec. 1026.55(b)(3)(ii) permits the card issuer to apply the 28% penalty 
rate disclosed at account opening and in the Sec. 1026.9(g) notice to 
the $300 purchase made on July 17 but does not permit the card issuer to 
apply this rate to the $1,500 purchase balance (which remains at the 
variable rate determined using the 6-point margin) or the $200 purchase 
(which remains at the variable rate determined using the 8-point 
margin).
    B. Account becomes more than 60 days delinquent after provision of 
Sec. 1026.9(g) notice. Same facts as above except the payment due on 
June 15 of year two has not been received by August 15. Section 
1026.55(b)(4) permits the card issuer to apply the 28% penalty rate to 
the $1,500 purchase balance and the $200 purchase because it has not 
received the June 15 payment within 60 days after the due date. However, 
in order to do so, Sec. 1026.55(b)(4)(i) requires the card issuer to 
first provide an additional notice pursuant to Sec. 1026.9(g). This 
notice must be sent no earlier than August 15, which is the first day 
the account became more than 60 days' delinquent. If the notice is sent 
on August 15, the card issuer may begin accruing interest on the $1,500 
purchase balance and the $200 purchase at the 28% penalty rate beginning 
on September 29.
    2. Relationship to grace period. Nothing in Sec. 1026.55 prohibits 
a card issuer from assessing interest due to the loss of a grace period 
to the extent consistent with Sec. 1026.5(b)(2)(ii)(B) and Sec. 
1026.54. In addition, a card issuer has not reduced an annual percentage 
rate on a credit card account for purposes of Sec. 1026.55 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. 1026.55.

                            55(b) Exceptions

    1. Exceptions not mutually exclusive. A card issuer generally may 
increase an annual percentage rate or a fee or charge required to be 
disclosed under Sec. 1026.6(b)(2)(ii), (b)(2)(iii), or (b)(2)(xii) 
pursuant to an exception set forth in Sec. 1026.55(b) even if that 
increase would not be permitted under a different exception. For 
example, although a card issuer cannot increase an annual percentage 
rate pursuant to Sec. 1026.55(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. 1026.55(b)(2). Similarly, although Sec. 
1026.55(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. 1026.55(b)(4) if the required minimum periodic payment 
is not received within 60 days after the due date. However, if Sec. 
1026.55(b)(4)(ii) requires a card issuer to decrease the rate, fee, or 
charge that applies to a balance while the account is subject to a 
workout or temporary hardship arrangement or subject to 50 U.S.C. app. 
527 or a similar Federal or state statute or regulation, the card issuer 
may not impose a higher rate, fee, or charge on that balance pursuant to 
Sec. 1026.55(b)(5) or (b)(6) upon completion or failure of the 
arrangement or once 50 U.S.C. app. 527 or the similar Federal or state 
statute or regulation no longer applies. For example, assume that, on 
January 1, the annual percentage rate that applies to a $1,000 balance 
is increased from 12% to 30% pursuant to Sec. 1026.55(b)(4). On 
February 1, the rate on that balance is decreased from 30% to 15% 
consistent with Sec. 1026.55(b)(5) as a part of a workout or temporary 
hardship arrangement. On July 1, Sec. 1026.55(b)(4)(ii) requires the 
card issuer to reduce the rate that applies to any remaining portion of 
the $1,000 balance

[[Page 968]]

from 15% to 12%. If the consumer subsequently completes or fails to 
comply with the terms of the workout or temporary hardship arrangement, 
the card issuer may not increase the 12% rate that applies to any 
remaining portion of the $1,000 balance pursuant to Sec. 1026.55(b)(5).
    2. Relationship between exceptions in Sec. 1026.55(b) and notice 
requirements in Sec. 1026.9. Nothing in Sec. 1026.55 alters the 
requirements in Sec. 1026.9(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.
    i. 14-day rule in Sec. 1026.55(b)(3)(ii). Although Sec. 
1026.55(b)(3)(ii) permits a card issuer that discloses an increased rate 
pursuant to Sec. 1026.9(c) or (g) to apply that rate to transactions 
that occur more than 14 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. 1026.9(c) or (g). For 
example, if on May 1 a card issuer provides a notice pursuant to Sec. 
1026.9(c) stating that a rate will increase from 15% to 18% on June 15, 
Sec. 1026.55(b)(3)(ii) permits the card issuer to apply the 18% rate to 
transactions that occur on or after May 16. However, neither Sec. 
1026.55 nor Sec. 1026.9(c) permits the card issuer to begin accruing 
interest at the 18% rate on those transactions until June 15. See 
additional examples in comment 55(b)(3)-4.
    ii. Mid-cycle increases; application of balance computation methods. 
Once an increased rate has gone into effect, the card issuer cannot 
calculate interest charges based on that increased rate for days prior 
to the effective date. Assume that, in the example in paragraph i above, 
the billing cycles for the account begin on the first day of the month 
and end on the last day of the month. If, for example, the card issuer 
uses the average daily balance computation method, it cannot apply the 
18% rate to the average daily balance for the entire June billing cycle 
because that rate did not become effective until June 15. However, the 
card issuer could apply the 15% rate to the average daily balance from 
June 1 through June 14 and the 18% rate to the average daily balance 
from June 15 through June 30. Similarly, if the card issuer that uses 
the daily balance computation method, it could apply the 15% rate to the 
daily balance for each day from June 1 through June 14 and the 18% rate 
to the daily balance for each day from June 15 through June 30.
    iii. Mid-cycle increases; delayed implementation of increase. If 
Sec. 1026.55(b) and Sec. 1026.9(b), (c), or (g) permit a card issuer 
to apply an increased 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 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. Thus, in the example in paragraphs i and ii 
above, the card issuer could delay application of the 18% rate until the 
start of the next billing cycle (April 1) without relinquishing its 
ability to apply that rate under Sec. 1026.55(b)(3). Similarly, assume 
that, at account opening on January 1, a card issuer discloses that a 
non-variable annual percentage rate of 10% will apply to purchases for 
six months and a non-variable rate of 15% will apply thereafter. The 
first day of each billing cycle for the account is the fifteenth of the 
month. If the six-month period expires on July 1, the card issuer may 
delay application of the 15% rate until the start of the next billing 
cycle (July 15) without relinquishing its ability to apply that rate 
under Sec. 1026.55(b)(1).
    3. Application of a lower rate, fee, or charge. Nothing in Sec. 
1026.55 prohibits a card issuer from lowering an annual percentage rate 
or a fee or charge required to be disclosed under Sec. 
1026.6(b)(2)(ii), (b)(2)(iii), or (b)(2)(xii). However, a card issuer 
that does so cannot subsequently increase the rate, fee, or charge 
unless permitted by one of the exceptions in Sec. 1026.55(b). The 
following examples illustrate the application of the rule:
    i. Application of lower rate during first year. Assume that a card 
issuer discloses at account opening on January 1 of year one that a non-
variable annual percentage rate of 15% will apply to purchases. The card 
issuer also discloses that, to the extent consistent with Sec. 1026.55 
and other applicable law, a non-variable penalty rate of 30% may apply 
if the consumer's required minimum periodic payment is received after 
the payment due date, which is the tenth of the month. The required 
minimum periodic payments are applied to accrued interest and fees but 
do not reduce the purchase balance.
    A. Temporary rate returns to standard rate at expiration. On 
September 30 of year one, the account has a purchase balance of $1,400 
at the 15% rate. On October 1, the card issuer provides a notice 
pursuant to Sec. 1026.9(c) informing the consumer that the rate for new 
purchases will decrease to a non-variable rate of 5% for six months 
(from October 1 through March 31 of year two) and that, beginning on 
April 1 of year two, the rate for purchases will increase to the 15% 
non-variable rate disclosed at account opening. The card issuer does not 
apply the 5% rate to the $1,400 purchase balance. On October 14 of year 
one, the consumer makes a $300 purchase at the 5% rate. On January 15 of 
year two, the consumer makes a $150 purchase at the 5% rate. On April 1 
of year two, the card issuer may begin accruing interest on the $300 
purchase and the $150 purchase at 15% as disclosed in the Sec. 
1026.9(c) notice (pursuant to Sec. 1026.55(b)(1)).
    B. Penalty rate increase. Same facts as above except that the 
required minimum periodic payment due on November 10 of year

[[Page 969]]

one is not received until November 15. Section 1026.55 does not permit 
the card issuer to increase any annual percentage rate on the account at 
this time. The card issuer may apply the 30% penalty rate to new 
transactions beginning on April 1 of year two pursuant to Sec. 
1026.55(b)(3) by providing a Sec. 1026.9(g) notice informing the 
consumer of this increase no later than February 14 of year two. The 
card issuer may not, however, apply the 30% penalty rate to the $1,400 
purchase balance as of September 30 of year one, the $300 purchase on 
October 15 of year one, or the $150 purchase on January 15 of year two.
    ii. Application of lower rate at end of first year. Assume that, at 
account opening on January 1 of year one, a card issuer discloses that a 
non-variable annual percentage rate of 15% will apply to purchases for 
one year and discloses that, after the first year, the card issuer will 
apply a variable rate that is currently 20% and is determined by adding 
a margin of 10 percentage points to a publicly-available index not under 
the card issuer's control. On December 31 of year one, the account has a 
purchase balance of $3,000.
    A. Notice of extension of existing temporary rate provided 
consistent with Sec. 1026.55(b)(1)(i). On December 15 of year one, the 
card issuer provides a notice pursuant to Sec. 1026.9(c) informing the 
consumer that the existing 15% rate will continue to apply until July 1 
of year two. The notice further states that, on July 1 of year two, the 
variable rate disclosed at account opening will apply. On July 1 of year 
two, Sec. 1026.55(b)(1) permits the card issuer to apply that variable 
rate to any remaining portion of the $3,000 balance and to new 
transactions.
    B. Notice of new temporary rate provided consistent with Sec. 
1026.55(b)(1)(i). On December 15 of year one, the card issuer provides a 
notice pursuant to Sec. 1026.9(c) informing the consumer of a new 
variable rate that will apply on January 1 of year two that is lower 
than the variable rate disclosed at account opening. The new variable 
rate is calculated using the same index and a reduced margin of 8 
percentage points. The notice further states that, on July 1 of year 
two, the margin will increase to the margin disclosed at account opening 
(10 percentage points). On July 1 of year two, Sec. 1026.55(b)(1) 
permits the card issuer to increase the margin used to determine the 
variable rate that applies to new purchases to 10 percentage points and 
to apply that rate to any remaining portion of the $3,000 purchase 
balance.
    C. No notice provided. Same facts as in paragraph ii.B above except 
that the card issuer does not send a notice on December 15 of year one. 
Instead, on January 1 of year two, the card issuer lowers the margin 
used to determine the variable rate to 8 percentage points and applies 
that rate to the $3,000 purchase balance and to new purchases. Section 
1026.9 does not require advance notice in these circumstances. However, 
unless the account becomes more than 60 days' delinquent, Sec. 1026.55 
does not permit the card issuer to subsequently increase the rate that 
applies to the $3,000 purchase balance except due to increases in the 
index (pursuant to Sec. 1026.55(b)(2)).
    iii. Application of lower rate after first year. Assume that a card 
issuer discloses at account opening on January 1 of year one that a non-
variable annual percentage rate of 10% will apply to purchases for one 
year, after which that rate will increase to a non-variable rate of 15%. 
The card issuer also discloses that, to the extent consistent with Sec. 
1026.55 and other applicable law, a non-variable penalty rate of 30% may 
apply if the consumer's required minimum periodic payment is received 
after the payment due date, which is the tenth of the month. The 
required minimum periodic payments are applied to accrued interest and 
fees but do not reduce the purchase balance.
    A. Effect of 14-day period. On June 30 of year two, the account has 
a purchase balance of $1,000 at the 15% rate. On July 1, the card issuer 
provides a notice pursuant to Sec. 1026.9(c) informing the consumer 
that the rate for new purchases will decrease to a non-variable rate of 
5% for six months (from July 1 through December 31 of year two) and 
that, beginning on January 1 of year three, the rate for purchases will 
increase to a non-variable rate of 17%. On July 15 of year two, the 
consumer makes a $200 purchase. On July 16, the consumer makes a $100 
purchase. On January 1 of year three, the card issuer may begin accruing 
interest on the $100 purchase at 17% (pursuant to Sec. 1026.55(b)(1)). 
However, Sec. 1026.55(b)(1)(ii)(B) does not permit the card issuer to 
apply the 17% rate to the $200 purchase because that transaction 
occurred within 14 days after provision of the Sec. 1026.9(c) notice. 
Instead, the card issuer may apply the 15% rate that applied to 
purchases prior to provision of the Sec. 1026.9(c) notice. In addition, 
if the card issuer applied the 5% rate to the $1,000 purchase balance, 
Sec. 1026.55(b)(ii)(A) would not permit the card issuer to increase the 
rate that applies to that balance on January 1 of year three to a rate 
that is higher than 15% that previously applied to the balance.
    B. Penalty rate increase. Same facts as above except that the 
required minimum periodic payment due on August 25 is received on August 
30. At this time, Sec. 1026.55 does not permit the card issuer to 
increase the annual percentage rates that apply to the $1,000 purchase 
balance, the $200 purchase, or the $100 purchase. Instead, those rates 
can only be increased as discussed in paragraph iii.A above. However, if 
the card issuer provides a notice pursuant to Sec. 1026.9(c) or (g) on 
September 1, Sec. 1026.55(b)(3) permits the card issuer to apply an 
increased

[[Page 970]]

rate (such as the 17% purchase rate or the 30% penalty rate) to 
transactions that occur on or after September 16 beginning on October 
16.
    C. Application of lower temporary rate during specified period. Same 
facts as in paragraph iii above. On June 30 of year two, the account has 
a purchase balance of $1,000 at the 15% non-variable rate. On July 1, 
the card issuer provides a notice pursuant to Sec. 1026.9(c) informing 
the consumer that the rate for the $1,000 balance and new purchases will 
decrease to a non-variable rate of 12% for six months (from July 1 
through December 31 of year two) and that, beginning on January 1 of 
year three, the rate for purchases will increase to a variable rate that 
is currently 20% and is determined by adding a margin of 10 percentage 
points to a publicly-available index not under the card issuer's 
control. On August 15 of year two, the consumer makes a $500 purchase. 
On October 1, the card issuer provides another notice pursuant to Sec. 
1026.9(c) informing the consumer that the rate for the $1,000 balance, 
the $500 purchase, and new purchases will decrease to a non-variable 
rate of 5% for six months (from October 1 of year two through March 31 
of year three) and that, beginning on April 1 of year three, the rate 
for purchases will increase to a variable rate that is currently 23% and 
is determined by adding a margin of 13 percentage points to the 
previously-disclosed index. On November 15 of year two, the consumer 
makes a $300 purchase. On April 1 of year three, Sec. 1026.55 permits 
the card issuer to begin accruing interest using the following rates for 
any remaining portion of the following balances: The 15% non-variable 
rate for the $1,000 balance; the variable rate determined using the 10-
point margin for the $500 purchase; and the variable rate determined 
using the 13-point margin for the $300 purchase.
    4. Date on which transaction occurred. When a transaction occurred 
for purposes of Sec. 1026.55 is generally determined by the date of the 
transaction. However, if a transaction that occurred within 14 days 
after provision of a Sec. 1026.9(c) or (g) notice is not charged to the 
account prior to the effective date of the change or increase, the card 
issuer may treat the transaction as occurring more than 14 days after 
provision of the notice for purposes of Sec. 1026.55. See example in 
comment 55(b)(3)-4.iii.B. In addition, 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. 1026.55 is 
the date on which the card issuer receives the actual transaction amount 
from the merchant. See example in comment 55(b)(3)-4.iii.A.
    5. Category of transactions. For purposes of Sec. 1026.55, 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. Similarly, a type or 
group of transactions is a ``category of transactions'' for purposes of 
Sec. 1026.55 if a fee or charge required to be disclosed under Sec. 
1026.6(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. For example, purchase transactions, cash advance 
transactions, and balance transfer transactions are separate categories 
of transactions for purposes of Sec. 1026.55 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. 1026.55.

            55(b)(1) Temporary rate, fee, or charge exception

    1. Relationship to Sec. 1026.9(c)(2)(v)(B). A card issuer that has 
complied with the disclosure requirements in Sec. 1026.9(c)(2)(v)(B) 
has also complied with the disclosure requirements in Sec. 
1026.55(b)(1)(i).
    2. Period of six months or longer. A temporary annual percentage 
rate, fee, or charge must apply for a specified period of six months or 
longer before a card issuer can increase that rate, fee, or charge 
pursuant to Sec. 1026.55(b)(1). The specified period must expire no 
less than six months after the date on which the card issuer provides 
the consumer with the disclosures required by Sec. 1026.55(b)(1)(i) or, 
if later, the date on which the account can be used for transactions to 
which the temporary rate, fee, or charge applies. Section 1026.55(b)(1) 
does not prohibit a card issuer from limiting the application of a 
temporary annual percentage rate, fee, or charge to a particular 
category of transactions (such as to balance transfers or to purchases 
over $100). However, in circumstances where the card issuer limits 
application of the temporary rate, fee, or charge to a single 
transaction, the specified period must expire no less than six months 
after the date on which that transaction occurred. The following 
examples illustrate the application of Sec. 1026.55(b)(1):
    i. Assume that on January 1 a card issuer offers a consumer a 5% 
annual percentage rate on purchases made during the months of January 
through June. A 15% rate will apply thereafter. On February 15, a $500 
purchase is charged to the account. On June 15, a $200 purchase is 
charged to the account. On July

[[Page 971]]

1, the card issuer may begin accruing interest at the 15% rate on the 
$500 purchase and the $200 purchase (pursuant to Sec. 1026.55(b)(1)).
    ii. Same facts as above except that on January 1 the card issuer 
offered the 5% rate on purchases beginning in the month of February. 
Section 1026.55(b)(1) would not permit the card issuer to begin accruing 
interest at the 15% rate on the $500 purchase and the $200 purchase 
until August 1.
    iii. Assume that on October 31 of year one the annual percentage 
rate for purchases is 17%. On November 1, the card issuer offers the 
consumer a 0% rate for six months on purchases made during the months of 
November and December. The 17% rate will apply thereafter. On November 
15, a $500 purchase is charged to the account. On December 15, a $300 
purchase is charged to the account. On January 15 of year two, a $150 
purchase is charged to the account. Section 1026.55(b)(1) would not 
permit the card issuer to begin accruing interest at the 17% rate on the 
$500 purchase and the $300 purchase until May 1 of year two. However, 
the card issuer may accrue interest at the 17% rate on the $150 purchase 
beginning on January 15 of year two.
    iv. Assume that on June 1 of year one a card issuer offers a 
consumer a 0% annual percentage rate for six months on the purchase of 
an appliance. An 18% rate will apply thereafter. On September 1, a 
$5,000 transaction is charged to the account for the purchase of an 
appliance. Section 1026.55(b)(1) would not permit the card issuer to 
begin accruing interest at the 18% rate on the $5,000 transaction until 
March 1 of year two.
    v. Assume that on May 31 of year one the annual percentage rate for 
purchases is 15%. On June 1, the card issuer offers the consumer a 5% 
rate for six months on a balance transfer of at least $1,000. The 15% 
rate will apply thereafter. On June 15, a $3,000 balance is transferred 
to the account. On July 15, a $200 purchase is charged to the account. 
Section 1026.55(b)(1) would not permit the card issuer to begin accruing 
interest at the 15% rate on the $3,000 transferred balance until 
December 15. However, the card issuer may accrue interest at the 15% 
rate on the $200 purchase beginning on July 15.
    vi. Same facts as in paragraph v above except that the card issuer 
offers the 5% rate for six months on all balance transfers of at least 
$1,000 during the month of June and a $2,000 balance is transferred to 
the account on June 30 (in addition to the $3,000 balance transfer on 
June 15). Because the 5% rate is not limited to a particular 
transaction, Sec. 1026.55(b)(1) permits the card issuer to begin 
accruing interest on the $3,000 and $2,000 transferred balances on 
December 1.
    vii. Assume that a card issuer discloses at account opening on 
January 1 of year one that the annual fee for the account is $0 until 
January 1 of year two, when the fee will increase to $50. On January 1 
of year two, the card issuer may impose the $50 annual fee. However, the 
issuer must also comply with the notice requirements in Sec. 1026.9(e).
    viii. Assume that a card issuer discloses at account opening on 
January 1 of year one that the monthly maintenance fee for the account 
is $0 until July 1 of year one, when the fee will increase to $10. 
Beginning on July 1 of year one, the card issuer may impose the $10 
monthly maintenance fee (to the extent consistent with Sec. 
1026.52(a)).
    3. Deferred interest and similar promotional programs. i. 
Application of Sec. 1026.55. The general prohibition in Sec. 
1026.55(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. However, the exception in Sec. 1026.55(b)(1) 
also applies to these programs, provided that the specified period is 
six months or longer and that, prior to the commencement of the period, 
the card issuer discloses the length of the period and the rate at which 
interest will accrue on the balance subject to the deferred interest or 
similar program if that balance is not paid in full prior to expiration 
of the period. See comment 9(c)(2)(v)-9. For purposes of Sec. 1026.55, 
``deferred interest'' has the same meaning as in Sec. 1026.16(h)(2) and 
associated commentary.
    ii. Examples. A. Deferred interest offer at account opening. Assume 
that, at account opening on January 1 of year one, the card issuer 
discloses the following with respect to a deferred interest program: 
``No interest on purchases made in January of year one if paid in full 
by December 31 of year one. If the balance is not paid in full by that 
date, interest will be imposed from the transaction date at a rate of 
20%.'' On January 15 of year one, the consumer makes a purchase of 
$2,000. No other transactions are made on the account. The terms of the 
deferred interest program require the consumer to make minimum periodic 
payments with respect to the deferred interest balance, and the payment 
due on April 1 is not received until April 10. Section 1026.55 does not 
permit the card issuer to charge to the account interest that has 
accrued on the $2,000 purchase at this time. Furthermore, if the 
consumer pays the $2,000 purchase in full on or before December 31 of 
year one, Sec. 1026.55 does not permit the card issuer to charge to the 
account any interest that has accrued on that purchase. If, however, the 
$2,000 purchase has not been paid in full by January 1 of year two, 
Sec. 1026.55(b)(1) permits the card issuer to charge to the account the 
interest accrued on that purchase at the 20% rate during year one (to 
the extent consistent with other applicable law).

[[Page 972]]

    B. Deferred interest offer after account opening. Assume that a card 
issuer discloses at account opening on January 1 of year one that the 
rate that applies to purchases is a variable annual percentage rate that 
is currently 18% and will be adjusted quarterly by adding a margin of 8 
percentage points to a publicly-available index not under the card 
issuer's control. The card issuer also discloses that, to the extent 
consistent with Sec. 1026.55 and other applicable law, a non-variable 
penalty rate of 30% may apply if the consumer's required minimum 
periodic payment is received after the payment due date, which is the 
first of the month. On June 30 of year two, the consumer uses the 
account for a $1,000 purchase in response to an offer of a deferred 
interest program. Under the terms of this program, interest on the 
purchase will accrue at the variable rate for purchases but the consumer 
will not be obligated to pay that interest if the purchase is paid in 
full by December 31 of year three. The terms of the deferred interest 
program require the consumer to make minimum periodic payments with 
respect to the deferred interest balance, and the payment due on 
September 1 of year two is not received until September 6. Section 
1026.55 does not permit the card issuer to charge to the account 
interest that has accrued on the $1,000 purchase at this time. 
Furthermore, if the consumer pays the $1,000 purchase in full on or 
before December 31 of year three, Sec. 1026.55 does not permit the card 
issuer to charge to the account any interest that has accrued on that 
purchase. On December 31 of year three, the $1,000 purchase has been 
paid in full. Under these circumstances, the card issuer may not charge 
any interest accrued on the $1,000 purchase.
    C. Application of Sec. 1026.55(b)(4) to deferred interest programs. 
Same facts as in paragraph ii.B above except that, on November 2 of year 
two, the card issuer has not received the required minimum periodic 
payments due on September 1, October 1, or November 1 of year two and 
sends a Sec. 1026.9(c) or (g) notice stating that interest accrued on 
the $1,000 purchase since June 30 of year two will be charged to the 
account on December 17 of year two and thereafter interest will be 
charged on the $1,000 purchase consistent with the variable rate for 
purchases. On December 17 of year two, Sec. 1026.55(b)(4) permits the 
card issuer to charge to the account interest accrued on the $1,000 
purchase since June 30 of year two and Sec. 1026.55(b)(3) permits the 
card issuer to begin charging interest on the $1,000 purchase consistent 
with the variable rate for purchases. However, if the card issuer 
receives the required minimum periodic payments due on January 1, 
February 1, March 1, April 1, May 1, and June 1 of year three, Sec. 
1026.55(b)(4)(ii) requires the card issuer to cease charging the account 
for interest on the $1,000 purchase no later than the first day of the 
next billing cycle. See comment 55(b)(4)-3.iii. However, Sec. 
1026.55(b)(4)(ii) does not require the card issuer to waive or credit 
the account for interest accrued on the $1,000 purchase since June 30 of 
year two. If the $1,000 purchase is paid in full on December 31 of year 
three, the card issuer is not permitted to charge to the account 
interest accrued on the $1,000 purchase after June 1 of year three.
    4. Contingent or discretionary increases. Section 1026.55(b)(1) 
permits a card issuer to increase a temporary annual percentage rate, 
fee, or charge upon the expiration of a specified period of time. 
However, Sec. 1026.55(b)(1) does not permit a card issuer to apply an 
increased rate, fee, or charge that is contingent on a particular event 
or occurrence or that may be applied at the card issuer's discretion. 
The following examples illustrate rate increases that are not permitted 
by Sec. 1026.55:
    i. Assume that a card issuer discloses at account opening on January 
1 of year one that a non-variable annual percentage rate of 15% applies 
to purchases but that all rates on an account may be increased to a non-
variable penalty rate of 30% if a consumer's required minimum periodic 
payment is received after the payment due date, which is the fifteenth 
of the month. On March 1, the account has a $2,000 purchase balance. The 
payment due on March 15 is not received until March 20. Section 1026.55 
does not permit the card issuer to apply the 30% penalty rate to the 
$2,000 purchase balance. However, pursuant to Sec. 1026.55(b)(3), the 
card issuer could provide a Sec. 1026.9(c) or (g) notice on or before 
November 16 informing the consumer that, on January 1 of year two, the 
30% rate (or a different rate) will apply to new transactions.
    ii. Assume that a card issuer discloses at account opening on 
January 1 of year one that a non-variable annual percentage rate of 5% 
applies to transferred balances but that this rate will increase to a 
non-variable rate of 18% if the consumer does not use the account for at 
least $200 in purchases each billing cycle. On July 1, the consumer 
transfers a balance of $4,000 to the account. During the October billing 
cycle, the consumer uses the account for $150 in purchases. Section 
1026.55 does not permit the card issuer to apply the 18% rate to the 
$4,000 transferred balance or the $150 in purchases. However, pursuant 
to Sec. 1026.55(b)(3), the card issuer could provide a Sec. 1026.9(c) 
or (g) notice on or before November 16 informing the consumer that, on 
January 1 of year two, the 18% rate (or a different rate) will apply to 
new transactions.
    iii. Assume that a card issuer discloses at account opening on 
January 1 of year one that the annual fee for the account is $10 but

[[Page 973]]

may be increased to $50 if a consumer's required minimum periodic 
payment is received after the payment due date, which is the fifteenth 
of the month. The payment due on July 15 is not received until July 23. 
Section 1026.55 does not permit the card issuer to impose the $50 annual 
fee at this time. Furthermore, Sec. 1026.55(b)(3) does not permit the 
card issuer to increase the $10 annual fee during the first year after 
account opening. However, Sec. 1026.55(b)(3) does permit the card 
issuer to impose the $50 fee (or a different fee) on January 1 of year 
two if, on or before November 16 of year one, the issuer informs the 
consumer of the increased fee consistent with Sec. 1026.9(c) and the 
consumer does not reject that increase pursuant to Sec. 1026.9(h).
    iv. Assume that a card issuer discloses at account opening on 
January 1 of year one that the annual fee for a credit card account 
under an open-end (not home-secured) consumer credit plan is $0 but may 
be increased to $100 if the consumer's balance in a deposit account 
provided by the card issuer or its affiliate or subsidiary falls below 
$5,000. On June 1 of year one, the balance on the deposit account is 
$4,500. Section 1026.55 does not permit the card issuer to impose the 
$100 annual fee at this time. Furthermore, Sec. 1026.55(b)(3) does not 
permit the card issuer to increase the $0 annual fee during the first 
year after account opening. However, Sec. 1026.55(b)(3) does permit the 
card issuer to impose the $100 fee (or a different fee) on January 1 of 
year two if, on or before November 16 of year one, the issuer informs 
the consumer of the increased fee consistent with Sec. 1026.9(c) and 
the consumer does not reject that increase pursuant to Sec. 1026.9(h).
    5. Application of increased fees and charges. Section 
1026.55(b)(1)(ii) limits the ability of a card issuer to apply an 
increased fee or charge to certain transactions. However, to the extent 
consistent with Sec. 1026.55(b)(3), (c), and (d), a card issuer 
generally is not prohibited from increasing a fee or charge that applies 
to the account as a whole. See comments 55(c)(1)-3 and 55(d)-1.

                    55(b)(2) Variable rate exception

    1. Increases due to increase in index. Section 1026.55(b)(2) 
provides that an annual percentage rate that varies according to an 
index that is not under the card issuer's control and is available to 
the general public may be increased due to an increase in the index. 
This section does not permit a card issuer to increase the rate by 
changing the method used to determine a rate that varies with an index 
(such as by increasing the margin), even if that change will not result 
in an immediate increase. However, from time to time, a card issuer may 
change the day on which index values are measured to determine changes 
to the rate.
    2. Index not under card issuer's control. A card issuer may increase 
a variable annual percentage rate pursuant to Sec. 1026.55(b)(2) only 
if the increase is based on an index or indices outside the card 
issuer's control. For purposes of Sec. 1026.55(b)(2), an index is under 
the card issuer's control if:
    i. The index is the card issuer's 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.
    ii. The variable rate 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. A card issuer is permitted, 
however, to establish a fixed maximum rate that does not permit the 
variable rate to increase consistent with increases in an index. For 
example, assume that, under the terms of an account, a variable rate 
will be adjusted monthly by adding a margin of 5 percentage points to a 
publicly-available index. When the account is opened, the index is 10% 
and therefore the variable rate is 15%. If the terms of the account 
provide that the variable rate will not decrease below 15% even if the 
index decreases below 10%, the card issuer cannot increase that rate 
pursuant to Sec. 1026.55(b)(2). However, Sec. 1026.55(b)(2) does not 
prohibit the card issuer from providing in the terms of the account that 
the variable rate will not increase above a certain amount (such as 
20%).
    iii. The variable rate can be calculated based on any index value 
during a period of time (such as the 90 days preceding the last day of a 
billing cycle). A card issuer is permitted, however, to provide in the 
terms of the account that the variable rate will be calculated based on 
the average index value during a specified period. In the alternative, 
the card issuer is permitted to provide in the terms of the account that 
the variable rate will be calculated based on the index value on a 
specific day (such as the last day of a billing cycle). For example, 
assume that the terms of an account provide that a variable rate will be 
adjusted at the beginning of each quarter by adding a margin of 7 
percentage points to a publicly-available index. At account opening at 
the beginning of the first quarter, the variable rate is 17% (based on 
an index value of 10%). During the first quarter, the index varies 
between 9.8% and 10.5% with an average value of 10.1%. On the last day 
of the first quarter, the index value is 10.2%. At the beginning of the 
second quarter, Sec. 1026.55(b)(2) does not permit the card issuer to 
increase the variable rate to 17.5% based on the first quarter's maximum 
index value of 10.5%. However, if the terms of the account provide that 
the variable rate will be calculated based on the average index value 
during the prior quarter, Sec. 1026.55(b)(2) permits the card issuer to 
increase the variable

[[Page 974]]

rate to 17.1% (based on the average index value of 10.1% during the 
first quarter). In the alternative, if the terms of the account provide 
that the variable rate will be calculated based on the index value on 
the last day of the prior quarter, Sec. 1026.55(b)(2) permits the card 
issuer to increase the variable rate to 17.2% (based on the index value 
of 10.2% on the last day of the first quarter).
    3. Publicly available. The index or indices must be available to the 
public. 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 
account.
    4. Changing a non-variable rate to a variable rate. Section 1026.55 
generally prohibits a card issuer from changing a non-variable annual 
percentage rate to a variable annual percentage rate because such a 
change can result in an increase. However, a card issuer may change a 
non-variable rate to a variable rate to the extent permitted by one of 
the exceptions in Sec. 1026.55(b). For example, Sec. 1026.55(b)(1) 
permits a card issuer to change a non-variable rate to a variable rate 
upon expiration of a specified period of time. Similarly, following the 
first year after the account is opened, Sec. 1026.55(b)(3) permits a 
card issuer to change a non-variable rate to a variable rate with 
respect to new transactions (after complying with the notice 
requirements in Sec. 1026.9(b), (c) or (g)).
    5. Changing a variable rate to a non-variable rate. Nothing in Sec. 
1026.55 prohibits a card issuer from changing a variable annual 
percentage 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. 
1026.9(c). For example, assume that on March 1 a variable annual 
percentage rate that is currently 15% applies to a balance of $2,000 and 
the card issuer sends a notice pursuant to Sec. 1026.9(c) informing the 
consumer that the variable rate will be converted to a non-variable rate 
of 14% effective April 15. On April 15, the card issuer may apply the 
14% non-variable rate to the $2,000 balance and to new transactions even 
if the variable rate on March 2 or a later date was less than 14%.
    6. Substitution of index. A card issuer may change the index and 
margin used to determine the annual percentage rate under Sec. 
1026.55(b)(2) if the original index becomes unavailable, as long as 
historical fluctuations in the original and replacement indices were 
substantially similar, and as long as 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. If the replacement index is newly 
established and therefore does not have any rate history, it may be used 
if it produces a rate substantially similar to the rate in effect when 
the original index became unavailable.

                    55(b)(3) Advance notice exception

    1. Relationship to Sec. 1026.9(h). A card issuer may not increase a 
fee or charge required to be disclosed under Sec. 1026.6(b)(2)(ii), 
(b)(2)(iii), or (b)(2)(xii) pursuant to Sec. 1026.55(b)(3) if the 
consumer has rejected the increased fee or charge pursuant to Sec. 
1026.9(h).
    2. Notice provided pursuant to Sec. 1026.9(b) and (c). If an 
increased annual percentage rate, fee, or charge is disclosed pursuant 
to both Sec. 1026.9(b) and (c), that rate, fee, or charge may only be 
applied to transactions that occur more than 14 days after provision of 
the Sec. 1026.9(c) notice as provided in Sec. 1026.55(b)(3)(ii).
    3. Account opening. i. Multiple accounts with same card issuer. 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. 
1026.55(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. For example, assume that, on January 1 of year 
one, a consumer opens a credit card account with a card issuer. On July 
1 of year one, the consumer opens a second credit card account with that 
card issuer. On July 15, a $1,000 balance is transferred from the first 
account to the second account. The opening of the second account 
constitutes the opening of a credit card account for purposes of Sec. 
1026.55(b)(3)(iii) so long as, on August 1, the consumer has the option 
to engage in transactions using either account. Under these 
circumstances, the card issuer could not increase an annual percentage 
rate or a fee or charge required to be disclosed under Sec. 
1026.6(b)(2)(ii), (b)(2)(iii), or (b)(2)(xii) on the second account 
pursuant to Sec. 1026.55(b)(3) until July 1 of year two (which is one 
year after the second account was opened).
    ii. Substitution, replacement or consolidation. A. Generally. A 
credit card account has not been opened for purposes of Sec. 
1026.55(b)(3)(iii) when a credit card account issued by a card issuer is 
substituted, replaced, or consolidated with another credit card account 
issued by the same card issuer (or its affiliate or subsidiary). 
Circumstances in which a credit card account has not been opened for 
purposes of Sec. 1026.55(b)(3)(iii) include when:
    1. A retail credit card account is replaced with a cobranded general 
purpose credit card account that can be used at a wider number of 
merchants;
    2. A credit card account is replaced with another credit card 
account offering different features;

[[Page 975]]

    3. A credit card account is consolidated or combined with one or 
more other credit card accounts into a single credit card account; or
    4. A credit card account acquired through merger or acquisition is 
replaced with a credit card account issued by the acquiring card issuer.
    B. Limitation. A card issuer that replaces or consolidates a credit 
card account with another credit card account issued by the card issuer 
(or its affiliate or subsidiary) may not increase an annual percentage 
rate or a fee or charge required to be disclosed under Sec. 
1026.6(b)(2)(ii), (b)(2)(iii), or (b)(2)(xii) in a manner otherwise 
prohibited by Sec. 1026.55. For example, assume that, on January 1 of 
year one, a consumer opens a credit card account with an annual 
percentage rate of 15% for purchases. On July 1 of year one, the account 
is replaced with a credit card account that offers different features 
(such as rewards on purchases). Under these circumstances, Sec. 
1026.55(b)(3)(iii) prohibits the card issuer from increasing the annual 
percentage rate for new purchases to a rate that is higher than 15% 
pursuant to Sec. 1026.55(b)(3) until January 1 of year two (which is 
one year after the first account was opened).
    4. Examples. i. Change-in-terms rate increase; temporary rate 
increase; 14-day period. Assume that an account is opened on January 1 
of year one. On March 14 of year two, the account has a purchase balance 
of $2,000 at a non-variable annual percentage rate of 15%. On March 15, 
the card issuer provides a notice pursuant to Sec. 1026.9(c) informing 
the consumer that the rate for new purchases will increase to a non-
variable rate of 18% on May 1. The notice further states that the 18% 
rate will apply for six months (until November 1) and that thereafter 
the card issuer will apply a variable rate that is currently 22% and is 
determined by adding a margin of 12 percentage points to a publicly-
available index that is not under the card issuer's control. The 
fourteenth day after provision of the notice is March 29 and, on that 
date, the consumer makes a $200 purchase. On March 30, the consumer 
makes a $1,000 purchase. On May 1, the card issuer may begin accruing 
interest at 18% on the $1,000 purchase made on March 30 (pursuant to 
Sec. 1026.55(b)(3)). Section 1026.55(b)(3)(ii) does not permit the card 
issuer to apply the 18% rate to the $2,200 purchase balance as of March 
29 because that balance reflects transactions that occurred prior to or 
within 14 days after the provision of the Sec. 1026.9(c) notice. After 
six months (November 2), the card issuer may begin accruing interest on 
any remaining portion of the $1,000 purchase at the previously-disclosed 
variable rate determined using the 12-point margin (pursuant to Sec. 
1026.55(b)(1) and (b)(3)).
    ii. Checks that access an account. Assume that a card issuer 
discloses at account opening on January 1 of year one that the annual 
percentage rate that applies to cash advances is a variable rate that is 
currently 24% and will be adjusted quarterly by adding a margin of 14 
percentage points to a publicly available index not under the card 
issuer's control. On July 1 of year two, the card issuer provides checks 
that access the account and, pursuant to Sec. 1026.9(b)(3)(i)(A), 
discloses that a promotional rate of 15% will apply to credit extended 
by use of the checks until January 1 of year three, after which the cash 
advance rate determined using the 14-point margin will apply. On July 9 
of year two, the consumer uses one of the checks to pay for a $500 
transaction. Beginning on January 1 of year three, the card issuer may 
apply the cash advance rate determined using the 14-point margin to any 
remaining portion of the $500 transaction (pursuant to Sec. 
1026.55(b)(1) and (b)(3)).
    iii. Hold on available credit; 14-day period. Assume that an account 
is opened on January 1 of year one. On September 14 of year two, the 
account has a purchase balance of $2,000 at a non-variable annual 
percentage rate of 17%. On September 15, the card issuer provides a 
notice pursuant to Sec. 1026.9(c) informing the consumer that the rate 
for new purchases will increase to a non-variable rate of 20% on October 
30. The fourteenth day after provision of the notice is September 29. On 
September 28, the consumer uses the credit card to check into a hotel 
and the hotel obtains authorization for a $1,000 hold on the account to 
ensure there is adequate available credit to cover the anticipated cost 
of the stay.
    A. The consumer checks out of the hotel on October 2. The actual 
cost of the stay is $1,100 because of additional incidental costs. On 
October 2, the hotel charges the $1,100 transaction to the account. For 
purposes of Sec. 1026.55(b)(3), the transaction occurred on October 2. 
Therefore, on October 30, Sec. 1026.55(b)(3) permits the card issuer to 
apply the 20% rate to new purchases and to the $1,100 transaction. 
However, Sec. 1026.55(b)(3)(ii) does not permit the card issuer to 
apply the 20% rate to any remaining portion of the $2,000 purchase 
balance.
    B. Same facts as above except that the consumer checks out of the 
hotel on September 29. The actual cost of the stay is $250, but the 
hotel does not charge this amount to the account until November 1. For 
purposes of Sec. 1026.55(b)(3), the card issuer may treat the 
transaction as occurring more than 14 days after provision of the Sec. 
1026.9(c) notice (i.e., after September 29). Accordingly, the card 
issuer may apply the 20% rate to the $250 transaction.
    5. Application of increased fees and charges. See comment 55(c)(1)-
3.
    6. Delayed implementation of increase. Section 1026.55(b)(3)(iii) 
does not prohibit a card issuer from notifying a consumer of an increase 
in an annual percentage rate, fee, or charge consistent with Sec. 
1026.9(b), (c), or (g).

[[Page 976]]

However, Sec. 1026.55(b)(3)(iii) does prohibit application of an 
increased rate, fee, or charge during the first year after the account 
is opened, while the account is closed, or while the card issuer does 
not permit the consumer to use the account for new transactions. If 
Sec. 1026.9(b), (c), or (g) permits a card issuer to apply an increased 
rate, fee, or charge on a particular date and the account is closed on 
that date or the card issuer does not permit the consumer to use the 
account for new transactions on that date, 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 (assuming the increase is otherwise consistent 
with Sec. 1026.55). See examples in comment 55(b)-2.iii. However, if 
the account is closed or the card issuer does not permit the consumer to 
use the account for new transactions on the first day of the following 
billing cycle, then the card issuer must provide a new notice of the 
increased rate, fee, or charge consistent with Sec. 1026.9(b), (c), or 
(g).
    7. Date on which account may first be used by consumer to engage in 
transactions. For purposes of Sec. 1026.55(b)(3)(iii), 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. An account is 
considered open for purposes of Sec. 1026.55(b)(3)(iii) on any date 
that the card issuer may consider the account open for purposes of Sec. 
1026.52(a)(1). See comment 52(a)(1)-4.

                     55(b)(4) Delinquency exception

    1. Receipt of required minimum periodic payment within 60 days of 
due date. Section 1026.55(b)(4) applies when a card issuer has not 
received the consumer's required minimum periodic payment within 60 days 
after the due date for that payment. In order to satisfy this condition, 
a card issuer that requires monthly minimum payments generally must not 
have received two consecutive required minimum periodic payments. 
Whether a required minimum periodic payment has been received for 
purposes of Sec. 1026.55(b)(4) depends on whether the amount received 
is equal to or more than the first outstanding required minimum periodic 
payment. For 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. The sixtieth day after the March 15 payment due 
date is May 14. If the card issuer receives a $50 payment on May 14, 
Sec. 1026.55(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. 1026.55(b)(4) would 
apply beginning on May 15 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. 1026.55(b)(4) would 
apply because the card issuer did not receive the required minimum 
periodic payment due on March 15 within 60 days after the due date for 
that payment.
    2. Relationship to Sec. 1026.9(g)(3)(i)(B). A card issuer that has 
complied with the disclosure requirements in Sec. 1026.9(g)(3)(i)(B) 
has also complied with the disclosure requirements in Sec. 
1026.55(b)(4)(i).
    3. Reduction in rate pursuant to Sec. 1026.55(b)(4)(ii). Section 
1026.55(b)(4)(ii) provides that, if the card issuer receives six 
consecutive required minimum periodic payments on or before the payment 
due date beginning with the first payment due following the effective 
date of the increase, the card issuer must reduce any annual percentage 
rate, fee, or charge increased pursuant to Sec. 1026.55(b)(4) to the 
annual percentage rate, fee, or charge that applied prior to the 
increase with respect to transactions that occurred prior to or within 
14 days after provision of the Sec. 1026.9(c) or (g) notice.
    i. Six consecutive payments immediately following effective date of 
increase. Section 1026.55(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.
    ii. Rate, fee, or charge that does not exceed rate, fee, or charge 
that applied before increase. Although Sec. 1026.55(b)(4)(ii) requires 
the card issuer to reduce an annual percentage rate, fee, or charge 
increased pursuant to Sec. 1026.55(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. 1026.55(b). For example, if a temporary rate applied 
prior to the Sec. 1026.55(b)(4) increase and the temporary rate expired 
before a reduction in rate pursuant to Sec. 1026.55(b)(4)(ii), the card 
issuer may apply an increased rate to the extent consistent with Sec. 
1026.55(b)(1). Similarly, if a variable rate applied prior to the Sec. 
1026.55(b)(4) increase, the card issuer may apply any increase in that 
variable rate to the extent consistent with Sec. 1026.55(b)(2).
    iii. Delayed implementation of reduction. If Sec. 1026.55(b)(4)(ii) 
requires a card issuer to reduce an annual percentage rate, fee, or

[[Page 977]]

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.
    iv. Examples. The following examples illustrate the application of 
Sec. 1026.55(b)(4)(ii):
    A. Assume that the billing cycles for an account begin on the first 
day of the month and end on the last day of the month and that the 
required minimum periodic payments are due on the fifteenth day of the 
month. Assume also that the account has a $5,000 purchase balance to 
which a non-variable annual percentage rate of 15% applies. On May 16 of 
year one, the card issuer has not received the required minimum periodic 
payments due on the fifteenth day of March, April, or May and sends a 
Sec. 1026.9(c) or (g) notice stating that the annual percentage rate 
applicable to the $5,000 balance and to new transactions will increase 
to 28% effective July 1. On July 1, Sec. 1026.55(b)(4) permits the card 
issuer to apply the 28% rate to the $5,000 balance and to new 
transactions. The card issuer receives the required minimum periodic 
payments due on the fifteenth day of July, August, September, October, 
November, and December. On January 1 of year two, Sec. 
1026.55(b)(4)(ii) requires the card issuer to reduce the rate that 
applies to any remaining portion of the $5,000 balance to 15%. The card 
issuer is not required to reduce the rate that applies to any 
transactions that occurred on or after May 31 (which is the fifteenth 
day after provision of the Sec. 1026.9(c) or (g) notice).
    B. Same facts as paragraph iv.A above except that the 15% rate that 
applied to the $5,000 balance prior to the Sec. 1026.55(b)(4) increase 
was scheduled to increase to 20% on August 1 of year one (pursuant to 
Sec. 1026.55(b)(1)). On January 1 of year two, Sec. 1026.55(b)(4)(ii) 
requires the card issuer to reduce the rate that applies to any 
remaining portion of the $5,000 balance to 20%.
    C. Same facts as paragraph iv.A above except that the 15% rate that 
applied to the $5,000 balance prior to the Sec. 1026.55(b)(4) increase 
was scheduled to increase to 20% on March 1 of year two (pursuant to 
Sec. 1026.55(b)(1)). On January 1 of year two, Sec. 1026.55(b)(4)(ii) 
requires the card issuer to reduce the rate that applies to any 
remaining portion of the $5,000 balance to 15%.
    D. Same facts as paragraph iv.A above except that the 15% rate that 
applied to the $5,000 balance prior to the Sec. 1026.55(b)(4) increase 
was a variable rate that was determined by adding a margin of 10 
percentage points to a publicly-available index not under the card 
issuer's control (consistent with Sec. 1026.55(b)(2)). On January 1 of 
year two, Sec. 1026.55(b)(4)(ii) requires the card issuer to reduce the 
rate that applies to any remaining portion of the $5,000 balance to the 
variable rate determined using the 10-point margin.
    E. For an example of the application of Sec. 1026.55(b)(4)(ii) to 
deferred interest or similar programs, see comment 55(b)(1)-3.ii.C.

      55(b)(5) Workout and temporary hardship arrangement exception

    1. Scope of exception. Nothing in Sec. 1026.55(b)(5) permits a card 
issuer to alter the requirements of Sec. 1026.55 pursuant to a workout 
or temporary hardship arrangement. For example, a card issuer cannot 
increase an annual percentage rate or a fee or charge required to be 
disclosed under Sec. 1026.6(b)(2)(ii), (b)(2)(iii), or (b)(2)(xii) 
pursuant to a workout or temporary hardship arrangement unless otherwise 
permitted by Sec. 1026.55. 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. 1026.55(c).
    2. Relationship to Sec. 1026.9(c)(2)(v)(D). A card issuer that has 
complied with the disclosure requirements in Sec. 1026.9(c)(2)(v)(D) 
has also complied with the disclosure requirements in Sec. 
1026.55(b)(5)(i). See comment 9(c)(2)(v)-10. Thus, although the 
disclosures required by Sec. 1026.55(b)(5)(i) must generally be 
provided in writing prior to commencement of the arrangement, a card 
issuer may comply with Sec. 1026.55(b)(5)(i) by complying with Sec. 
1026.9(c)(2)(v)(D), which states that the disclosure of the terms of the 
arrangement may be made orally by telephone, provided that the card 
issuer 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.
    3. Rate, fee, or charge that does not exceed rate, fee, or charge 
that applied before workout or temporary hardship arrangement. Upon the 
completion or failure of a workout or temporary hardship arrangement, 
Sec. 1026.55(b)(5)(ii) prohibits the card issuer from applying to any 
transactions that occurred prior to commencement of the arrangement an 
annual percentage rate, fee, or charge that exceeds the annual 
percentage rate, fee, or charge that applied to those transactions prior 
to commencement of the arrangement. However, this provision does not 
prohibit the card issuer from applying an increased annual percentage 
rate, fee, or charge upon completion or failure of the arrangement, to 
the extent consistent with any of the other exceptions in Sec. 
1026.55(b). For example, if a temporary rate applied prior to the 
arrangement and that rate expired during the arrangement, the card 
issuer may apply an increased rate upon completion or failure of the 
arrangement to the extent consistent with Sec. 1026.55(b)(1). 
Similarly, if a variable rate applied prior to the arrangement, the card 
issuer may apply

[[Page 978]]

any increase in that variable rate upon completion or failure of the 
arrangement to the extent consistent with Sec. 1026.55(b)(2).
    4. Examples. i. Assume that an account is subject to a $50 annual 
fee and that, consistent with Sec. 1026.55(b)(4), the margin used to 
determine a variable annual percentage rate that applies to a $5,000 
balance is increased from 5 percentage points to 15 percentage points. 
Assume also that the card issuer and the consumer subsequently agree to 
a workout arrangement that reduces the annual fee to $0 and reduces the 
margin back to 5 points on the condition that the consumer pay a 
specified amount by the payment due date each month. If the consumer 
does not pay the agreed-upon amount by the payment due date, Sec. 
1026.55(b)(5) permits the card issuer to increase the annual fee to $50 
and increase the margin for the variable rate that applies to the $5,000 
balance up to 15 percentage points.
    ii. Assume that a consumer fails to make four consecutive monthly 
minimum payments totaling $480 on a consumer credit card account with a 
balance of $6,000 and that, consistent with Sec. 1026.55(b)(4), the 
annual percentage rate that applies to that balance is increased from a 
non-variable rate of 15% to a non-variable penalty rate of 30%. Assume 
also that the card issuer and the consumer subsequently agree to a 
temporary hardship arrangement that reduces all rates on the account to 
0% on the condition that the consumer pay an amount by the payment due 
date each month that is sufficient to cure the $480 delinquency within 
six months. If the consumer pays the agreed-upon amount by the payment 
due date during the six-month period and cures the delinquency, Sec. 
1026.55(b)(5) permits the card issuer to increase the rate that applies 
to any remaining portion of the $6,000 balance to 15% or any other rate 
up to the 30% penalty rate.

           55(b)(6) Servicemembers Civil Relief Act exception

    1. Rate, fee, or charge that does not exceed rate, fee, or charge 
that applied before decrease. When a rate or a fee or charge subject to 
Sec. 1026.55 has been decreased pursuant to 50 U.S.C. app. 527 or a 
similar Federal or state statute or regulation, Sec. 1026.55(b)(6) 
permits the card issuer to increase the rate, fee, or charge once 50 
U.S.C. app. 527 or the similar statute or regulation no longer applies. 
However, Sec. 1026.55(b)(6) prohibits the card issuer from applying to 
any transactions that occurred prior to the decrease a rate, fee, or 
charge that exceeds the rate, fee, or charge that applied to those 
transactions prior to the decrease (except to the extent permitted by 
one of the other exceptions in Sec. 1026.55(b)). For example, if a 
temporary rate applied prior to a decrease in rate pursuant to 50 U.S.C. 
app. 527 and the temporary rate expired during the period that 50 U.S.C. 
app. 527 applied to the account, the card issuer may apply an increased 
rate once 50 U.S.C. app. 527 no longer applies to the extent consistent 
with Sec. 1026.55(b)(1). Similarly, if a variable rate applied prior to 
a decrease in rate pursuant to 50 U.S.C. app. 527, the card issuer may 
apply any increase in that variable rate once 50 U.S.C. app. 527 no 
longer applies to the extent consistent with Sec. 1026.55(b)(2).
    2. Decreases in rates, fees, and charges to amounts consistent with 
50 U.S.C. app. 527 or similar statute or regulation. If a card issuer 
deceases an annual percentage rate or a fee or charge subject to Sec. 
1026.55 pursuant to 50 U.S.C. app. 527 or a similar Federal or state 
statute or regulation and if the card issuer also decreases other rates, 
fees, or charges (such as the rate that applies to new transactions) to 
amounts that are consistent with 50 U.S.C. app. 527 or a similar Federal 
or state statute or regulation, the card issuer may increase those 
rates, fees, and charges consistent with Sec. 1026.55(b)(6).
    3. Example. Assume that on December 31 of year one the annual 
percentage rate that applies to a $5,000 balance on a credit card 
account is a variable rate that is determined by adding a margin of 10 
percentage points to a publicly-available index that is not under the 
card issuer's control. The account is also subject to a monthly 
maintenance fee of $10. On January 1 of year two, the card issuer 
reduces the rate that applies to the $5,000 balance to a non-variable 
rate of 6% and ceases to impose the $10 monthly maintenance fee and 
other fees (including late payment fees) pursuant to 50 U.S.C. app. 527. 
The card issuer also decreases the rate that applies to new transactions 
to 6%. During year two, the consumer uses the account for $1,000 in new 
transactions. On January 1 of year three, 50 U.S.C. app. 527 ceases to 
apply and the card issuer provides a notice pursuant to Sec. 1026.9(c) 
informing the consumer that on February 15 of year three the variable 
rate determined using the 10-point margin will apply to any remaining 
portion of the $5,000 balance and to any remaining portion of the $1,000 
balance. The notice also states that the $10 monthly maintenance fee and 
other fees (including late payment fees) will resume on February 15 of 
year three. Consistent with Sec. 1026.9(c)(2)(iv)(B), the card issuer 
is not required to provide a right to reject in these circumstances. On 
February 15 of year three, Sec. 1026.55(b)(6) permits the card issuer 
to begin accruing interest on any remaining portion of the $5,000 and 
$1,000 balances at the variable rate determined using the 10-point 
margin and to resume imposing the $10 monthly maintenance fee and other 
fees (including late payment fees).

[[Page 979]]

                  55(c) Treatment of protected balances

                55(c)(1) Definition of protected balance

    1. Example of protected balance. Assume that, on March 15 of year 
two, an account has a purchase balance of $1,000 at a non-variable 
annual percentage rate of 12% and that, on March 16, the card issuer 
sends a notice pursuant to Sec. 1026.9(c) informing the consumer that 
the annual percentage rate for new purchases will increase to a non-
variable rate of 15% on May 1. The fourteenth day after provision of the 
notice is March 29. On March 29, the consumer makes a $100 purchase. On 
March 30, the consumer makes a $150 purchase. On May 1, Sec. 
1026.55(b)(3)(ii) permits the card issuer to begin accruing interest at 
15% on the $150 purchase made on March 30 but does not permit the card 
issuer to apply that 15% rate to the $1,100 purchase balance as of March 
29. Accordingly, the protected balance for purposes of Sec. 1026.55(c) 
is the $1,100 purchase balance as of March 29. The $150 purchase made on 
March 30 is not part of the protected balance.
    2. First year after account opening. Section 1026.55(c) applies to 
amounts owed for a category of transactions to which an increased annual 
percentage rate or an increased fee or charge cannot be applied after 
the rate, fee, or charge for that category of transactions has been 
increased pursuant to Sec. 1026.55(b)(3). Because Sec. 
1026.55(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. 
1026.6(b)(2)(ii), (b)(2)(iii), or (b)(2)(xii) during the first year 
after account opening, Sec. 1026.55(c) does not apply to balances 
during the first year after account opening.
    3. Increased fees and charges. Except as provided in Sec. 
1026.55(b)(3)(iii), Sec. 1026.55(b)(3) permits a card issuer to 
increase a fee or charge required to be disclosed under Sec. 
1026.6(b)(2)(ii), (b)(2)(iii), or (b)(2)(xii) after complying with the 
applicable notice requirements in Sec. 1026.9(b) or (c), provided that 
the increased fee or charge is not applied to a protected balance. To 
the extent consistent with Sec. 1026.55(b)(3)(iii), 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, after the first year following account opening, a card issuer 
generally may add or increase an annual or a monthly maintenance fee for 
an account after complying with the notice requirements in Sec. 
1026.9(c), including notifying the consumer of the right to reject the 
new or increased fee under Sec. 1026.9(h). However, except as otherwise 
provided in Sec. 1026.55(b), an increased fee or charge cannot be 
applied to an account while the account is closed or while the card 
issuer does not permit the consumer to use the account for new 
transactions. See Sec. 1026.55(b)(3)(iii); see also Sec. Sec. 
1026.52(b)(2)(i)(B)(3) and 1026.55(d)(1). Furthermore, if the consumer 
rejects an increase in a fee or charge pursuant to Sec. 1026.9(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. 1026.9(h)(2)(i) and (ii); comment 
9(h)(2)(ii)-2.
    4. Changing balance computation method. Nothing in Sec. 1026.55 
prohibits a card issuer from changing the balance computation method 
that applies to new transactions as well as protected balances.

                 55(c)(2) Repayment of protected balance

    1. No less beneficial to the consumer. A card issuer may provide a 
method of repaying the protected balance that is different from the 
methods listed in Sec. 1026.55(c)(2) so long as the method used is no 
less beneficial to the consumer than one of the listed methods. A method 
is no less beneficial to the consumer if the method results in a 
required minimum periodic payment that is equal to or less than a 
minimum payment calculated using the method for the account before the 
effective date of the increase. Similarly, a method is no less 
beneficial to the consumer if the method amortizes the balance in five 
years or longer or if the method results in a required minimum periodic 
payment that is equal to or less than a minimum payment calculated 
consistent with Sec. 1026.55(c)(2)(iii). For example:
    i. If at account opening the cardholder agreement stated that the 
required minimum periodic payment would be either the total of fees and 
interest charges plus 1% of the total amount owed or $20 (whichever is 
greater), the card issuer may require the consumer to make a minimum 
payment of $20 even if doing so would pay off the balance in less than 
five years or constitute more than 2% of the balance plus fees and 
interest charges.
    ii. A card issuer could increase the percentage of the balance 
included in the required minimum periodic payment from 2% to 5% so long 
as doing so would not result in amortization of the balance in less than 
five years.
    iii. A card issuer could require the consumer to make a required 
minimum periodic payment that amortizes the balance in four years so 
long as doing so would not more than double the percentage of the 
balance included in the minimum payment prior to the date on which the 
increased annual percentage rate, fee, or charge became effective.

                         Paragraph 55(c)(2)(ii)

    1. Amortization period starting from effective date of increase. 
Section 1026.55(c)(2)(ii) provides for an amortization period for the 
protected balance of no less than five years,

[[Page 980]]

starting from the date on which the increased annual percentage rate or 
fee or charge required to be disclosed under Sec. 1026.6(b)(2)(ii), 
(b)(2)(iii), or (b)(2)(xii) became effective. A card issuer is not 
required to recalculate the required minimum periodic payment for the 
protected balance if, during the amortization period, that balance is 
reduced as a result of the allocation of payments by the consumer in 
excess of that minimum payment consistent with Sec. 1026.53 or any 
other practice permitted by these rules and other applicable law.
    2. Amortization when applicable rate is variable. If the annual 
percentage rate that applies to the protected balance varies with an 
index, the card issuer may adjust the interest charges included in the 
required minimum periodic payment for that balance accordingly in order 
to ensure that the balance is amortized in five years. For example, 
assume that a variable rate that is currently 15% applies to a protected 
balance and that, in order to amortize that balance in five years, the 
required minimum periodic payment must include a specific amount of 
principal plus all accrued interest charges. If the 15% variable rate 
increases due to an increase in the index, the creditor may increase the 
required minimum periodic payment to include the additional interest 
charges.

                         Paragraph 55(c)(2)(iii)

    1. Portion of required minimum periodic payment on other balances. 
Section 1026.55(c)(2)(iii) addresses the portion of the required minimum 
periodic payment based on the protected balance. Section 
1026.55(c)(2)(iii) does not limit or otherwise address the card issuer's 
ability to determine the portion of the required minimum periodic 
payment based on other balances on the account or the card issuer's 
ability to apply that portion of the minimum payment to the balances on 
the account.
    2. Example. Assume that the method used by a card issuer to 
calculate the required minimum periodic payment for a credit card 
account requires the consumer to pay either the total of fees and 
accrued interest charges plus 2% of the total amount owed or $50, 
whichever is greater. Assume also that the account has a purchase 
balance of $2,000 at an annual percentage rate of 15% and a cash advance 
balance of $500 at an annual percentage rate of 20% and that the card 
issuer increases the rate for purchases to 18% but does not increase the 
rate for cash advances. Under Sec. 1026.55(c)(2)(iii), the card issuer 
may require the consumer to pay fees and interest plus 4% of the $2,000 
purchase balance. Section 1026.55(c)(2)(iii) does not limit the card 
issuer's ability to increase the portion of the required minimum 
periodic payment that is based on the cash advance balance.

                      55(d) Continuing application

    1. Closed accounts. If a credit card account under an open-end (not 
home-secured) consumer credit plan with a balance is closed, Sec. 
1026.55 continues to apply to that balance. For example, if a card 
issuer or a consumer closes a credit card account with a balance, Sec. 
1026.55(d)(1) prohibits the card issuer from increasing the annual 
percentage rate that applies to that balance or imposing a periodic fee 
based solely on that balance that was not charged before the account was 
closed (such as a closed account fee) unless permitted by one of the 
exceptions in Sec. 1026.55(b).
    2. Acquired accounts. If, through merger or acquisition (for 
example), a card issuer acquires a credit card account under an open-end 
(not home-secured) consumer credit plan with a balance, Sec. 1026.55 
continues to apply to that balance. For example, if a credit card 
account has a $1,000 purchase balance with an annual percentage rate of 
15% and the card issuer that acquires that account applies an 18% rate 
to purchases, Sec. 1026.55(d)(1) prohibits the card issuer from 
applying the 18% rate to the $1,000 balance unless permitted by one of 
the exceptions in Sec. 1026.55(b).
    3. Balance transfers. i. Between accounts issued by the same 
creditor. If a balance 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, Sec. 1026.55 continues to apply to that balance. For 
example, if a credit card account has a $2,000 purchase balance with an 
annual percentage rate of 15% and that balance is transferred to another 
credit card account issued by the same creditor that applies an 18% rate 
to purchases, Sec. 1026.55(d)(2) prohibits the creditor from applying 
the 18% rate to the $2,000 balance unless permitted by one of the 
exceptions in Sec. 1026.55(b). However, the creditor would not 
generally be prohibited from charging a new periodic fee (such as an 
annual fee) on the second account so long as the fee is not based solely 
on the $2,000 balance and the creditor has notified the consumer of the 
fee either by providing written notice 45 days before imposing the fee 
pursuant to Sec. 1026.9(c) or by providing account-opening disclosures 
pursuant to Sec. 1026.6(b). See also Sec. 1026.55(b)(3)(iii); comment 
55(b)(3)-3; comment 5(b)(1)(i)-6. Additional circumstances in which a 
balance is considered transferred for purposes of Sec. 1026.55(d)(2) 
include when:
    A. A retail credit card account with a balance is replaced or 
substituted with a cobranded general purpose credit card account that 
can be used with a broader merchant base;

[[Page 981]]

    B. A credit card account with a balance is replaced or substituted 
with another credit card account offering different features;
    C. A credit card account with a balance is consolidated or combined 
with one or more other credit card accounts into a single credit card 
account; and
    D. A credit card account is replaced or substituted with a line of 
credit that can be accessed solely by an account number.
    ii. Between accounts issued by different creditors. If a balance is 
transferred to a credit card account under an open-end (not home-
secured) consumer credit plan issued by a creditor from a credit card 
account issued by a different creditor or an institution that is not an 
affiliate or subsidiary of the creditor that issued the account to which 
the balance is transferred, Sec. 1026.55(d)(2) does not prohibit the 
creditor to which the balance is transferred from applying its account 
terms to that balance, provided that those terms comply with this part. 
For example, if a credit card account issued by creditor 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 creditor B, creditor B may apply the 17% rate to the 
$1,000 balance. However, creditor B may not subsequently increase the 
rate on that balance unless permitted by one of the exceptions in Sec. 
1026.55(b).

   55(e) Promotional waivers or rebates of interest, fees, and other 
                                 charges

    1. Generally. Nothing in Sec. 1026.55 prohibits a card issuer from 
waiving or rebating finance charges due to a periodic interest rate or a 
fee or charge required to be disclosed under Sec. 1026.6(b)(2)(ii), 
(b)(2)(iii), or (b)(2)(xii). However, if a card issuer promotes and 
applies the waiver or rebate to an account, the card issuer cannot 
temporarily or permanently cease or terminate any portion of the waiver 
or rebate on that account unless permitted by one of the exceptions in 
Sec. 1026.55(b). For example:
    i. A card issuer applies an annual percentage rate of 15% to balance 
transfers but promotes a program under which all of the interest accrued 
on transferred balances will be waived or rebated for one year. If, 
prior to the commencement of the one-year period, the card issuer 
discloses the length of the period and the annual percentage rate that 
will apply to transferred balances after expiration of that period 
consistent with Sec. 1026.55(b)(1)(i), Sec. 1026.55(b)(1) permits the 
card issuer to begin imposing interest charges on transferred balances 
after one year. Furthermore, if, during the one-year period, a required 
minimum periodic payment is not received within 60 days of the payment 
due date, Sec. 1026.55(b)(4) permits the card issuer to begin imposing 
interest charges on transferred balances (after providing a notice 
consistent with Sec. 1026.9(g) and Sec. 1026.55(b)(4)(i)). However, if 
a required minimum periodic payment is not more than 60 days delinquent 
or if the consumer otherwise violates the terms or other requirements of 
the account, Sec. 1026.55 does not permit the card issuer to begin 
imposing interest charges on transferred balances until the expiration 
of the one-year period.
    ii. A card issuer imposes a monthly maintenance fee of $10 but 
promotes a program under which the fee will be waived or rebated for the 
six months following account opening. If, prior to account opening, the 
card issuer discloses the length of the period and the monthly 
maintenance fee that will be imposed after expiration of that period 
consistent with Sec. 1026.55(b)(1)(i), Sec. 1026.55(b)(1) permits the 
card issuer to begin imposing the monthly maintenance fee six months 
after account opening. Furthermore, if, during the six-month period, a 
required minimum periodic payment is not received within 60 days of the 
payment due date, Sec. 1026.55(b)(4) permits the card issuer to begin 
imposing the monthly maintenance fee (after providing a notice 
consistent with Sec. 1026.9(c) and Sec. 1026.55(b)(4)(i)). However, if 
a required minimum periodic payment is not more than 60 days delinquent 
or if the consumer otherwise violates the terms or other requirements of 
the account, Sec. 1026.55 does not permit the card issuer to begin 
imposing the monthly maintenance fee until the expiration of the six-
month period.
    2. Promotion of waiver or rebate. For purposes of Sec. 1026.55(e), 
a card issuer generally promotes a waiver or rebate if the card issuer 
discloses the waiver or rebate in an advertisement (as defined in Sec. 
1026.2(a)(2)). See comment 2(a)(2)-1. In addition, a card issuer 
generally promotes a waiver or rebate for purposes of Sec. 1026.55(e) 
if the card issuer discloses the waiver or rebate in communications 
regarding existing accounts (such as communications regarding a 
promotion that encourages additional or different uses of an existing 
account). However, a card issuer does not promote a waiver or rebate for 
purposes of Sec. 1026.55(e) if the advertisement or communication 
relates to an inquiry or dispute about a specific charge or to interest, 
fees, or charges that have already been waived or rebated.
    i. Examples of promotional communications. The following are 
examples of circumstances in which a card issuer is promoting a waiver 
or rebate for purposes of Sec. 1026.55(e):
    A. A card issuer discloses the waiver or rebate in a newspaper, 
magazine, leaflet, promotional flyer, catalog, sign, or point-of-sale 
display, unless the disclosure relates to interest, fees, or charges 
that have already been waived.

[[Page 982]]

    B. A card issuer discloses the waiver or rebate on radio or 
television or through electronic advertisements (such as on the 
Internet), unless the disclosure relates to interest, fees, or charges 
that have already been waived or rebated.
    C. A card issuer discloses a waiver or rebate to individual 
consumers, such as by telephone, letter, or electronic communication, 
through direct mail literature, or on or with account statements, unless 
the disclosure relates to an inquiry or dispute about a specific charge 
or to interest, fees, or charges that have already been waived or 
rebated.
    ii. Examples of non-promotional communications. The following are 
examples of circumstances in which a card issuer is not promoting a 
waiver or rebate for purposes of Sec. 1026.55(e):
    A. After a card issuer has waived or rebated interest, fees, or 
other charges subject to Sec. 1026.55 with respect to an account, the 
issuer discloses the waiver or rebate to the accountholder on the 
periodic statement or by telephone, letter, or electronic communication. 
However, if the card issuer also discloses prospective waivers or 
rebates in the same communication, the issuer is promoting a waiver or 
rebate for purposes of Sec. 1026.55(e).
    B. A card issuer communicates with a consumer about a waiver or 
rebate of interest, fees, or other charges subject to Sec. 1026.55 in 
relation to an inquiry or dispute about a specific charge, including a 
dispute under Sec. Sec. 1026.12 or 1026.13.
    C. A card issuer waives or rebates interest, fees, or other charges 
subject to Sec. 1026.55 in order to comply with a legal requirement 
(such as the limitations in Sec. 1026.52(a)).
    D. A card issuer discloses a grace period, as defined in Sec. 
1026.5(b)(2)(ii)(3).
    E. A card issuer provides a period after the payment due date during 
which interest, fees, or other charges subject to Sec. 1026.55 are 
waived or rebated even if a payment has not been received.
    F. A card issuer provides benefits (such as rewards points or cash 
back on purchases or finance charges) that can be applied to the account 
as credits, provided that the benefits are not promoted as reducing 
interest, fees, or other charges subject to Sec. 1026.55.
    3. Relationship of Sec. 1026.55(e) to grace period. Section 
1026.55(e) does not apply to the waiver of finance charges due to a 
periodic rate consistent with a grace period, as defined in Sec. 
1026.5(b)(2)(ii)(3).

      Section 1026.56--Requirements for Over-the-Limit Transactions

                        56(b) Opt-in requirement.

    1. Policy and practice of declining over-the-limit transactions. 
Section 1026.56(b)(1)(i)-(v), including the requirements to provide 
notice and obtain consumer consent, do not apply to any card issuer that 
has a policy and practice of declining to pay any over-the-limit 
transactions for the consumer's credit card account when the card issuer 
has a reasonable belief that completing a transaction will cause the 
consumer to exceed the consumer's credit limit for that account. For 
example, if a card issuer only authorizes those transactions which, at 
the time of authorization, would not cause the consumer to exceed a 
credit limit, it is not subject to the requirement to provide consumers 
notice and an opportunity to affirmatively consent to the card issuer's 
payment of over-the-limit transactions. However, if an over-the-limit 
transaction is paid without the consumer providing affirmative consent, 
the card issuer may not charge a fee for paying the transaction.
    2. Over-the-limit transactions not required to be authorized or 
paid. Section 1026.56 does not require a card issuer to authorize or pay 
an over-the-limit transaction even if the consumer has affirmatively 
consented to the card issuer's over-the-limit service.
    3. Examples of reasonable opportunity to provide affirmative 
consent. A card issuer provides a reasonable opportunity for the 
consumer to provide affirmative consent to the card issuer's payment of 
over-the-limit transactions when, among other things, it provides 
reasonable methods by which the consumer may affirmatively consent. A 
card issuer provides such reasonable methods if:
    i. On the application. The card issuer provides the notice on the 
application form that the consumer can fill out to request the service 
as part of the application;
    ii. By mail. The card issuer provides a form with the account-
opening disclosures or the periodic statement for the consumer to fill 
out and mail to affirmatively request the service;
    iii. By telephone. The card issuer provides a readily available 
telephone line that consumers may call to provide affirmative consent.
    iv. By electronic means. The card issuer provides an electronic 
means for the consumer to affirmatively consent. For example, a card 
issuer could provide a form that can be accessed and processed at its 
Web site, where the consumer can check a box to opt in and confirm that 
choice by clicking on a button that affirms the consumer's consent.
    4. Separate consent required. A consumer's affirmative consent, or 
opt-in, to a card issuer's payment of over-the-limit transactions must 
be obtained separately from other consents or acknowledgments obtained 
by the card issuer. For example, a consumer's signature on a credit 
application to request a credit card would not by itself sufficiently 
evidence the consumer's consent to the card issuer's payment of over-
the-limit

[[Page 983]]

transactions. However, a card issuer may 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 service, provided that the signature line or check box is used 
solely for purposes of evidencing the choice and not for any other 
purpose, such as to also obtain consumer consents for other account 
services or features or to receive disclosures electronically.
    5. Written confirmation. A card issuer may comply with the 
requirement in Sec. 1026.56(b)(1)(iv) to provide written confirmation 
of the consumer's decision to affirmatively consent, or opt in, to the 
card issuer's payment of over-the-limit transactions by providing the 
consumer a copy of the consumer's completed opt-in form or by sending a 
letter or notice to the consumer acknowledging that the consumer has 
elected to opt into the card issuer's service. A card issuer may also 
satisfy the written confirmation requirement by providing the 
confirmation on the first periodic statement sent after the consumer has 
opted in. For example, a card issuer could provide a written notice 
consistent with Sec. 1026.56(e)(2) on the periodic statement. A card 
issuer may not, however, assess any over-the-limit fees or charges on 
the consumer's credit card account unless and 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.

  56(b)(2) Completion of over-the-limit transactions without consumer 
                                 consent

    1. Examples of over-the-limit transactions paid without consumer 
consent. Section 1026.56(b)(2) provides that a card issuer may pay an 
over-the-limit transaction even if the consumer has not provided 
affirmative consent, so long as the card issuer does not impose a fee or 
charge for paying the transaction. The prohibition on imposing fees for 
paying an over-the-limit transaction applies even in circumstances where 
the card issuer is unable to avoid paying a transaction that exceeds the 
consumer's credit limit.
    i. Transactions not submitted for authorization. A consumer has not 
affirmatively consented to a card issuer's payment of over-the-limit 
transactions. The consumer purchases a $3 cup of coffee using his credit 
card. Because of the small dollar amount of the transaction, the 
merchant does not submit the transaction to the card issuer for 
authorization. The transaction causes the consumer to exceed the credit 
limit. Under these circumstances, the card issuer is prohibited from 
imposing a fee or charge on the consumer's credit card account for 
paying the over-the-limit transaction because the consumer has not opted 
in to the card issuer's over-the-limit service.
    ii. Settlement amount exceeds authorization amount. A consumer has 
not affirmatively consented to a card issuer's payment of over-the-limit 
transactions. The consumer uses his credit card at a pay-at-the-pump 
fuel dispenser to purchase $50 of fuel. Before permitting the consumer 
to use the fuel pump, the merchant verifies the validity of the card by 
requesting an authorization hold of $1. The subsequent $50 transaction 
amount causes the consumer to exceed his credit limit. Under these 
circumstances, the card issuer is prohibited from imposing a fee or 
charge on the consumer's credit card account for paying the over-the-
limit transaction because the consumer has not opted in to the card 
issuer's over-the-limit service.
    iii. Intervening charges. A consumer has not affirmatively consented 
to a card issuer's payment of over-the-limit transactions. The consumer 
makes a $50 purchase using his credit card. However, before the $50 
transaction is charged to the consumer's account, a separate recurring 
charge is posted to the account. The $50 purchase then causes the 
consumer to exceed his credit limit. Under these circumstances, the card 
issuer is prohibited from imposing a fee or charge on the consumer's 
credit card account for paying the over-the-limit transaction because 
the consumer has not opted in to the card issuer's over-the-limit 
service.
    2. Permissible fees or charges when a consumer has not consented. 
Section 1026.56(b)(2) does not preclude a card issuer from assessing 
fees or charges other than over-the-limit fees when an over-the-limit 
transaction is completed. For example, if a consumer has not opted in, 
the card issuer may assess a balance transfer fee in connection with a 
balance transfer, provided such a fee is assessed whether or not the 
transfer exceeds the credit limit. Section 1026.56(b)(2) does not limit 
the card issuer's ability to debit the consumer's account for the amount 
of the over-the-limit transaction if the card issuer is permitted to do 
so under applicable law. The card issuer may also assess interest 
charges in connection with the over-the-limit transaction.

                        56(c) Method of election

    1. Card issuer-determined methods. A card issuer may determine the 
means available to consumers to affirmatively consent, or opt in, to the 
card issuer's payment of over-the-limit transactions. For example, a 
card issuer may decide to obtain consents in writing, electronically, or 
orally, or through some combination of these methods. Section 1026.56(c) 
further requires, however, that such methods must be made equally 
available for consumers to revoke a prior consent.

[[Page 984]]

Thus, for example, if a card issuer allows a consumer to consent in 
writing or electronically, it must also allow the consumer to revoke 
that consent in writing or electronically.
    2. Electronic requests. A consumer consent or revocation request 
submitted electronically is not considered a consumer disclosure for 
purposes of the E-Sign Act.

                  56(d) Timing and placement of notices

    1. Contemporaneous notice for oral or electronic consent. Under 
Sec. 1026.56(d)(1)(ii), if a card issuer seeks to obtain consent from 
the consumer orally or by electronic means, the card issuer must provide 
a notice containing the disclosures in Sec. 1026.56(e)(1) prior to and 
as part of the process of obtaining the consumer's consent.

                              56(e) Content

    1. Amount of over-the-limit fee. See Model Forms G-25(A) and G-25(B) 
for guidance on how to disclose the amount of the over-the-limit fee.
    2. Notice content. In describing the consumer's right to 
affirmatively consent to a card issuer's payment of over-the-limit 
transactions, the card issuer may 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, the card issuer should explain 
that even if a consumer consents, the payment of over-the-limit 
transactions is at the discretion of the card issuer. For example, 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.

                        56(f) Joint relationships

    1. Authorized users. Section 1026.56(f) does not permit a card 
issuer to treat a request to opt in to or to revoke a prior request for 
the card issuer's payment of over-the-limit transactions from an 
authorized user that is not jointly liable on a credit card account as a 
consent or revocation request for that account.

            56(g) Continuing right to opt in or revoke opt-in

    1. Fees or charges for over-the-limit transactions incurred prior to 
revocation. Section 1026.56(g) provides that a consumer may revoke his 
or her prior consent at any time. If a consumer does so, this provision 
does not require the card issuer to waive or reverse any over-the-limit 
fees 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. Nor does this requirement prevent the card issuer 
from assessing over-the-limit fees in subsequent cycles 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.

                        56(h) Duration of opt-in

    1. Card issuer ability to stop paying over-the-limit transactions 
after consumer consent. A card issuer may cease paying over-the-limit 
transactions for consumers that have previously opted in at any time and 
for any reason. For example, a card issuer may stop paying over-the-
limit transactions for a consumer to respond to changes in the credit 
risk presented by the consumer.

                       56(j) Prohibited practices

    1. Periodic fees or charges. A card issuer may charge an over-the-
limit fee or charge 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.
    2. Examples of limits on fees or charges imposed per billing cycle. 
Section 1026.56(j)(1) generally prohibits a card issuer from assessing a 
fee or charge due to the same over-the-limit transaction for more than 
three billing cycles. The following examples illustrate the prohibition.
    i. Assume that a consumer has opted into a card issuer's payment of 
over-the-limit transactions. The consumer exceeds the credit limit 
during the December billing cycle and does not make sufficient payment 
to bring the account balance back under the limit for four consecutive 
cycles. The consumer does not engage in any additional transactions 
during this period. In this case, Sec. 1026.56(j)(1) would permit the 
card issuer to charge a maximum of three over-the-limit fees for the 
December over-the-limit transaction.
    ii. Assume the same facts as above except that the consumer makes 
sufficient payment to reduce his account balance by the payment due date 
during the February billing cycle. The card issuer may charge over-the-
limit fees for the December and January billing cycles. However, because 
the consumer's account balance was below the credit limit by the payment 
due date for the February billing cycle, the card issuer may not charge 
an over-the-limit fee for the February billing cycle.
    iii. Assume the same facts as in paragraph i, except that the 
consumer engages in another over-the-limit transaction during the

[[Page 985]]

February billing cycle. Because the consumer has obtained an additional 
extension of credit which causes the consumer to exceed his credit 
limit, the card issuer may charge over-the-limit fees for the December 
transaction on the January, February and March billing statements, and 
additional over-the-limit fees for the February transaction on the April 
and May billing statements. The card issuer may not charge an over-the-
limit fee for each of the December and the February transactions on the 
March billing statement because it is prohibited from imposing more than 
one over-the-limit fee during a billing cycle.
    3. Replenishment of credit line. Section 1026.56(j)(2) does not 
prevent a card issuer from delaying replenishment of a consumer's 
available credit where appropriate, for example, where the card issuer 
may suspect fraud on the credit card account. However, a card issuer may 
not assess an over-the-limit fee or charge if the over-the-limit 
transaction is caused by the card issuer's decision not to promptly 
replenish the available credit after the consumer's payment is credited 
to the consumer's account.
    4. Examples of conditioning. Section 1026.56(j)(3) prohibits a card 
issuer from conditioning or otherwise tying the amount of a consumer's 
credit limit on the consumer affirmatively consenting to the card 
issuer's payment of over-the-limit transactions where the card issuer 
assesses an over-the-limit fee for the transaction. The following 
examples illustrate the prohibition.
    i. Amount of credit limit. Assume that a card issuer offers a credit 
card with a credit limit of $1,000. The consumer is informed that if the 
consumer opts in to the payment of the card issuer's payment of over-
the-limit transactions, the initial credit limit would be increased to 
$1,300. If the card issuer would have offered the credit card with the 
$1,300 credit limit but for the fact that the consumer did not consent 
to the card issuer's payment of over-the-limit transactions, the card 
issuer would not be in compliance with Sec. 1026.56(j)(3). Section 
1026.56(j)(3) prohibits the card issuer from tying the consumer's opt-in 
to the card issuer's payment of over-the-limit transactions as a 
condition of obtaining the credit card with the $1,300 credit limit.
    ii. Access to credit. Assume the same facts as above, except that 
the card issuer declines the consumer's application altogether because 
the consumer has not affirmatively consented or opted in to the card 
issuer's payment of over-the-limit transactions. The card issuer is not 
in compliance with Sec. 1026.56(j)(3) because the card issuer has 
required the consumer's consent as a condition of obtaining credit.
    5. Over-the-limit fees caused by accrued fees or interest. Section 
1026.56(j)(4) prohibits a card issuer from imposing any over-the-limit 
fees or charges on a consumer's account if the consumer has exceeded the 
credit limit solely because charges imposed as part of the plan as 
described in Sec. 1026.6(b)(3) were charged to the consumer's account 
during the billing cycle. For example, a card issuer may not assess an 
over-the-limit fee or charge even if the credit limit was exceeded due 
to fees for services requested by the consumer if such fees would 
constitute charges imposed as part of the plan (such as fees for 
voluntary debt cancellation or suspension coverage). Section 
1026.56(j)(4) does not, however, restrict card issuers from assessing 
over-the-limit fees or charges due to accrued finance charges or fees 
from prior cycles that have subsequently been added to the account 
balance. The following examples illustrate the prohibition.
    i. Assume that a consumer has opted in to a card issuer's payment of 
over-the-limit transactions. The consumer's account has a credit limit 
of $500. The billing cycles for the account begin on the first day of 
the month and end on the last day of the month. The account is not 
eligible for a grace period as defined in Sec. 1026.5(b)(2)(ii)(B)(3). 
On December 31, the only balance on the account is a purchase balance of 
$475. On that same date, $50 in fees charged as part of the plan under 
Sec. 1026.6(b)(3)(i) and interest charges are imposed on the account, 
increasing the total balance at the end of the December billing cycle to 
$525. Although the total balance exceeds the $500 credit limit, Sec. 
1026.56(j)(4) prohibits the card issuer from imposing an over-the-limit 
fee or charge for the December billing cycle in these circumstances 
because the consumer's credit limit was exceeded solely because of the 
imposition of fees and interest charges during that cycle.
    ii. Same facts as above except that, on December 31, the only 
balance on the account is a purchase balance of $400. On that same date, 
$50 in fees imposed as part of the plan under Sec. 1026.6(b)(3)(i), 
including interest charges, are imposed on the account, increasing the 
total balance at the end of the December billing cycle to $450. The 
consumer makes a $25 payment by the January payment due date and the 
remaining $25 in fees imposed as part of the plan in December is added 
to the outstanding balance. On January 25, an $80 purchase is charged to 
the account. At the close of the cycle on January 31, an additional $20 
in fees imposed as part of the plan are imposed on the account, 
increasing the total balance to $525. Because Sec. 1026.56(j)(4) does 
not require the issuer to consider fees imposed as part of the plan for 
the prior cycle in determining whether an over-the-limit fee may be 
properly assessed for the current cycle, the issuer need not take into 
account the remaining $25 in fees and interest charges from the December 
cycle in determining whether fees imposed as part of the plan caused the 
consumer to

[[Page 986]]

exceed the credit limit during the January cycle. Thus, under these 
circumstances, Sec. 1026.56(j)(4) does not prohibit the card issuer 
from imposing an over-the-limit fee or charge for the January billing 
cycle because the $20 in fees imposed as part of the plan for the 
January billing cycle did not cause the consumer to exceed the credit 
limit during that cycle.
    6. Additional restrictions on over-the-limit fees. See Sec. 
1026.52(b).

Section 1026.57--Reporting and Marketing Rules for College Student Open-
                               End Credit

                            57(a) Definitions

                  57(a)(1) College student credit card

    1. Definition. The definition of college student credit card 
excludes home-equity lines of credit accessed by credit cards and 
overdraft lines of credit accessed by debit cards. A college student 
credit card includes a college affinity card within the meaning of TILA 
section 127(r)(1)(A). 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. For example, an agreement 
between a college and a card issuer may provide for marketing of credit 
cards to alumni, faculty, staff, and other non-student consumers who 
have a relationship with the college, but also contain provisions that 
contemplate the issuance of cards to students. A credit card issued to a 
student at the college in connection with such an agreement qualifies as 
a college student credit card.

                 57(a)(5) College credit card agreement

    1. Definition. Section 1026.57(a)(5) defines ``college credit card 
agreement'' to include any business, marketing or promotional agreement 
between a card issuer and a college or university (or an affiliated 
organization, such as an alumni club or a foundation) if the agreement 
provides for the issuance of credit cards to full-time or part-time 
students. Business, marketing or promotional agreements may include a 
broad range of arrangements between a card issuer and an institution of 
higher education or affiliated organization, including arrangements that 
do not meet the criteria to be considered college affinity card 
agreements 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 (either full-time or part-time) 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

    1. Public disclosure. Section 1026.57(b) requires an institution of 
higher education to publicly disclose any contract or other agreement 
made with a card issuer or creditor for the purpose of marketing a 
credit card. Examples of publicly disclosing such contracts or 
agreements include, but are not limited to, posting such contracts or 
agreements on the institution's Web site or making such contracts or 
agreements available upon request, provided the procedures for 
requesting the documents are reasonable and free of cost to the 
requestor, and the requested contracts or agreements are provided within 
a reasonable time frame.
    2. Redaction prohibited. An institution of higher education must 
publicly disclose any contract or other agreement made with a card 
issuer for the purpose of marketing a credit card in its entirety and 
may not redact any portion of such contract or agreement. Any clause 
existing in such contracts or agreements, providing for the 
confidentiality of any portion of the contract or agreement, would be 
invalid to the extent it restricts the ability of the institution of 
higher education to publicly disclose the contract or agreement in its 
entirety.

                      57(c) Prohibited inducements

    1. Tangible item clarified. A tangible item 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. Tangible items do not include non-physical inducements such as 
discounts, rewards points, or promotional credit terms.
    2. Inducement clarified. If a tangible item is offered to a person 
whether or not that person applies for or opens an open-end consumer 
credit plan, the tangible item has not been offered to induce the person 
to apply for or open the plan. For example, refreshments offered to a 
college student on campus that are not conditioned on whether the 
student has applied for or agreed to open an open-end consumer credit 
plan would not violate Sec. 1026.57(c).
    3. Near campus clarified. A location that is within 1,000 feet of 
the border of the campus

[[Page 987]]

of an institution of higher education, as defined by the institution of 
higher education, is considered near the campus of an institution of 
higher education.
    4. Mailings included. The prohibition in Sec. 1026.57(c) on 
offering a tangible item to a college student to induce such student to 
apply for or open an open-end consumer credit plan offered by such card 
issuer or creditor applies to any solicitation or application mailed to 
a college student at an address on or near the campus of an institution 
of higher education.
    5. Related event clarified. 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, 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.
    6. Reasonable procedures for determining if applicant is a student. 
Section 1026.57(c) applies solely to offering a tangible item to a 
college student. Therefore, a card issuer or creditor may 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, on campus, near campus, or at an event 
sponsored by or related to an institution of higher education. The card 
issuer or creditor must have reasonable procedures for determining 
whether an applicant is a college student before giving the applicant 
the tangible item. For example, a card issuer or creditor may ask 
whether the applicant is a college student as part of the application 
process. The card issuer or creditor may rely on the representations 
made by the applicant.

                    57(d) Annual report to the Bureau

                       57(d)(2) Contents of report

    1. Memorandum of understanding. Section 1026.57(d)(2) requires that 
the report to the Bureau include, among other items, a copy of any 
memorandum of understanding between the card issuer and the institution 
(or affiliated organization) that ``directly or indirectly relates to 
the college credit card agreement or that controls or directs any 
obligations or distribution of benefits between any such entities.'' 
Such 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. For example, a memorandum of understanding required to be 
included in the report would include a document that provides details on 
the dollar amounts of payments from the card issuer to the university, 
to supplement the original agreement which only provided for payments in 
general terms (e.g., as a percentage). A memorandum of understanding for 
these purposes would not include email (or other) messages that merely 
discuss matters such as the addresses to which payments should be sent 
or the names of contact persons for carrying out the agreement.

       Section 1026.58--Internet Posting of Credit Card Agreements

                            58(b) Definitions

                           58(b)(1) Agreement

    1. Inclusion of pricing information. For purposes of this section, a 
credit card agreement is deemed to include certain information, such as 
annual percentage rates and fees, even if the issuer does not otherwise 
include this information in the basic credit contract. This information 
is listed under the defined term ``pricing information'' in Sec. 
1026.58(b)(7). For example, the basic credit contract may not specify 
rates, fees and other information that constitutes pricing information 
as defined in Sec. 1026.58(b)(7); instead, such information may be 
provided to the cardholder in a separate document sent along with the 
card. However, this information nevertheless constitutes part of the 
agreement for purposes of Sec. 1026.58.
    2. Provisions contained in separate documents included. A credit 
card agreement is defined as the 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. An 
agreement therefore may consist of several documents that, taken 
together, define the legal obligation between the issuer and consumer. 
For example, provisions that mandate arbitration or allow an issuer to 
unilaterally alter the terms of the card 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.

                             58(b)(2) Amends

    1. Substantive changes. A change to an agreement is substantive, and 
therefore is deemed an amendment of the agreement, if it alters the 
rights or obligations of the parties. Section 1026.58(b)(2) provides 
that any change in the pricing information, as defined in Sec. 
1026.58(b)(7), is deemed to be substantive. Examples of other changes 
that generally would be considered substantive include:
    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

[[Page 988]]

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 provision 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.
    v. Changes that may affect the parties to whom the agreement may 
apply, such as provisions regarding authorized users or assignment of 
the agreement.
    2. Non-substantive changes. Changes that generally would not be 
considered substantive include, for example:
    i. Correction of typographical errors that do not affect the meaning 
of any terms of the agreement.
    ii. Changes to the card 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.
    vii. Changes to titles, headings, section numbers, or captions.

                          58(b)(4) Card issuer

    1. Card issuer clarified. Section 1026.58(b)(4) provides that, for 
purposes of Sec. 1026.58, card issuer or issuer means the entity to 
which a consumer is legally obligated, or would be legally obligated, 
under the terms of a credit card agreement. For example, Bank X and Bank 
Y work together to issue credit cards. A consumer that obtains a credit 
card issued pursuant to this arrangement between Bank X and Bank Y is 
subject to an agreement that states ``This is an agreement between you, 
the consumer, and Bank X that governs the terms of your Bank Y Credit 
Card.'' The card issuer in this example is Bank X, because the agreement 
creates a legally enforceable obligation between the consumer and Bank 
X. Bank X is the issuer even if the consumer applied for the card 
through a link on Bank Y's Web site and the cards prominently feature 
the Bank Y logo on the front of the card.
    2. Use of third-party service providers. An institution that is the 
card issuer as defined in Sec. 1026.58(b)(4) has a legal obligation to 
comply with the requirements of Sec. 1026.58. However, a card issuer 
generally may use a third-party service provider to satisfy its 
obligations under Sec. 1026.58, provided that the issuer acts in 
accordance with regulatory guidance regarding use of third-party service 
providers and other applicable regulatory guidance. In some cases, an 
issuer may wish to arrange for the institution with which it partners to 
issue credit cards to fulfill the requirements of Sec. 1026.58 on the 
issuer's behalf. For example, Retailer and Bank work together to issue 
credit cards. Under the Sec. 1026.58(b)(4) definition, Bank is the 
issuer of these credit cards for purposes of Sec. 1026.58. However, 
Retailer services the credit card accounts, including mailing account 
opening materials and periodic statements to cardholders. While Bank is 
responsible for ensuring compliance with Sec. 1026.58, Bank may arrange 
for Retailer (or another appropriate third-party service provider) to 
submit credit card agreements to the Bureau under Sec. 1026.58 on 
Bank's behalf. Bank must comply with regulatory guidance regarding use 
of third-party service providers and other applicable regulatory 
guidance.
    3. Partner institution Web sites. i. As explained in comments 58(d)-
2 and 58(e)-3, if an issuer provides cardholders with access to specific 
information about their individual accounts, such as balance information 
or copies of statements, through a third-party Web site, the issuer is 
deemed to maintain that Web site for purposes of Sec. 1026.58. Such a 
Web site is deemed to be maintained by the issuer for purposes of Sec. 
1026.58 even where, for example, an unaffiliated entity designs the Web 
site and owns and maintains the information technology infrastructure 
that supports the Web site, cardholders with credit cards from multiple 
issuers can access individual account information through the same Web 
site, and the Web site is not labeled, branded, or otherwise held out to 
the public as belonging to the issuer. A partner institution's Web site 
is an example of a third-party Web site that may be deemed to be 
maintained by the issuer for purposes of Sec. 1026.58. For example, 
Retailer and Bank work together to issue credit cards. Under the Sec. 
1026.58(b)(4) definition, Bank is the issuer of these credit cards for 
purposes of Sec. 1026.58. Bank does not have a Web site. However, 
cardholders can access information about their individual accounts, such 
as balance information and copies of statements, through a Web site 
maintained by Retailer. Retailer designs the Web site and owns and 
maintains the information technology infrastructure that supports the 
Web site. The Web site is branded and held out to the public as 
belonging to Retailer. Because cardholders can access information about 
their individual accounts through this Web site, the Web site is deemed 
to be maintained by Bank for purposes of Sec. 1026.58. Bank therefore 
may comply with Sec. 1026.58(d) by ensuring that agreements offered to 
the public are posted on Retailer's Web site in accordance with Sec. 
1026.58(d). Bank may comply with Sec. 1026.58(e) by ensuring that 
cardholders can request copies of their individual agreements

[[Page 989]]

through Retailer's Web site in accordance with Sec. 1026.58(e)(1). Bank 
need not create and maintain a Web site branded and held out to the 
public as belonging to Bank in order to comply with Sec. Sec. 
1026.58(d) and (e) as long as Bank ensures that Retailer's Web site 
complies with these sections.
    ii. In addition, Sec. 1026.58(d)(1) provides that, with respect to 
an agreement offered solely for accounts under one or more private label 
credit card plans, an issuer may comply with Sec. 1026.58(d) by posting 
the agreement 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. This rule is 
not conditioned on cardholders' ability to access account-specific 
information through the merchant's Web site.

                             58(b)(5) Offers

    1. Cards offered to limited groups. 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, 
a card issuer may market affinity cards to students and alumni of a 
particular educational institution, or may solicit only high-net-worth 
individuals for a particular card; in these cases, the agreement would 
be considered to be offered to the public. Similarly, agreements for 
credit cards issued by a credit union are considered to be offered to 
the public even though such cards are available only to credit union 
members.
    2. Individualized agreements. A card issuer is deemed to offer a 
credit card agreement to the public even if the terms of the agreement 
are changed immediately upon opening of an account to terms not offered 
to the public.

                          58(b)(6) Open account

    1. Open account clarified. The definition of open account includes a 
credit card account under an open-end (not home-secured) consumer credit 
plan if 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. Under this definition, an account that meets 
either of these criteria is considered to be open even if the account is 
inactive. Similarly, 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 is 
considered open.

58(b)(8) Private Label Credit Card Account and Private Label Credit Card 
                                  Plan

    1. Private label credit card account. The term private label credit 
card account means 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. This term applies to any such credit card account, regardless 
of whether it is issued by the merchant or its affiliate or by an 
unaffiliated third party.
    2. Co-branded credit cards. The term private label credit card 
account does not include accounts with so-called co-branded credit 
cards. 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, accounts with such credit cards are not considered private 
label credit card accounts under Sec. 1026.58(b)(8).
    3. Affiliated group of merchants. The term ``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), 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.
    4. Private label credit card plan. i. 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 card issuer 
with credit cards 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. For example, a card 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 card issuer has 
two separate private label credit card plans, as defined by Sec. 
1026.58(b)(8)--one plan consisting of 3,000 open accounts with credit 
cards usable only at Merchant A and another plan consisting

[[Page 990]]

of 5,000 open accounts with credit cards usable only at Merchant B and 
its affiliates.
    ii. 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 card 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 card 
issuer still has only two separate private label credit card plans, as 
defined by Sec. 1026.58(b)(8). The open accounts with credit cards 
usable only at Merchant A do not constitute three separate private label 
credit card plans under Sec. 1026.58(b)(8), even though the accounts 
are subject to different terms.

                58(c) Submission of Agreements to Bureau

                     58(c)(1) Quarterly Submissions

    1. Quarterly submission requirement. Section 1026.58(c)(1) requires 
card issuers to send quarterly submissions to the Bureau no later than 
the first business day on or after January 31, April 30, July 31, and 
October 31 of each year. For example, a card issuer has already 
submitted three credit card agreements to the Bureau. On October 15, the 
card issuer stops offering agreement A. On November 20, the card issuer 
amends agreement B. On December 1, the issuer starts offering a new 
agreement D. The card issuer must submit to the Bureau no later than the 
first business day on or after January 31 (i) notification that the card 
issuer is withdrawing agreement A, because it is no longer offered to 
the public; (ii) the amended version of agreement B; and (iii) agreement 
D.
    2. No quarterly submission required. i. Under Sec. 1026.58(c)(1), a 
card issuer is not required to make any submission to the Bureau at a 
particular quarterly submission deadline if, during the previous 
calendar quarter, the card issuer did not take any of the following 
actions:
    A. Offering a new credit card agreement that was not submitted to 
the Bureau previously.
    B. Amending an agreement previously submitted to the Bureau.
    C. Ceasing to offer an agreement previously submitted to the Bureau.
    ii. For example, a card issuer offers five agreements to the public 
as of September 30 and submits these to the Bureau by October 31, as 
required by Sec. 1026.58(c)(1). Between September 30 and December 31, 
the card issuer continues to offer all five of these agreements to the 
public without amending them and does not begin offering any new 
agreements. The card issuer is not required to make any submission to 
the Bureau by the following January 31.
    3. Quarterly submission of complete set of updated agreements. 
Section 1026.58(c)(1) permits a card issuer to submit to the Bureau on a 
quarterly basis a complete, updated set of the credit card agreements 
the card issuer offers to the public. For example, a card issuer offers 
agreements A, B, and C to the public as of March 31. The card issuer 
submits each of these agreements to the Bureau by April 30 as required 
by Sec. 1026.58(c)(1). On May 15, the card issuer amends agreement A, 
but does not make any changes to agreements B or C. As of June 30, the 
card issuer continues to offer amended agreement A and agreements B and 
C to the public. At the next quarterly submission deadline, July 31, the 
card issuer must submit the entire amended agreement A and is not 
required to make any submission with respect to agreements B and C. The 
card 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. A 
card issuer may choose to resubmit to the Bureau all of the agreements 
it offered to the public as of a particular quarterly submission 
deadline even if the card issuer has not introduced any new agreements 
or amended any agreements since its last submission and continues to 
offer all previously submitted agreements.

                       58(c)(3) Amended Agreements

    1. No requirement to resubmit agreements not amended. Under Sec. 
1026.58(c)(3), if a credit card agreement has been submitted to the 
Bureau, the agreement has not been amended, and the card issuer 
continues to offer the agreement to the public, no additional submission 
regarding that agreement is required. For example, a credit card issuer 
begins offering an agreement in October and submits the agreement to the 
Bureau the following January 31, as required by Sec. 1026.58(c)(1). As 
of March 31, the card issuer has not amended the agreement and is still 
offering the agreement to the public. The card issuer is not required to 
submit anything to the Bureau regarding that agreement by April 30.
    2. Submission of amended agreements. If a card issuer amends a 
credit card agreement previously submitted to the Bureau, Sec. 
1026.58(c)(3) requires the card issuer to submit the entire amended 
agreement to the Bureau. The issuer must submit the amended agreement to 
the Bureau by the first quarterly submission deadline after the last day 
of the calendar quarter in which the change

[[Page 991]]

became effective. However, the issuer is required to submit the amended 
agreement to the Bureau only if the issuer offered the amended agreement 
to the public as of the last business day of the calendar quarter in 
which the change became effective. For example, a card issuer submits an 
agreement to the Bureau 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 for purposes of Sec. 1026.58(c)(3). On December 31, the 
last business day of the calendar quarter in which the change in the 
balance computation method became effective, the issuer still offers the 
agreement to the public as amended on November 15. The issuer must 
submit the entire amended agreement to the Bureau no later than January 
31.
    3. Agreements amended but no longer offered to the public. A card 
issuer should submit an amended agreement to the Bureau under Sec. 
1026.58(c)(3) only if the issuer offered the amended agreement to the 
public as of the last business day of the calendar quarter in which the 
amendment became effective. Agreements that are not offered to the 
public as of the last day of the calendar quarter should not be 
submitted to the Bureau. For example, on December 31 a card issuer 
offers two agreements, Agreement A and Agreement B. The issuer submits 
these agreements to the Bureau by January 31 as required by Sec. 
1026.58. On February 15, the issuer amends both Agreement A and 
Agreement B. On February 28, the issuer stops offering Agreement A to 
the public. On March 15, the issuer amends Agreement B a second time. As 
a result, on March 31, the last business day of the calendar quarter, 
the issuer offers to the public one agreement--Agreement B as amended on 
March 15. By the April 30 quarterly submission deadline, the issuer must 
(i) notify the Bureau that it is withdrawing Agreement A because 
Agreement A is no longer offered to the public; and (ii) submit to the 
Bureau Agreement B as amended on March 15. The issuer should not submit 
to the Bureau either Agreement A as amended on February 15 or the 
earlier version of Agreement B (as amended on February 15), as neither 
was offered to the public on March 31, the last business day of the 
calendar quarter.
    4. Change-in-terms notices not permissible. Section 1026.58(c)(3) 
requires that if an agreement previously submitted to the Bureau is 
amended, the card issuer must submit the entire revised agreement to the 
Bureau. A card issuer may not fulfill this requirement by submitting a 
change-in-terms or similar notice covering only the terms that have 
changed. In addition, amendments must be integrated into the text of the 
agreement (or the addenda described in Sec. 1026.58(c)(8)), not 
provided as separate riders. For example, a card issuer changes the 
purchase APR associated with an agreement the issuer has previously 
submitted to the Bureau. The purchase APR for that agreement was 
included in the addendum of pricing information, as required by Sec. 
1026.58(c)(8). The card 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 card issuer must revise the pricing information 
addendum to reflect the change in APR and submit to the Bureau 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

    1. Notice of withdrawal of agreement. Section 1026.58(c)(4) requires 
a card issuer to notify the Bureau if any agreement previously submitted 
to the Bureau by that issuer is no longer offered to the public by the 
first quarterly submission deadline after the last day of the calendar 
quarter in which the card issuer ceased to offer the agreement. For 
example, on January 5 a card issuer stops offering to the public an 
agreement it previously submitted to the Bureau. The card issuer must 
notify the Bureau 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 card issuer stopped offering the 
agreement.

                      58(c)(5) De Minimis Exception

    1. Relationship to other exceptions. The de minimis exception is 
distinct from the private label credit card exception under Sec. 
1026.58(c)(6) and the product testing exception under Sec. 
1026.58(c)(7). The de minimis exception provides that a card issuer with 
fewer than 10,000 open credit card accounts is not required to submit 
any agreements to the Bureau, 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 a card issuer is not 
required to submit to the Bureau agreements offered solely in connection 
with certain types of credit card plans with fewer than 10,000 open 
accounts, regardless of the card issuer's total number of open accounts.
    2. De minimis exception. Under Sec. 1026.58(c)(5), a card issuer is 
not required to submit any credit card agreements to the Bureau under 
Sec. 1026.58(c)(1) if the card issuer has fewer than 10,000 open credit 
card accounts as of the last business day of the calendar quarter. For 
example, a card issuer offers five credit card agreements to the public 
as of September 30.

[[Page 992]]

However, the card issuer has only 2,000 open credit card accounts as of 
September 30. The card issuer is not required to submit any agreements 
to the Bureau by October 31 because the issuer qualifies for the de 
minimis exception.
    3. Date for determining whether card issuer qualifies clarified. 
Whether a card issuer qualifies for the de minimis exception is 
determined as of the last business day of each calendar quarter. For 
example, as of December 31, a card issuer offers three agreements to the 
public and has 9,500 open credit card accounts. As of January 30, the 
card issuer still offers three agreements, but has 10,100 open accounts. 
As of March 31, the card issuer still offers three agreements, but has 
only 9,700 open accounts. Even though the card issuer had 10,100 open 
accounts at one time during the calendar quarter, the card issuer 
qualifies for the de minimis exception because the number of open 
accounts was less than 10,000 as of March 31. The card issuer therefore 
is not required to submit any agreements to the Bureau under Sec. 
1026.58(c)(1) by April 30.
    4. Date for determining whether card issuer ceases to qualify 
clarified. Whether a card issuer has ceased to qualify for the de 
minimis exception under Sec. 1026.58(c)(5) is determined as of the last 
business day of the calendar quarter, For example, as of June 30, a card 
issuer offers three agreements to the public and has 9,500 open credit 
card accounts. The card issuer is not required to submit any agreements 
to the Bureau under Sec. 1026.58(c)(1) because the card issuer 
qualifies for the de minimis exception. As of July 15, the card issuer 
still offers the same three agreements, but now has 10,000 open 
accounts. The card issuer is not required to take any action at this 
time, because whether a card issuer qualifies for the de minimis 
exception under Sec. 1026.58(c)(5) is determined as of the last 
business day of the calendar quarter. As of September 30, the card 
issuer still offers the same three agreements and still has 10,000 open 
accounts. Because the card issuer had 10,000 open accounts as of 
September 30, the card issuer ceased to qualify for the de minimis 
exception and must submit the three agreements it offers to the Bureau 
by October 31, the next quarterly submission deadline.
    5. Option to withdraw agreements clarified. Section 1026.58(c)(5) 
provides that if a card 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 Bureau as 
required by Sec. 1026.58(c)(1) until the card issuer notifies the 
Bureau that the issuer is withdrawing all agreements it previously 
submitted to the Bureau. For example, a card issuer has 10,001 open 
accounts and offers three agreements to the public as of December 31. 
The card issuer has submitted each of the three agreements to the Bureau 
as required under Sec. 1026.58(c)(1). As of March 31, the card issuer 
has only 9,999 open accounts. The card issuer has two options. First, 
the card issuer may notify the Bureau that the card issuer is 
withdrawing each of the three agreements it previously submitted. Once 
the card issuer has notified the Bureau, the card issuer is no longer 
required to make quarterly submissions to the Bureau under Sec. 
1026.58(c)(1). Alternatively, the card issuer may choose not to notify 
the Bureau that it is withdrawing its agreements. In this case, the card 
issuer must continue making quarterly submissions to the Bureau as 
required by Sec. 1026.58(c)(1). The card issuer might choose not to 
withdraw its agreements if, for example, the card 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

    1. Private label credit card exception. i. Under Sec. 
1026.58(c)(6)(i), a card issuer is not required to submit to the Bureau 
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. For example, a card 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 card 
issuer has 8,000 open accounts with such credit cards usable only at 
Merchant A. The card issuer is not required to submit this agreement to 
the Bureau under Sec. 1026.58(c)(1) because the agreement is offered 
for a private label credit card plan with 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.
    ii. In contrast, assume the same card 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 card 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 card issuer still is not required to submit 
to the Bureau the agreement offered in connection with credit cards

[[Page 993]]

usable only at Merchant A, as each agreement is evaluated separately 
under the private label credit card exception.)
    2. Card issuers with small private label and other credit card 
plans. Whether the private label credit card exception applies is 
determined on an agreement-by-agreement basis. Therefore, some 
agreements offered by a card issuer may qualify for the private label 
credit card exception even though the card 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 plans with 10,000 or more open 
accounts.
    3. De minimis exception distinguished. The private label credit card 
exception under Sec. 1026.58(c)(6) is distinct from the de minimis 
exception under Sec. 1026.58(c)(5). The private label credit card 
exception exempts card issuers from submitting certain agreements to the 
Bureau regardless of the card issuer's overall size as measured by total 
number of open accounts. In contrast, the de minimis exception exempts a 
particular card issuer from submitting any credit card agreements to the 
Bureau if the card issuer has fewer than 10,000 total open accounts. For 
example, a card 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 card 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 card issuer has 40,000 open credit card accounts 
with such payment network cards. The card issuer is not required to 
submit agreement A to the Bureau under Sec. 1026.58(c)(1) because 
agreement A qualifies for the private label credit card exception under 
Sec. 1026.58(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 accounts with credit cards usable only at Merchant A) and is not 
otherwise offered to the public. The card issuer is required to submit 
agreement B to the Bureau under Sec. 1026.58(c)(1). The card issuer 
does not qualify for the de minimis exception under Sec. 1026.58(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. 
1026.58(c)(6) because it is not offered solely for accounts under a 
private label credit card plan with fewer than 10,000 open accounts.
    4. Agreement otherwise offered to the public. i. An agreement 
qualifies for the private label exception only if it is offered for 
accounts under one or more private label credit card plans with fewer 
than 10,000 open accounts and is not offered to the public other than 
for accounts under such a plan. For example, a card issuer offers a 
single agreement to the public. The agreement is offered for private 
label credit card accounts with credit cards usable only at Merchant A. 
The card issuer has 9,000 such open accounts with credit cards usable 
only at Merchant A. The 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.
    ii. 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, a card 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 card usable only at Merchant B. 
The card 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).
    5. Agreement used for multiple small private label plans. 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 card issuer is not required to submit the 
agreement to the Bureau under Sec. 1026.58(c)(1).

[[Page 994]]

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 card 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. 1026.58(c)(6).
    6. Multiple agreements used for one private label credit card plan. 
The private label credit card exception applies even if a card issuer 
offers more than one agreement in connection with a particular private 
label credit card plan. For example, a card issuer has 5,000 open 
private label credit card accounts with credit cards usable only at 
Merchant A. The card 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 card issuer is not required to submit any of the three agreements to 
the Bureau under Sec. 1026.58(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)(8) Form and content of agreements submitted to the Bureau

    1. ``As of'' date clarified. Agreements submitted to the Bureau must 
contain the provisions of the agreement and pricing information in 
effect as of the last business day of the preceding calendar quarter. 
For example, on June 1, a card 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 card issuer 
submits the agreement to the Bureau 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.
    2. Pricing agreement addendum. Pricing information must be set forth 
in the separate addendum described in Sec. 1026.58(c)(8)(ii)(A) even if 
it is also stated elsewhere in the agreement.
    3. Pricing agreement variations do not constitute separate 
agreements. 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 by setting forth all the 
possible variations or by providing a range of possible variations. Two 
agreements that differ only with respect to variations in the pricing 
information do not constitute separate agreements for purposes of this 
section. For example, a card 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 card issuer should not submit to the Bureau 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 card issuer should submit to the 
Bureau one agreement with a pricing information addendum listing 
possible purchase APRs of 15 or 18 percent.
    4. Optional variable terms addendum. Examples of provisions that 
might be included in the variable terms addendum 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).
    5. Integrated agreement requirement. Card issuers may not provide 
provisions of the agreement or pricing information in the form of 
change-in-terms notices or riders. The only two addenda that may be 
submitted as part of an agreement are the pricing information addendum 
and optional variable terms addendum described in Sec. 1026.58(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 described in Sec. 1026.58(c)(8). For example, 
it would be impermissible for a card issuer to submit to the Bureau an 
agreement in the form of a terms and conditions document dated January 
1, 2005, four subsequent change in terms notices, and 2 addenda showing 
variations in pricing information. Instead, the card 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.

            58(d) Posting of Agreements Offered to the Public

    1. Requirement applies only to agreements submitted to the Bureau. 
Card issuers are only required to post and maintain on their publicly 
available Web site the credit card

[[Page 995]]

agreements that the card issuer must submit to the Bureau under Sec. 
1026.58(c). If, for example, a card issuer is not required to submit any 
agreements to the Bureau because the card issuer qualifies for the de 
minimis exception under Sec. 1026.58(c)(5), the card issuer is not 
required to post and maintain any agreements on its Web site under Sec. 
1026.58(d). Similarly, if a card issuer is not required to submit a 
specific agreement to the Bureau, such as an agreement that qualifies 
for the private label exception under Sec. 1026.58(c)(6), the card 
issuer is not required to post and maintain that agreement under Sec. 
1026.58(d) (either on the card 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 card 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. 1026.58(e) by posting 
and maintaining the agreement on the card issuer's Web site or by 
providing a copy of the agreement upon the cardholder's request.)
    2. Card issuers that do not otherwise maintain Web sites. Unlike 
Sec. 1026.58(e), Sec. 1026.58(d) does not include a special rule for 
card issuers that do not otherwise maintain a Web site. If a card issuer 
is required to submit one or more agreements to the Bureau under Sec. 
1026.58(c), that card 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. 1026.58(d)(1)). If an issuer provides cardholders with access to 
specific information about their individual accounts, such as balance 
information or copies of statements, through a third-party Web site, the 
issuer is considered to maintain that Web site for purposes of Sec. 
1026.58. Such a third-party Web site is deemed to be maintained by the 
issuer for purposes of Sec. 1026.58(d) even where, for example, an 
unaffiliated entity designs the Web site and owns and maintains the 
information technology infrastructure that supports the Web site, 
cardholders with credit cards from multiple issuers can access 
individual account information through the same Web site, and the Web 
site is not labeled, branded, or otherwise held out to the public as 
belonging to the issuer. Therefore, issuers that provide cardholders 
with access to account-specific information through a third-party Web 
site can comply with Sec. 1026.58(d) by ensuring that the agreements 
the issuer submits to the Bureau are posted on the third-party Web site 
in accordance with Sec. 1026.58(d). (In contrast, the Sec. 
1026.58(d)(1) rule regarding agreements for private label credit cards 
is not conditioned on cardholders' ability to access account-specific 
information through the merchant's Web site.)
    3. Private label credit card plans. i. Section 1026.58(d) provides 
that, with respect to an agreement offered solely for accounts under one 
or more private label credit card plans, a card issuer may comply by 
posting and maintaining the agreement on the Web site of at least one of 
the merchants at which the cards issued under each private label credit 
card plan with 10,000 or more open accounts may be used. For 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.
    ii. The card issuer is required to submit the agreement to the 
Bureau under Sec. 1026.58(c)(1). (The card issuer has more than 10,000 
open accounts, so the Sec. 1026.58(c)(5) de minimis exception does not 
apply. The agreement is offered solely for two different private label 
credit card plans (i.e., one plan consisting of the accounts with credit 
cards usable at Merchant A and one plan consisting of the accounts with 
credit cards usable at Merchant B and its affiliates, Merchants C and 
D), but both of these plans have more than 10,000 open accounts, so the 
Sec. 1026.58(c)(6) private label credit card exception does not apply. 
Finally, the agreement is not offered solely in connection with a 
product test by the card issuer, so the Sec. 1026.58(c)(7) product test 
exception does not apply.)
    iii. Because the card issuer is required to submit the agreement to 
the Bureau under Sec. 1026.58(c)(1), the card issuer is required to 
post and maintain the agreement on the card issuer's publicly available 
Web site under Sec. 1026.58(d). However, because the agreement is 
offered solely for accounts under one or more private label credit card 
plans, the card issuer may comply with Sec. 1026.58(d) in either of two 
ways. First, the card issuer may comply by posting and maintaining the 
agreement on the card issuer's own publicly available Web site. 
Alternatively, the card 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 card issuer to post the agreement on 
Merchant A's Web site alone because Sec. 1026.58(d) requires the card 
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).
    iv. In contrast, assume that a card issuer has 100,000 open private 
label credit card accounts. Of these, 5,000 open accounts have

[[Page 996]]

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.
    v. The card issuer is required to submit the agreement to the Bureau 
under Sec. 1026.58(c)(1). (The card issuer has more than 10,000 open 
accounts, so the Sec. 1026.58(c)(5) de minimis exception does not 
apply. The agreement is offered solely for two different private label 
credit card plans (i.e., one plan consisting of the accounts with credit 
cards usable at Merchant A and one plan consisting of the accounts with 
credit cards usable at Merchant B and its affiliates, Merchants C and 
D), but one of these plans has more than 10,000 open accounts, so the 
Sec. 1026.58(c)(6) private label credit card exception does not apply. 
Finally, the agreement is not offered solely in connection with a 
product test by the card issuer, so the Sec. 1026.58(c)(7) product test 
exception does not apply.)
    vi. Because the card issuer is required to submit the agreement to 
the Bureau under Sec. 1026.58(c)(1), the card issuer is required to 
post and maintain the agreement on the card issuer's publicly available 
Web site under Sec. 1026.58(d). However, because the agreement is 
offered solely for accounts under one or more private label credit card 
plans, the card issuer may comply with Sec. 1026.58(d) in either of two 
ways. First, the card issuer may comply by posting and maintaining the 
agreement on the card issuer's own publicly available Web site. 
Alternatively, the card 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 card issuer is not required to post and 
maintain the agreement on the publicly available Web site of Merchant A 
because the card issuer's private label credit card plan consisting of 
accounts with cards usable only at Merchant A has fewer than 10,000 open 
accounts.

                 58(e) Agreements for All Open Accounts

    1. Requirement applies to all open accounts. The requirement to 
provide access to credit card agreements under Sec. 1026.58(e) applies 
to all open credit card accounts, regardless of whether such agreements 
are required to be submitted to the Bureau pursuant to Sec. 1026.58(c) 
(or posted on the card issuer's Web site pursuant to Sec. 1026.58(d)). 
For example, a card issuer that is not required to submit agreements to 
the Bureau because it qualifies for the de minimis exception under Sec. 
1026.58(c)(5)) would still be required to provide cardholders with 
access to their specific agreements under Sec. 1026.58(e). Similarly, 
an agreement that is no longer offered to the public would not be 
required to be submitted to the Bureau under Sec. 1026.58(c), but would 
still need to be provided to the cardholder to whom it applies under 
Sec. 1026.58(e).
    2. Readily available telephone line. Section 1026.58(e) provides 
that card issuers that provide copies of cardholder agreements upon 
request must provide the cardholder with the ability to request a copy 
of their agreement by calling a readily available telephone line. To 
satisfy the readily available standard, the financial institution must 
provide enough telephone lines so that consumers get a reasonably prompt 
response. The institution need only provide telephone service during 
normal business hours. Within its primary service area, an institution 
must provide a local or toll-free telephone number. It need not provide 
a toll-free number or accept collect long-distance calls from outside 
the area where it normally conducts business.
    3. Issuers without interactive Web sites. Section 1026.58(e)(2) 
provides that a card 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 card issuer's Web site. A 
card issuer without a Web site of any kind could comply by disclosing 
the telephone number on each periodic statement; a card issuer with a 
non-interactive Web site could comply in the same way, or alternatively 
could comply by displaying the telephone number on the card issuer's Web 
site. An issuer is considered to maintain an interactive Web site for 
purposes of the Sec. 1026.58(e)(2) special rule if the issuer provide 
cardholders with access to specific information about their individual 
accounts, such as balance information or copies of statements, through a 
third-party interactive Web site. Such a Web site is deemed to be 
maintained by the issuer for purposes of Sec. 1026.58(e)(2) even where, 
for example, an unaffiliated entity designs the Web site and owns and 
maintains the information technology infrastructure that supports the 
Web site, cardholders with credit cards from multiple issuers can access 
individual account information through the same Web site, and the Web 
site is not labeled, branded, or otherwise held out to the public as 
belonging to the issuer. An issuer that provides cardholders with access 
to specific information about their individual accounts through such a 
Web site is not permitted to comply with the special rule in Sec. 
1026.58(e)(2). Instead, such an issuer must comply with Sec. 
1026.58(e)(1).
    4. Deadline for providing requested agreements clarified. Sections 
1026.58(e)(1)(ii) and (e)(2) require that credit card agreements 
provided upon request must be sent to the cardholder or otherwise made 
available to the cardholder in electronic or paper form no

[[Page 997]]

later than 30 days after the cardholder's request is received. For 
example, if a card issuer chooses to respond to a cardholder's request 
by mailing a paper copy of the cardholder's agreement, the card issuer 
must mail the agreement no later than 30 days after receipt of the 
cardholder's request. Alternatively, if a card issuer chooses to respond 
to a cardholder's request by posting the cardholder's agreement on the 
card issuer's Web site, the card issuer must post the agreement on its 
Web site no later than 30 days after receipt of the cardholder's 
request. Section 1026.58(e)(3)(v) provides that a card issuer may 
provide cardholder agreements in either electronic or paper form 
regardless of the form of the cardholder's request.

             Section 1026.59--Reevaluation of Rate Increases

                           59(a) General Rule

                  59(a)(1) Evaluation of Increased Rate

    1. Types of rate increases covered. Section 1026.59(a) applies both 
to increases in annual percentage rates imposed on a consumer's account 
based on that consumer's credit risk or other circumstances specific to 
that consumer and to increases in annual percentage rates imposed based 
on factors that are not specific to the consumer, such as changes in 
market conditions or the issuer's cost of funds.
    2. Rate increases actually imposed. Under Sec. 1026.59(a), a card 
issuer must review changes in factors only if the increased rate is 
actually imposed on the consumer's account. For example, if a card 
issuer increases the penalty rate for a credit card account under an 
open-end (not home-secured) consumer credit plan and the consumer's 
account has no balances that are currently subject to the penalty rate, 
the card issuer is required to provide a notice pursuant to Sec. 
1026.9(c) of the change in terms, but the requirements of Sec. 1026.59 
do not apply. However, if the consumer's account later becomes subject 
to the penalty rate, the card issuer is required to provide a notice 
pursuant to Sec. 1026.9(g) and the requirements of Sec. 1026.59 begin 
to apply upon imposition of the penalty rate. Similarly, if a card 
issuer raises the cash advance rate applicable to a consumer's account 
but the consumer engages in no cash advance transactions to which that 
increased rate is applied, the card issuer is required to provide a 
notice pursuant to Sec. 1026.9(c) of the change in terms, but the 
requirements of Sec. 1026.59 do not apply. If the consumer subsequently 
engages in a cash advance transaction, the requirements of Sec. 1026.59 
begin to apply at that time.
    3. Change in type of rate. i. Generally. A change from a variable 
rate to a non-variable rate or from a non-variable rate to a variable 
rate is not a rate increase for purposes of Sec. 1026.59, if the rate 
in effect immediately prior to the change in type of rate is equal to or 
greater than the rate in effect immediately after the change. For 
example, a change from a variable rate of 15.99% to a non-variable rate 
of 15.99% is not a rate increase for purposes of Sec. 1026.59 at the 
time of the change. See Sec. 1026.55 for limitations on the 
permissibility of changing from a non-variable rate to a variable rate.
    ii. Change from non-variable rate to variable rate. A change from a 
non-variable to a variable rate constitutes a rate increase for purposes 
of Sec. 1026.59 if the variable rate exceeds the non-variable rate that 
would have applied if the change in type of rate had not occurred. For 
example, assume a new credit card account under an open-end (not home-
secured) consumer credit plan is opened on January 1 of year 1 and that 
a non-variable annual percentage rate of 12% applies to all transactions 
on the account. On January 1 of year 2, upon 45 days' advance notice 
pursuant to Sec. 1026.9(c)(2), the rate on all new transactions is 
changed to a variable rate that is currently 12% and is determined by 
adding a margin of 10 percentage points to a publicly-available index 
not under the card issuer's control. The change from the 12% non-
variable rate to the 12% variable rate on January 1 of year 2 is not a 
rate increase for purposes of Sec. 1026.59(a). On April 1 of year 2, 
the value of the variable rate increases to 12.5%. The increase in the 
rate from 12% to 12.5% is a rate increase for purposes of Sec. 1026.59, 
and the card issuer must begin periodically conducting reviews of the 
account pursuant to Sec. 1026.59. The increase that must be evaluated 
for purposes of Sec. 1026.59 is the increase from a non-variable rate 
of 12% to a variable rate of 12.5%.
    iii. Change from variable rate to non-variable rate. A change from a 
variable to a non-variable rate constitutes a rate increase for purposes 
of Sec. 1026.59 if the non-variable rate exceeds the variable rate that 
would have applied if the change in type of rate had not occurred. For 
example, assume a new credit card account under an open-end (not home-
secured) consumer credit plan is opened on January 1 of year 1 and that 
a variable annual percentage rate that is currently 15% and is 
determined by adding a margin of 10 percentage points to a publicly-
available index not under the card issuer's control applies to all 
transactions on the account. On January 1 of year 2, upon 45 days' 
advance notice pursuant to Sec. 1026.9(c)(2), the rate on all existing 
balances and new transactions is changed to a non-variable rate that is 
currently 15%. The change from the 15% variable rate to the 15% non-
variable rate on January 1 of year 2 is not a rate increase for purposes 
of Sec. 1026.59(a). On April 1 of year 2, the value of the variable 
rate that would have applied to the account decreases to 12.5%. 
Accordingly, on April 1 of year 2, the

[[Page 998]]

non-variable rate of 15% exceeds the 12.5% variable rate that would have 
applied but for the change in type of rate. At this time, the change to 
the non-variable rate of 15% constitutes a rate increase for purposes of 
Sec. 1026.59, and the card issuer must begin periodically conducting 
reviews of the account pursuant to Sec. 1026.59. The increase that must 
be evaluated for purposes of Sec. 1026.59 is the increase from a 
variable rate of 12.5% to a non-variable rate of 15%.
    4. Rate increases prior to effective date of rule. For increases in 
annual percentage rates made on or after January 1, 2009, and prior to 
August 22, 2010, Sec. 1026.59(a) requires the card issuer to review the 
factors described in Sec. 1026.59(d) and reduce the rate, as 
appropriate, if the rate increase is of a type for which 45 days' 
advance notice would currently be required under Sec. 1026.9(c)(2) or 
(g). For example, 45 days' notice is not required under Sec. 
1026.9(c)(2) if the rate increase results from the increase in the index 
by which a properly-disclosed variable rate is determined in accordance 
with Sec. 1026.9(c)(2)(v)(C) or if the increase occurs upon expiration 
of a specified period of time and disclosures complying with Sec. 
1026.9(c)(2)(v)(B) have been provided. The requirements of Sec. 1026.59 
do not apply to such rate increases.
    5. Amount of rate decrease. i. General. Even in circumstances where 
a rate reduction is required, Sec. 1026.59 does not require that a card 
issuer decrease the rate that applies to a credit card account to the 
rate that was in effect prior to the rate increase subject to Sec. 
1026.59(a). The amount of the rate decrease that is required must be 
determined based upon the card issuer's reasonable policies and 
procedures under Sec. 1026.59(b) for consideration of factors described 
in Sec. 1026.59(a) and (d). For example, assume a consumer's rate on 
new purchases is increased from a variable rate of 15.99% to a variable 
rate of 23.99% based on the consumer's making a required minimum 
periodic payment five days late. The consumer makes all of the payments 
required on the account on time for the six months following the rate 
increase. Assume that the card issuer evaluates the account by reviewing 
the factors on which the increase in an annual percentage rate was 
originally based, in accordance with Sec. 1026.59(d)(1)(i). The card 
issuer is not required to decrease the consumer's rate to the 15.99% 
that applied prior to the rate increase. However, the card issuer's 
policies and procedures for performing the review required by Sec. 
1026.59(a) must be reasonable, as required by Sec. 1026.59(b), and must 
take into account any reduction in the consumer's credit risk based upon 
the consumer's timely payments.
    ii. Change in type of rate. If the rate increase subject to Sec. 
1026.59 involves a change from a variable rate to a non-variable rate or 
from a non-variable rate to a variable rate, Sec. 1026.59 does not 
require that the issuer reinstate the same type of rate that applied 
prior to the change. However, the amount of any rate decrease that is 
required must be determined based upon the card issuer's reasonable 
policies and procedures under Sec. 1026.59(b) for consideration of 
factors described in Sec. 1026.59(a) and (d).

                        59(a)(2) Rate Reductions

              59(a)(2)(ii) Applicability of Rate Reduction

    1. Applicability of reduced rate to new transactions. Section 
1026.59(a)(2)(ii) requires, in part, that any reduction in rate required 
pursuant to Sec. 1026.59(a)(1) must apply to new transactions that 
occur after the effective date of the rate reduction, if those 
transactions would otherwise have been subject to the increased rate 
described in Sec. 1026.59(a)(1). A credit card account may have 
multiple types of balances, for example, purchases, cash advances, and 
balance transfers, to which different rates apply. For example, assume a 
new credit card account opened on January 1 of year one has a rate 
applicable to purchases of 15% and a rate applicable to cash advances 
and balance transfers of 20%. Effective March 1 of year two, consistent 
with the limitations in Sec. 1026.55 and upon giving notice required by 
Sec. 1026.9(c)(2), the card issuer raises the rate applicable to new 
purchases to 18% based on market conditions. The only transaction in 
which the consumer engages in year two is a $1,000 purchase made on July 
1. The rate for cash advances and balance transfers remains at 20%. 
Based on a subsequent review required by Sec. 1026.59(a)(1), the card 
issuer determines that the rate on purchases must be reduced to 16%. 
Section 1026.59(a)(2)(ii) requires that the 16% rate be applied to the 
$1,000 purchase made on July 1 and to all new purchases. The rate for 
new cash advances and balance transfers may remain at 20%, because there 
was no rate increase applicable to those types of transactions and, 
therefore, the requirements of Sec. 1026.59(a) do not apply.

                              59(c) Timing

    1. In general. The issuer may review all of its accounts subject to 
Sec. 1026.59(a) at the same time once every six months, may review each 
account once each six months on a rolling basis based on the date on 
which the rate was increased for that account, or may otherwise review 
each account not less frequently than once every six months.
    2. Example. A card issuer increases the rates applicable to one half 
of its credit card accounts on June 1, 2011. The card issuer increases 
the rates applicable to the other half of its credit card accounts on 
September 1, 2011. The card issuer may review the rate increases for all 
of its credit card accounts on or before December 1, 2011, and at least 
every

[[Page 999]]

six months thereafter. In the alternative, the card issuer may first 
review the rate increases for the accounts that were repriced on June 1, 
2011 on or before December 1, 2011, and may first review the rate 
increases for the accounts that were repriced on September 1, 2011 on or 
before March 1, 2012.
    3. Rate increases prior to effective date of rule. For increases in 
annual percentage rates applicable to a credit card account under an 
open-end (not home-secured) consumer credit plan on or after January 1, 
2009 and prior to August 22, 2010, Sec. 1026.59(c) requires that the 
first review for such rate increases be conducted prior to February 22, 
2011.

                              59(d) Factors

    1. Change in factors. A creditor that complies with Sec. 1026.59(a) 
by reviewing the factors it currently considers in determining the 
annual percentage rates applicable to similar new credit card accounts 
may change those factors from time to time. When a creditor changes the 
factors it considers in determining the annual percentage rates 
applicable to similar new credit card accounts from time to time, it may 
comply with Sec. 1026.59(a) by reviewing the set of factors it 
considered immediately prior to the change in factors for a brief 
transition period, or may consider the new factors. For example, a 
creditor changes the factors it uses to determine the rates applicable 
to similar new credit card accounts on January 1, 2012. The creditor 
reviews the rates applicable to its existing accounts that have been 
subject to a rate increase pursuant to Sec. 1026.59(a) on January 25, 
2012. The creditor complies with Sec. 1026.59(a) by reviewing, at its 
option, either the factors that it considered on December 31, 2011 when 
determining the rates applicable to similar new credit card accounts or 
the factors that it considers as of January 25, 2012. For purposes of 
compliance with Sec. 1026.59(d), a transition period of 60 days from 
the change of factors constitutes a brief transition period.
    2. Comparison of existing account to factors used for similar new 
accounts. Under Sec. 1026.59(a), if a creditor evaluates an existing 
account using the same factors that it considers in determining the 
rates applicable to similar new accounts, the review of factors need not 
result in existing accounts being subject to exactly the same rates and 
rate structure as a creditor imposes on similar new accounts. For 
example, a creditor may offer variable rates on similar new accounts 
that are computed by adding a margin that depends on various factors to 
the value of the LIBOR index. The account that the creditor is required 
to review pursuant to Sec. 1026.59(a) may have variable rates that were 
determined by adding a different margin, depending on different factors, 
to a published prime rate. In performing the review required by Sec. 
1026.59(a), the creditor may review the factors it uses to determine the 
rates applicable to similar new accounts. If a rate reduction is 
required, however, the creditor need not base the variable rate for the 
existing account on the LIBOR index but may continue to use the 
published prime rate. Section 1026.59(a) requires, however, that the 
rate on the existing account after the reduction, as determined by 
adding the published prime rate and margin, be comparable to the rate, 
as determined by adding the margin and LIBOR, charged on a new account 
for which the factors are comparable.
    3. Similar new credit card accounts. A card issuer complying with 
Sec. 1026.59(d)(1)(ii) is required to consider the factors that the 
card issuer currently considers when determining the annual percentage 
rates applicable to similar new credit card accounts under an open-end 
(not home-secured) consumer credit plan. For example, a card issuer may 
review different factors in determining the annual percentage rate that 
applies to credit card plans for which the consumer pays an annual fee 
and receives rewards points than it reviews in determining the rates for 
credit card plans with no annual fee and no rewards points. Similarly, a 
card issuer may review different factors in determining the annual 
percentage rate that applies to private label credit cards than it 
reviews in determining the rates applicable to credit cards that can be 
used at a wider variety of merchants. In addition, a card issuer may 
review different factors in determining the annual percentage rate that 
applies to private label credit cards usable only at Merchant A than it 
may review for private label credit cards usable only at Merchant B. 
However, Sec. 1026.59(d)(1)(ii) requires a card issuer to review the 
factors it considers when determining the rates for new credit card 
accounts with similar features that are offered for similar purposes.
    4. No similar new credit card accounts. In some circumstances, a 
card issuer that complies with Sec. 1026.59(a) by reviewing the factors 
that it currently considers in determining the annual percentage rates 
applicable to similar new accounts may not be able to identify a class 
of new accounts that are similar to the existing accounts on which a 
rate increase has been imposed. For example, consumers may have existing 
credit card accounts under an open-end (not home-secured) consumer 
credit plan but the card issuer may no longer offer a product to new 
consumers with similar characteristics, such as the availability of 
rewards, size of credit line, or other features. Similarly, some 
consumers' accounts may have been closed and therefore cannot be used 
for new transactions, while all new accounts can be used for new 
transactions. In those circumstances, Sec. 1026.59 requires that the 
card

[[Page 1000]]

issuer nonetheless perform a review of the rate increase on the existing 
customers' accounts. A card issuer does not comply with Sec. 1026.59 by 
maintaining an increased rate without performing such an evaluation. In 
such circumstances, Sec. 1026.59(d)(1)(ii) requires that the card 
issuer compare the existing accounts to the most closely comparable new 
accounts that it offers.
    5. Consideration of consumer's conduct on existing account. A card 
issuer that complies with Sec. 1026.59(a) by reviewing the factors that 
it currently considers in determining the annual percentage rates 
applicable to similar new accounts may consider the consumer's payment 
or other account behavior on the existing account only to the same 
extent and in the same manner that the issuer considers such information 
when one of its current cardholders applies for a new account with the 
card issuer. For example, a card issuer might obtain consumer reports 
for all of its applicants. The consumer reports contain certain 
information regarding the applicant's past performance on existing 
credit card accounts. However, the card issuer may have additional 
information about an existing cardholder's payment history or account 
usage that does not appear in the consumer report and that, accordingly, 
it would not generally have for all new applicants. For example, a 
consumer may have made a payment that is five days late on his or her 
account with the card issuer, but this information does not appear on 
the consumer report. The card issuer may consider this additional 
information in performing its review under Sec. 1026.59(a), but only to 
the extent and in the manner that it considers such information if a 
current cardholder applies for a new account with the issuer.
    6. Multiple rate increases between January 1, 2009 and February 21, 
2010. i. General. Section 1026.59(d)(2) applies if an issuer increased 
the rate applicable to a credit card account under an open-end (not 
home-secured) consumer credit plan between January 1, 2009 and February 
21, 2010, and the increase was not based solely upon factors specific to 
the consumer. In some cases, a credit card account may have been subject 
to multiple rate increases during the period from January 1, 2009 to 
February 21, 2010. Some such rate increases may have been based solely 
upon factors specific to the consumer, while others may have been based 
on factors not specific to the consumer, such as the issuer's cost of 
funds or market conditions. In such circumstances, when conducting the 
first two reviews required under Sec. 1026.59, the card issuer may 
separately review: (i) Rate increases imposed based on factors not 
specific to the consumer, using the factors described in Sec. 
1026.59(d)(1)(ii) (as required by Sec. 1026.59(d)(2)); and (ii) rate 
increases imposed based on consumer-specific factors, using the factors 
described in Sec. 1026.59(d)(1)(i). If the review of factors described 
in Sec. 1026.59(d)(1)(i) indicates that it is appropriate to continue 
to apply a penalty or other increased rate to the account as a result of 
the consumer's payment history or other factors specific to the 
consumer, Sec. 1026.59 permits the card issuer to continue to impose 
the penalty or other increased rate, even if the review of the factors 
described in Sec. 1026.59(d)(1)(ii) would otherwise require a rate 
decrease.
    ii. Example. Assume a credit card account was subject to a rate of 
15% on all transactions as of January 1, 2009. On May 1, 2009, the 
issuer increased the rate on existing balances and new transactions to 
18%, based upon market conditions or other factors not specific to the 
consumer or the consumer's account. Subsequently, on September 1, 2009, 
based on a payment that was received five days after the due date, the 
issuer increased the applicable rate on existing balances and new 
transactions from 18% to a penalty rate of 25%. When conducting the 
first review required under Sec. 1026.59, the card issuer reviews the 
rate increase from 15% to 18% using the factors described in Sec. 
1026.59(d)(1)(ii) (as required by Sec. 1026.59(d)(2)), and separately 
but concurrently reviews the rate increase from 18% to 25% using the 
factors described in paragraph Sec. 1026.59(d)(1)(i). The review of the 
rate increase from 15% to 18% based upon the factors described in Sec. 
1026.59(d)(1)(ii) indicates that a similarly situated new consumer would 
receive a rate of 17%. The review of the rate increase from 18% to 25% 
based upon the factors described in Sec. 1026.59(d)(1)(i) indicates 
that it is appropriate to continue to apply the 25% penalty rate based 
upon the consumer's late payment. Section 1026.59 permits the rate on 
the account to remain at 25%.

            59(f) Termination of Obligation to Review Factors

    1. Revocation of temporary rates. i. In general. If an annual 
percentage rate is increased due to revocation of a temporary rate, 
Sec. 1026.59(a) requires that the card issuer periodically review the 
increased rate. In contrast, if the rate increase results from the 
expiration of a temporary rate previously disclosed in accordance with 
Sec. 1026.9(c)(2)(v)(B), the review requirements in Sec. 1026.59(a) do 
not apply. If a temporary rate is revoked such that the requirements of 
Sec. 1026.59(a) apply, Sec. 1026.59(f) permits an issuer to terminate 
the review of the rate increase if and when the applicable rate is the 
same as the rate that would have applied if the increase had not 
occurred.
    ii. Examples. Assume that on January 1, 2011, a consumer opens a new 
credit card account under an open-end (not home-secured) consumer credit 
plan. The annual percentage rate applicable to purchases is 15%. The 
card

[[Page 1001]]

issuer offers the consumer a 10% rate on purchases made between February 
1, 2012 and August 1, 2013 and discloses pursuant to Sec. 
1026.9(c)(2)(v)(B) that on August 1, 2013 the rate on purchases will 
revert to the original 15% rate. The consumer makes a payment that is 
five days late in July 2012.
    A. Upon providing 45 days' advance notice and to the extent 
permitted under Sec. 1026.55, the card issuer increases the rate 
applicable to new purchases to 15%, effective on September 1, 2012. The 
card issuer must review that rate increase under Sec. 1026.59(a) at 
least once each six months during the period from September 1, 2012 to 
August 1, 2013, unless and until the card issuer reduces the rate to 
10%. The card issuer performs reviews of the rate increase on January 1, 
2013 and July 1, 2013. Based on those reviews, the rate applicable to 
purchases remains at 15%. Beginning on August 1, 2013, the card issuer 
is not required to continue periodically reviewing the rate increase, 
because if the temporary rate had expired in accordance with its 
previously disclosed terms, the 15% rate would have applied to purchase 
balances as of August 1, 2013 even if the rate increase had not occurred 
on September 1, 2012.
    B. Same facts as above except that the review conducted on July 1, 
2013 indicates that a reduction to the original temporary rate of 10% is 
appropriate. Section 1026.59(a)(2)(i) requires that the rate be reduced 
no later than 45 days after completion of the review, or no later than 
August 15, 2013. Because the temporary rate would have expired prior to 
the date on which the rate decrease is required to take effect, the card 
issuer may, at its option, reduce the rate to 10% for any portion of the 
period from July 1, 2013, to August 1, 2013, or may continue to impose 
the 15% rate for that entire period. The card issuer is not required to 
conduct further reviews of the 15% rate on purchases.
    C. Same facts as above except that on September 1, 2012 the card 
issuer increases the rate applicable to new purchases to the penalty 
rate on the consumer's account, which is 25%. The card issuer conducts 
reviews of the increased rate in accordance with Sec. 1026.59 on 
January 1, 2013 and July 1, 2013. Based on those reviews, the rate 
applicable to purchases remains at 25%. The card issuer's obligation to 
review the rate increase continues to apply after August 1, 2013, 
because the 25% penalty rate exceeds the 15% rate that would have 
applied if the temporary rate expired in accordance with its previously 
disclosed terms. The card issuer's obligation to review the rate 
terminates if and when the annual percentage rate applicable to 
purchases is reduced to the 15% rate.
    2. Example--relationship to Sec. 1026.59(a). Assume that on January 
1, 2011, a consumer opens a new credit card account under an open-end 
(not home-secured) consumer credit plan. The annual percentage rate 
applicable to purchases is 15%. Upon providing 45 days' advance notice 
and to the extent permitted under Sec. 1026.55, the card issuer 
increases the rate applicable to new purchases to 18%, effective on 
September 1, 2012. The card issuer conducts reviews of the increased 
rate in accordance with Sec. 1026.59 on January 1, 2013 and July 1, 
2013, based on the factors described in Sec. 1026.59(d)(1)(ii). Based 
on the January 1, 2013 review, the rate applicable to purchases remains 
at 18%. In the review conducted on July 1, 2013, the card issuer 
determines that, based on the relevant factors, the rate it would offer 
on a comparable new account would be 14%. Consistent with Sec. 
1026.59(f), Sec. 1026.59(a) requires that the card issuer reduce the 
rate on the existing account to the 15% rate that was in effect prior to 
the September 1, 2012 rate increase.

                         59(g) Acquired Accounts

                            59(g)(1) General

    1. Relationship to Sec. 1026.59(d)(2) for rate increases imposed 
between January 1, 2009 and February 21, 2010. Section 1026.59(d)(2) 
applies to acquired accounts. Accordingly, if a card issuer acquires 
accounts on which a rate increase was imposed between January 1, 2009 
and February 21, 2010 that was not based solely upon consumer-specific 
factors, that acquiring card issuer must consider the factors that it 
currently considers when determining the annual percentage rates 
applicable to similar new credit card accounts, if it conducts either or 
both of the first two reviews of such accounts that are required after 
August 22, 2010 under Sec. 1026.59(a).

                  59(g)(2) Review of Acquired Portfolio

    1. Example--general. A card issuer acquires a portfolio of accounts 
that currently are subject to annual percentage rates of 12%, 15%, and 
18%. Not later than six months after the acquisition of such accounts, 
the card issuer reviews all of these accounts in accordance with the 
factors that it currently uses in determining the rates applicable to 
similar new credit card accounts. As a result of that review, the card 
issuer decreases the rate on the accounts that are currently subject to 
a 12% annual percentage rate to 10%, leaves the rate applicable to the 
accounts currently subject to a 15% annual percentage rate at 15%, and 
increases the rate applicable to the accounts currently subject to a 
rate of 18% to 20%. Section 1026.59(g)(2) requires the card issuer to 
review, no less frequently than once every six months, the accounts for 
which the rate has been increased to 20%. The card issuer is not 
required to review the accounts subject to 10% and 15% rates pursuant to 
Sec. 1026.59(a), unless and until the card issuer makes a subsequent 
rate increase applicable to those accounts.

[[Page 1002]]

    2. Example--penalty rates. A card issuer acquires a portfolio of 
accounts that currently are subject to standard annual percentage rates 
of 12% and 15%. In addition, several acquired accounts are subject to a 
penalty rate of 24%. Not later than six months after the acquisition of 
such accounts, the card issuer reviews all of these accounts in 
accordance with the factors that it currently uses in determining the 
rates applicable to similar new credit card accounts. As a result of 
that review, the card issuer leaves the standard rates applicable to the 
accounts at 12% and 15%, respectively. The card issuer decreases the 
rate applicable to the accounts currently at 24% to its penalty rate of 
23%. Section 1026.59(g)(2) requires the card issuer to review, no less 
frequently than once every six months, the accounts that are subject to 
a penalty rate of 23%. The card issuer is not required to review the 
accounts subject to 12% and 15% rates pursuant to Sec. 1026.59(a), 
unless and until the card issuer makes a subsequent rate increase 
applicable to those accounts.

 Section 1026.60--Credit and Charge Card Applications and Solicitations

    1. General. Section 1026.60 generally requires that credit 
disclosures be contained in application forms and solicitations 
initiated by a card issuer to open a credit or charge card account. (See 
Sec. 1026.60(a)(5) and (e)(2) for exceptions; see Sec. 1026.60(a)(1) 
and accompanying commentary for the definition of solicitation; see also 
Sec. 1026.2(a)(15) and accompanying commentary for the definition of 
charge card.)
    2. Substitution of account-opening summary table for the disclosures 
required by Sec. 1026.60. In complying with Sec. 1026.60(c), (e)(1) or 
(f), a card issuer may provide the account-opening summary table 
described in Sec. 1026.6(b)(1) in lieu of the disclosures required by 
Sec. 1026.60, if the issuer provides the disclosures required by Sec. 
1026.6 on or with the application or solicitation.
    3. Clear and conspicuous standard. See comment 5(a)(1)-1 for the 
clear and conspicuous standard applicable to Sec. 1026.60 disclosures.

                           60(a) General Rules

                   60(a)(1) Definition of Solicitation

    1. Invitations to apply. A card issuer may contact a consumer who 
has not been preapproved for a card account about opening an account 
(whether by direct mail, telephone, or other means) and invite the 
consumer to complete an application. Such a contact does not meet the 
definition of solicitation, nor is it covered by this section, unless 
the contact itself includes an application form in a direct mailing, 
electronic communication or ``take-one''; an oral application in a 
telephone contact initiated by the card issuer; or an application in an 
in-person contact initiated by the card issuer.

              60(a)(2) Form of Disclosures; Tabular Format

    1. Location of table. i. General. Except for disclosures given 
electronically, disclosures in Sec. 1026.60(b) that are required to be 
provided in a table must be prominently located on or with the 
application or solicitation. Disclosures are deemed to be prominently 
located, for example, if the disclosures are on the same page as an 
application or solicitation reply form. If the disclosures appear 
elsewhere, they are deemed to be prominently located if the application 
or solicitation reply form contains a clear and conspicuous reference to 
the location of the disclosures and indicates that they contain rate, 
fee, and other cost information, as applicable.
    ii. Electronic disclosures. If the table is provided electronically, 
the table must be provided in close proximity to the application or 
solicitation. Card issuers have flexibility in satisfying this 
requirement. Methods card issuers could use to satisfy the requirement 
include, but are not limited to, the following examples (whatever method 
is used, a card issuer need not confirm that the consumer has read the 
disclosures):
    A. The disclosures could automatically appear on the screen when the 
application or reply form appears;
    B. The disclosures could be located on the same Web page as the 
application or reply form (whether or not they appear on the initial 
screen), if the application or reply form contains a clear and 
conspicuous reference to the location of the disclosures and indicates 
that the disclosures contain rate, fee, and other cost information, as 
applicable;
    C. Card issuers could provide a link to the electronic disclosures 
on or with the application (or reply form) as long as consumers cannot 
bypass the disclosures before submitting the application or reply form. 
The link would take the consumer to the disclosures, but the consumer 
need not be required to scroll completely through the disclosures; or
    D. The disclosures could be located on the same Web page as the 
application or reply form without necessarily appearing on the initial 
screen, immediately preceding the button that the consumer will click to 
submit the application or reply.
    2. Multiple accounts. If a tabular format is required to be used, 
card issuers offering several types of accounts may disclose the various 
terms for the accounts in a single table or may provide a separate table 
for each account.
    3. Information permitted in the table. See the commentary to Sec. 
1026.60(b), (d), and (e)(1) for guidance on additional information 
permitted in the table.
    4. Deletion of inapplicable disclosures. Generally, disclosures need 
only be given as applicable. Card issuers may, therefore, omit

[[Page 1003]]

inapplicable headings and their corresponding boxes in the table. For 
example, if no foreign transaction fee is imposed on the account, the 
heading Foreign transaction and disclosure may be deleted from the table 
or the disclosure form may contain the heading Foreign transaction and a 
disclosure showing none. There is an exception for the grace period 
disclosure; even if no grace period exists, that fact must be stated.
    5. Highlighting of annual percentage rates and fee amounts. i. In 
general. See Samples G-10(B) and G-10(C) for guidance on providing the 
disclosures described in Sec. 1026.60(a)(2)(iv) in bold text. Other 
annual percentage rates or fee amounts disclosed in the table may not be 
in bold text. Samples G-10(B) and G-10(C) also provide guidance to 
issuers on how to disclose the rates and fees described in Sec. 
1026.60(a)(2)(iv) in a clear and conspicuous manner, by including these 
rates and fees generally as the first text in the applicable rows of the 
table so that the highlighted rates and fees generally are aligned 
vertically in the table.
    ii. Maximum limits on fees. Section 1026.60(a)(2)(iv) provides that 
any maximum limits on fee amounts must be disclosed in bold text. For 
example, assume that, consistent with Sec. 1026.52(b)(1)(ii), a card 
issuer's late payment fee will not exceed $35. The maximum limit of $35 
for the late payment fee must be highlighted in bold. Similarly, assume 
an issuer will charge a cash advance fee of $5 or 3 percent of the cash 
advance transaction amount, whichever is greater, but the fee will not 
exceed $100. The maximum limit of $100 for the cash advance fee must be 
highlighted in bold.
    iii. Periodic fees. Section 1026.60(a)(2)(iv) provides that any 
periodic fee disclosed pursuant to Sec. 1026.60(b)(2) that is not an 
annualized amount must not be disclosed in bold. For example, if an 
issuer imposes a $10 monthly maintenance fee for a card account, the 
issuer must disclose in the table that there is a $10 monthly 
maintenance fee, and that the fee is $120 on an annual basis. In this 
example, the $10 fee disclosure would not be disclosed in bold, but the 
$120 annualized amount must be disclosed in bold. In addition, if an 
issuer must disclose any annual fee in the table, the amount of the 
annual fee must be disclosed in bold.
    6. Form of disclosures. Whether disclosures must be in electronic 
form depends upon the following:
    i. If a consumer accesses a credit card application or solicitation 
electronically (other than as described under ii. below), such as online 
at a home computer, the card issuer must provide the disclosures in 
electronic form (such as with the application or solicitation on its Web 
site) in order to meet the requirement to provide disclosures in a 
timely manner on or with the application or solicitation. If the issuer 
instead mailed paper disclosures to the consumer, this requirement would 
not be met.
    ii. In contrast, if a consumer is physically present in the card 
issuer's office, and accesses a credit card application or solicitation 
electronically, such as via a terminal or kiosk (or if the consumer uses 
a terminal or kiosk located on the premises of an affiliate or third 
party that has arranged with the card issuer to provide applications or 
solicitations to consumers), the issuer may provide disclosures in 
either electronic or paper form, provided the issuer complies with the 
timing and delivery (``on or with'') requirements of the regulation.
    7. Terminology. Section 1026.60(a)(2)(i) generally requires that the 
headings, content and format of the tabular disclosures be substantially 
similar, but need not be identical, to the applicable tables in Appendix 
G-10 to part 1026; but see Sec. 1026.5(a)(2) for terminology 
requirements applicable to Sec. 1026.60 disclosures.

                    60(a)(4) Fees That Vary by State

    1. Manner of disclosing range. If the card issuer discloses a range 
of fees instead of disclosing the amount of the specific fee applicable 
to the consumer's account, the range may be stated as the lowest 
authorized fee (zero, if there are one or more states where no fee 
applies) to the highest authorized fee.

                           60(a)(5) Exceptions

    1. Noncoverage of consumer-initiated requests. Applications provided 
to a consumer upon request are not covered by Sec. 1026.60, even if the 
request is made in response to the card issuer's invitation to apply for 
a card account. To illustrate, if a card issuer invites consumers to 
call a toll-free number or to return a response card to obtain an 
application, the application sent in response to the consumer's request 
need not contain the disclosures required under Sec. 1026.60. 
Similarly, if the card issuer invites consumers to call and make an oral 
application on the telephone, Sec. 1026.60 does not apply to the 
application made by the consumer. If, however, the card issuer calls a 
consumer or initiates a telephone discussion with a consumer about 
opening a card account and contemporaneously takes an oral application, 
such applications are subject to Sec. 1026.60, specifically Sec. 
1026.60(d). Likewise, if the card issuer initiates an in-person 
discussion with a consumer about opening a card account and 
contemporaneously takes an application, such applications are subject to 
Sec. 1026.60, specifically Sec. 1026.60(f).

[[Page 1004]]

                       60(b) Required Disclosures

    1. Tabular format. Provisions in Sec. 1026.60(b) and its commentary 
provide that certain information must appear or is permitted to appear 
in a table. The tabular format is required for Sec. 1026.60(b) 
disclosures given pursuant to Sec. 1026.60(c), (d)(2), (e)(1) and (f). 
The tabular format does not apply to oral disclosures given pursuant to 
Sec. 1026.60(d)(1). (See Sec. 1026.60(a)(2).)
    2. Accuracy. Rules concerning accuracy of the disclosures required 
by Sec. 1026.60(b), including variable rate disclosures, are stated in 
Sec. 1026.60(c)(2), (d)(3), and (e)(4), as applicable.

                     60(b)(1) Annual Percentage Rate

    1. Variable-rate accounts--definition. For purposes of Sec. 
1026.60(b)(1), a variable-rate account exists when rate changes are part 
of the plan and are tied to an index or formula. (See the commentary to 
Sec. 1026.6(b)(4)(ii) for examples of variable-rate plans.)
    2. Variable-rate accounts--fact that rate varies and how the rate 
will be determined. In describing how the applicable rate will be 
determined, the card issuer must identify in the table the type of index 
or formula used, such as the prime rate. In describing the index, the 
issuer may not include in the table details about the index. For 
example, if the issuer uses a prime rate, the issuer must disclose the 
rate as a ``prime rate'' and may not disclose in the table other details 
about the prime rate, such as the fact that it is the highest prime rate 
published in the Wall Street Journal two business days before the 
closing date of the statement for each billing period. The issuer may 
not disclose in the table the current value of the index (such as that 
the prime rate is currently 7.5 percent) or the amount of the margin or 
spread added to the index or formula in setting the applicable rate. A 
card issuer may not disclose any applicable limitations on rate 
increases or decreases in the table, such as describing that the rate 
will not go below a certain rate or higher than a certain rate. (See 
Samples G-10(B) and G-10(C) for guidance on how to disclose the fact 
that the applicable rate varies and how it is determined.)
    3. Discounted initial rates. i. Immediate proximity. If the term 
``introductory'' is in the same phrase as the introductory rate, as that 
term is defined in Sec. 1026.16(g)(2)(ii), it will be deemed to be in 
immediate proximity of the listing. For example, an issuer that uses the 
phrase ``introductory balance transfer APR X percent'' has used the word 
``introductory'' within the same phrase as the rate. (See Sample G-10(C) 
for guidance on how to disclose clearly and conspicuously the expiration 
date of the introductory rate and the rate that will apply after the 
introductory rate expires, if an introductory rate is disclosed in the 
table.)
    ii. Subsequent changes in terms. The fact that an issuer may reserve 
the right to change a rate subsequent to account opening, pursuant to 
the notice requirements of Sec. 1026.9(c) and the limitations in Sec. 
1026.55, does not, by itself, make that rate an introductory rate. For 
example, assume an issuer discloses an annual percentage rate for 
purchases of 12.99% but does not specify a time period during which that 
rate will be in effect. Even if that issuer subsequently increases the 
annual percentage rate for purchases to 15.99%, pursuant to a change-in-
terms notice provided under Sec. 1026.9(c), the 12.99% is not an 
introductory rate.
    iii. More than one introductory rate. If more than one introductory 
rate may apply to a particular balance in succeeding periods, the term 
``introductory'' need only be used to describe the first introductory 
rate. For example, if an issuer offers a rate of 8.99% on purchases for 
six months, 10.99% on purchases for the following six months, and 14.99% 
on purchases after the first year, the term ``introductory'' need only 
be used to describe the 8.99% rate.
    4. Premium initial rates--subsequent changes in terms. The fact that 
an issuer may reserve the right to change a rate subsequent to account 
opening, pursuant to the notice requirements of Sec. 1026.9(c) and the 
limitations in Sec. 1026.55 (as applicable), does not, by itself, make 
that rate a premium initial rate. For example, assume an issuer 
discloses an annual percentage rate for purchases of 18.99% but does not 
specify a time period during which that rate will be in effect. Even if 
that issuer subsequently reduces the annual percentage rate for 
purchases to 15.99%, the 18.99% is not a premium initial rate. If the 
rate decrease is the result of a change from a non-variable rate to a 
variable rate or from a variable rate to a non-variable rate, see 
comments 9(c)(2)(v)-3 and 9(c)(2)(v)-4 for guidance on the notice 
requirements under Sec. 1026.9(c).
    5. Increased penalty rates. i. In general. For rates that are not 
introductory rates or employee preferential rates, if a rate may 
increase as a penalty for one or more events specified in the account 
agreement, such as a late payment or an extension of credit that exceeds 
the credit limit, the card issuer must disclose the increased rate that 
would apply, a brief description of the event or events that may result 
in the increased rate, and a brief description of how long the increased 
rate will remain in effect. The description of the specific event or 
events that may result in an increased rate should be brief. For 
example, if an issuer may increase a rate to the penalty rate because 
the consumer does not make the minimum payment by 5 p.m., Eastern Time, 
on its payment due date, the issuer should describe this circumstance in 
the table as ``make a late payment.'' Similarly, if an issuer may 
increase a rate that

[[Page 1005]]

applies to a particular balance because the account is more than 60 days 
late, the issuer should describe this circumstance in the table as 
``make a late payment.'' An issuer may not distinguish between the 
events that may result in an increased rate for existing balances and 
the events that may result in an increased rate for new transactions. 
(See Samples G-10(B) and G-10(C) (in the row labeled ``Penalty APR and 
When it Applies'') for additional guidance on the level of detail in 
which the specific event or events should be described.) The description 
of how long the increased rate will remain in effect also should be 
brief. If a card issuer reserves the right to apply the increased rate 
to any balances indefinitely, to the extent permitted by Sec. Sec. 
1026.55(b)(4) and 1026.59, the issuer should disclose that the penalty 
rate may apply indefinitely. The card issuer may not disclose in the 
table any limitations imposed by Sec. Sec. 1026.55(b)(4) and 1026.59 on 
the duration of increased rates. For example, if the issuer generally 
provides that the increased rate will apply until the consumer makes 
twelve timely consecutive required minimum periodic payments, except to 
the extent that Sec. Sec. 1026.55(b)(4) and 1026.59 apply, the issuer 
should disclose that the penalty rate will apply until the consumer 
makes twelve consecutive timely minimum payments. (See Samples G-10(B) 
and G-10(C) (in the row labeled ``Penalty APR and When it Applies'') for 
additional guidance on the level of detail which the issuer should use 
to describe how long the increased rate will remain in effect.) A card 
issuer will be deemed to meet the standard to clearly and conspicuously 
disclose the information required by Sec. 1026.60(b)(1)(iv)(A) if the 
issuer uses the format shown in Samples G-10(B) and G-10(C) (in the row 
labeled ``Penalty APR and When it Applies'') to disclose this 
information.
    ii. Introductory rates--general. An issuer is required to disclose 
directly beneath the table the circumstances under which an introductory 
rate, as that term is defined in Sec. 1026.16(g)(2)(ii), may be 
revoked, and the rate that will apply after the revocation. This 
information about revocation of an introductory rate and the rate that 
will apply after revocation must be provided even if the rate that will 
apply after the introductory rate is revoked is the rate that would have 
applied at the end of the promotional period. In a variable-rate 
account, the rate that would have applied at the end of the promotional 
period is a rate based on the applicable index or formula in accordance 
with the accuracy requirements set forth in Sec. 1026.60(c)(2) or 
(e)(4). In describing the rate that will apply after revocation of the 
introductory rate, if the rate that will apply after revocation of the 
introductory rate is already disclosed in the table, the issuer is not 
required to repeat the rate, but may refer to that rate in a clear and 
conspicuous manner. For example, if the rate that will apply after 
revocation of an introductory rate is the standard rate that applies to 
that type of transaction (such as a purchase or balance transfer 
transaction), and the standard rates are labeled in the table as 
``standard APRs,'' the issuer may refer to the ``standard APR'' when 
describing the rate that will apply after revocation of an introductory 
rate. (See Sample G-10(C) in the disclosure labeled ``Loss of 
Introductory APR'' directly beneath the table.) The description of the 
circumstances in which an introductory rate could be revoked should be 
brief. For example, if an issuer may increase an introductory rate 
because the account is more than 60 days late, the issuer should 
describe this circumstance directly beneath the table as ``make a late 
payment.'' In addition, if the circumstances in which an introductory 
rate could be revoked are already listed elsewhere in the table, the 
issuer is not required to repeat the circumstances again, but may refer 
to those circumstances in a clear and conspicuous manner. For example, 
if the circumstances in which an introductory rate could be revoked are 
the same as the event or events that may trigger a ``penalty rate'' as 
described in Sec. 1026.60(b)(1)(iv)(A), the issuer may refer to the 
actions listed in the Penalty APR row, in describing the circumstances 
in which the introductory rate could be revoked. (See Sample G-10(C) in 
the disclosure labeled ``Loss of Introductory APR'' directly beneath the 
table for additional guidance on the level of detail in which to 
describe the circumstances in which an introductory rate could be 
revoked.) A card issuer will be deemed to meet the standard to clearly 
and conspicuously disclose the information required by Sec. 
1026.60(b)(1)(iv)(B) if the issuer uses the format shown in Sample G-
10(C) to disclose this information.
    iii. Introductory rates--limitations on revocation. Issuers that are 
disclosing an introductory rate are prohibited by Sec. 1026.55 from 
increasing or revoking the introductory rate before it expires unless 
the consumer fails to make a required minimum periodic payment within 60 
days after the due date for the payment. In making the required 
disclosure pursuant to Sec. 1026.60(b)(1)(iv)(B), issuers should 
describe this circumstance directly beneath the table as ``make a late 
payment.''
    iv. Employee preferential rates. An issuer is required to disclose 
directly beneath the table the circumstances under which an employee 
preferential rate may be revoked, and the rate that will apply after the 
revocation. In describing the rate that will apply after revocation of 
the employee preferential rate, if the rate that will apply after 
revocation of the employee preferential rate is already disclosed in the 
table, the issuer is not required to repeat the rate, but may refer to 
that rate

[[Page 1006]]

in a clear and conspicuous manner. For example, if the rate that will 
apply after revocation of an employee preferential rate is the standard 
rate that applies to that type of transaction (such as a purchase or 
balance transfer transaction), and the standard rates are labeled in the 
table as ``standard APRs,'' the issuer may refer to the ``standard APR'' 
when describing the rate that will apply after revocation of an employee 
preferential rate. The description of the circumstances in which an 
employee preferential rate could be revoked should be brief. For 
example, if an issuer may increase an employee preferential rate based 
upon termination of the employee's employment relationship with the 
issuer or a third party, issuers may describe this circumstance as ``if 
your employment with [issuer or third party] ends.''
    6. Rates that depend on consumer's creditworthiness. i. In general. 
The card issuer, at its option, may disclose the possible rates that may 
apply as either specific rates, or a range of rates. For example, if 
there are three possible rates that may apply (9.99, 12.99 or 17.99 
percent), an issuer may disclose specific rates (9.99, 12.99 or 17.99 
percent) or a range of rates (9.99 to 17.99 percent). The card issuer 
may not disclose only the lowest, highest or median rate that could 
apply. (See Samples G-10(B) and G-10(C) for guidance on how to disclose 
a range of rates.)
    ii. Penalty rates. If the rate is a penalty rate, as described in 
Sec. 1026.60(b)(1)(iv), the card issuer at its option may disclose the 
highest rate that could apply, instead of disclosing the specific rates 
or the range of rates that could apply. For example, if the penalty rate 
could be up to 28.99 percent, but the issuer may impose a penalty rate 
that is less than that rate depending on factors at the time the penalty 
rate is imposed, the issuer may disclose the penalty rate as ``up to'' 
28.99 percent. The issuer also must include a statement that the penalty 
rate for which the consumer may qualify will depend on the consumer's 
creditworthiness, and other factors if applicable.
    iii. Other factors. Section 1026.60(b)(1)(v) applies even if other 
factors are used in combination with a consumer's creditworthiness to 
determine the rate for which a consumer may qualify at account opening. 
For example, Sec. 1026.60(b)(1)(v) would apply if the issuer considers 
the type of purchase the consumer is making at the time the consumer 
opens the account, in combination with the consumer's creditworthiness, 
to determine the rate for which the consumer may qualify at account 
opening. If other factors are considered, the issuer should amend the 
statement about creditworthiness, to indicate that the rate for which 
the consumer may qualify at account opening will depend on the 
consumer's creditworthiness and other factors. Nonetheless, Sec. 
1026.60(b)(1)(v) does not apply if a consumer's creditworthiness is not 
one of the factors that will determine the rate for which the consumer 
may qualify at account opening (for example, if the rate is based solely 
on the type of purchase that the consumer is making at the time the 
consumer opens the account, or is based solely on whether the consumer 
has other banking relationships with the card issuer).
    7. Rate based on another rate on the account. In some cases, one 
rate may be based on another rate on the account. For example, assume 
that a penalty rate as described in Sec. 1026.60(b)(1)(iv)(A) is 
determined by adding 5 percentage points to the current purchase rate, 
which is 10 percent. In this example, the card issuer in disclosing the 
penalty rate must disclose 15 percent as the current penalty rate. If 
the purchase rate is a variable rate, then the penalty rate also is a 
variable rate. In that case, the card issuer also must disclose the fact 
that the penalty rate may vary and how the rate is determined, such as 
``This APR may vary with the market based on the Prime Rate.'' In 
describing the penalty rate, the issuer shall not disclose in the table 
the amount of the margin or spread added to the current purchase rate to 
determine the penalty rate, such as describing that the penalty rate is 
determined by adding 5 percentage points to the purchase rate. (See 
Sec. 1026.60(b)(1)(i) and comment 60(b)(1)-2 for further guidance on 
describing a variable rate.)
    8. Rates. The only rates that shall be disclosed in the table are 
annual percentage rates determined under Sec. 1026.14(b). Periodic 
rates shall not be disclosed in the table.
    9. Deferred interest or similar transactions. An issuer offering a 
deferred interest or similar plan, such as a promotional program that 
provides that a consumer will not be 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, may not disclose a 0% rate as 
the rate applicable to deferred interest or similar transactions if 
there are any circumstances under which the consumer will be obligated 
for interest on such transactions for the deferred interest or similar 
period.

               60(b)(2) Fees for Issuance or Availability

    1. Membership fees. Membership fees for opening an account must be 
disclosed under this paragraph. A membership fee to join an organization 
that provides a credit or charge card as a privilege of membership must 
be disclosed only if the card is issued automatically upon membership. 
Such a fee shall not be disclosed in the table if membership results 
merely in eligibility to apply for an account.
    2. Enhancements. Fees for optional services in addition to basic 
membership privileges in a credit or charge card account (for example, 
travel insurance or card-registration services) shall not be disclosed 
in the table if the

[[Page 1007]]

basic account may be opened without paying such fees. Issuing a card to 
each primary cardholder (not authorized users) is considered a basic 
membership privilege and fees for additional cards, beyond the first 
card on the account, must be disclosed as a fee for issuance or 
availability. Thus, a fee to obtain an additional card on the account 
beyond the first card (so that each cardholder would have his or her own 
card) must be disclosed in the table as a fee for issuance or 
availability under Sec. 1026.60(b)(2). This fee must be disclosed even 
if the fee is optional; that is, if the fee is charged only if the 
cardholder requests one or more additional cards. (See the available 
credit disclosure in Sec. 1026.60(b)(14).)
    3. One-time fees. Disclosure of non-periodic fees is limited to fees 
related to opening the account, such as one-time membership or 
participation fees, or an application fee that is excludable from the 
finance charge under Sec. 1026.4(c)(1). The following are examples of 
fees that shall not be disclosed in the table:
    i. Fees for reissuing a lost or stolen card.
    ii. Statement reproduction fees.
    4. Waived or reduced fees. If fees required to be disclosed are 
waived or reduced for a limited time, the introductory fees or the fact 
of fee waivers may be disclosed in the table in addition to the required 
fees if the card issuer also discloses how long the reduced fees or 
waivers will remain in effect in accordance with the requirements of 
Sec. Sec. 1026.9(c)(2)(v)(B) and 1026.55(b)(1).
    5. Periodic fees and one-time fees. A card issuer disclosing a 
periodic fee must disclose the amount of the fee, how frequently it will 
be imposed, and the annualized amount of the fee. A card issuer 
disclosing a non-periodic fee must disclose that the fee is a one-time 
fee. (See Sample G-10(C) for guidance on how to meet these 
requirements.)

         60(b)(3) Fixed Finance Charge; Minimum Interest Charge

    1. Example of brief statement. See Samples G-10(B) and G-10(C) for 
guidance on how to provide a brief description of a minimum interest 
charge.
    2. Adjustment of $1.00 threshold amount. Consistent with Sec. 
1026.60(b)(3), the Bureau will publish adjustments to the $1.00 
threshold amount, as appropriate.

                      60(b)(4) Transaction Charges

    1. Charges imposed by person other than card issuer. Charges imposed 
by a third party, such as a seller of goods, shall not be disclosed in 
the table under this section; the third party would be responsible for 
disclosing the charge under Sec. 1026.9(d)(1).
    2. Foreign transaction fees. A transaction charge imposed by the 
card issuer for the use of the card for purchases includes any fee 
imposed by the issuer for purchases in a foreign currency or that take 
place outside the United States or with a foreign merchant. (See comment 
4(a)-4 for guidance on when a foreign transaction fee is considered 
charged by the card issuer.) If an issuer charges the same foreign 
transaction fee for purchases and cash advances in a foreign currency, 
or that take place outside the United States or with a foreign merchant, 
the issuer may disclose this foreign transaction fee as shown in Samples 
G-10(B) and G-10(C). Otherwise, the issuer must revise the foreign 
transaction fee language shown in Samples G-10(B) and G-10(C) to 
disclose clearly and conspicuously the amount of the foreign transaction 
fee that applies to purchases and the amount of the foreign transaction 
fee that applies to cash advances.

                          60(b)(5) Grace Period

    1. How grace period disclosure is made. The card issuer must state 
any conditions on the applicability of the grace period. An issuer, 
however, may not disclose under Sec. 1026.60(b)(5) the limitations on 
the imposition of finance charges as a result of a loss of a grace 
period in Sec. 1026.54, or the impact of payment allocation on whether 
interest is charged on purchases as a result of a loss of a grace 
period. Some issuers may offer a grace period on all purchases under 
which interest will not be charged on purchases if the consumer pays the 
outstanding balance shown on a periodic statement in full by the due 
date shown on that statement for one or more billing cycles. In these 
circumstances, Sec. 1026.60(b)(5) requires that the issuer disclose the 
grace period and the conditions for its applicability using the 
following language, or substantially similar language, as applicable: 
``Your due date is [at least] ---- 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.'' However, other issuers may 
offer a grace period on all purchases under which interest may be 
charged on purchases even if the consumer pays the outstanding balance 
shown on a periodic statement in full by the due date shown on that 
statement each billing cycle. In these circumstances, Sec. 
1026.60(b)(5) requires the issuer to amend the above disclosure language 
to describe accurately the conditions on the applicability of the grace 
period.
    2. No grace period. The issuer may use the following language to 
describe that no grace period on any purchases is offered, as 
applicable: ``We will begin charging interest on purchases on the 
transaction date.''
    3. Grace period on some purchases. If the issuer provides a grace 
period on some types of purchases but no grace period on others,

[[Page 1008]]

the issuer may combine and revise the language in comments 60(b)(5)-1 
and -2 as appropriate to describe to which types of purchases a grace 
period applies and to which types of purchases no grace period is 
offered.

                   60(b)(6) Balance Computation Method

    1. Form of disclosure. In cases where the card issuer uses a balance 
computation method that is identified by name in Sec. 1026.60(g), the 
card issuer must disclose below the table only the name of the method. 
In cases where the card issuer uses a balance computation method that is 
not identified by name in Sec. 1026.60(g), the disclosure below the 
table must clearly explain the method in as much detail as set forth in 
the descriptions of balance methods in Sec. 1026.60(g). The explanation 
need not be as detailed as that required for the disclosures under Sec. 
1026.6(b)(4)(i)(D).
    2. Determining the method. In determining which balance computation 
method to disclose for purchases, the card issuer must assume that a 
purchase balance will exist at the end of any grace period. Thus, for 
example, if the average daily balance method will include new purchases 
only if purchase balances are not paid within the grace period, the card 
issuer would disclose the name of the average daily balance method that 
includes new purchases. The card issuer must not assume the existence of 
a purchase balance, however, in making other disclosures under Sec. 
1026.60(b).

               60(b)(7) Statement on Charge Card Payments

    1. Applicability and content. The disclosure that charges are 
payable upon receipt of the periodic statement is applicable only to 
charge card accounts. In making this disclosure, the card issuer may 
make such modifications as are necessary to more accurately reflect the 
circumstances of repayment under the account. For example, the 
disclosure might read, ``Charges are due and payable upon receipt of the 
periodic statement and must be paid no later than 15 days after receipt 
of such statement.''

                        60(b)(8) Cash Advance Fee

    1. Content. See Samples G-10(B) and G-10(C) for guidance on how to 
disclose clearly and conspicuously the cash advance fee.
    2. Foreign cash advances. Cash advance fees required to be disclosed 
under Sec. 1026.60(b)(8) include any charge imposed by the card issuer 
for cash advances in a foreign currency or that take place outside the 
United States or with a foreign merchant. (See comment 4(a)-4 for 
guidance on when a foreign transaction fee is considered charged by the 
card issuer.) If an issuer charges the same foreign transaction fee for 
purchases and cash advances in a foreign currency or that take place 
outside the United States or with a foreign merchant, the issuer may 
disclose this foreign transaction fee as shown in Samples G-10(B) and 
(C). Otherwise, the issuer must revise the foreign transaction fee 
language shown in Samples G-10(B) and (C) to disclose clearly and 
conspicuously the amount of the foreign transaction fee that applies to 
purchases and the amount of the foreign transaction fee that applies to 
cash advances.
    3. ATM fees. An issuer is not required to disclose pursuant to Sec. 
1026.60(b)(8) any charges imposed on a cardholder by an institution 
other than the card issuer for the use of the other institution's ATM in 
a shared or interchange system.

                        60(b)(9) Late Payment Fee

    1. Applicability. The disclosure of the fee for a late payment 
includes only those fees that will be imposed for actual, unanticipated 
late payments. (See the commentary to Sec. 1026.4(c)(2) for additional 
guidance on late payment fees. See Samples G-10(B) and G-10(C) for 
guidance on how to disclose clearly and conspicuously the late payment 
fee.)

                      60(b)(10) Over-the-Limit Fee

    1. Applicability. The disclosure of fees for exceeding a credit 
limit does not include fees for other types of default or for services 
related to exceeding the limit. For example, no disclosure is required 
of fees for reinstating credit privileges or fees for the dishonor of 
checks on an account that, if paid, would cause the credit limit to be 
exceeded. (See Samples G-10(B) and G-10(C) for guidance on how to 
disclose clearly and conspicuously the over-the-limit fee.)

   60(b)(13) Required Insurance, Debt Cancellation or Debt Suspension 
                                Coverage

    1. Content. See Sample G-10(B) for guidance on how to comply with 
the requirements in Sec. 1026.60(b)(13).

                       60(b)(14) Available Credit

    1. Calculating available credit. If the 15 percent threshold test is 
met, the issuer must disclose the available credit excluding optional 
fees, and the available credit including optional fees. In calculating 
the available credit to disclose in the table, the issuer must consider 
all fees for the issuance or availability of credit described in Sec. 
1026.60(b)(2), and any security deposit, that will be imposed and 
charged to the account when the account is opened, such as one-time 
issuance and set-up fees. For example, in calculating the available 
credit, issuers must consider the first year's annual fee and the first 
month's maintenance fee (as applicable) if they are charged to the 
account on the first billing statement. In calculating the amount of the 
available credit including optional fees, if optional fees could be

[[Page 1009]]

charged multiple times, the issuer shall assume that the optional fee is 
only imposed once. For example, if an issuer charges a fee for each 
additional card issued on the account, the issuer in calculating the 
amount of the available credit including optional fees may assume that 
the cardholder requests only one additional card. In disclosing the 
available credit, the issuer shall round down the available credit 
amount to the nearest whole dollar.
    2. Content. See Sample G-10(C) for guidance on how to provide the 
disclosure required by Sec. 1026.60(b)(14) clearly and conspicuously.

                      60(b)(15) Web Site Reference

    1. Content. See Samples G-10(B) and G-10(C) for guidance on 
disclosing a reference to the Web site established by the Bureau and a 
statement that consumers may obtain on the Web site information about 
shopping for and using credit card accounts.

     60(c) Direct Mail and Electronic Applications and Solicitations

    1. Mailed publications. Applications or solicitations contained in 
generally available publications mailed to consumers (such as 
subscription magazines) are subject to the requirements applicable to 
take-ones in Sec. 1026.60(e), rather than the direct mail requirements 
of Sec. 1026.60(c). However, if a primary purpose of a card issuer's 
mailing is to offer credit or charge card accounts--for example, where a 
card issuer ``prescreens'' a list of potential cardholders using credit 
criteria, and then mails to the targeted group its catalog containing an 
application or a solicitation for a card account--the direct mail rules 
apply. In addition, a card issuer may use a single application form as a 
take-one (in racks in public locations, for example) and for direct 
mailings, if the card issuer complies with the requirements of Sec. 
1026.60(c) even when the form is used as a take-one--that is, by 
presenting the required Sec. 1026.60 disclosures in a tabular format. 
When used in a direct mailing, the credit term disclosures must be 
accurate as of the mailing date whether or not the Sec. 
1026.60(e)(1)(ii) and (e)(1)(iii) disclosures are included; when used in 
a take-one, the disclosures must be accurate for as long as the take-one 
forms remain available to the public if the Sec. 1026.60(e)(1)(ii) and 
(e)(1)(iii) disclosures are omitted. (If those disclosures are included 
in the take-one, the credit term disclosures need only be accurate as of 
the printing date.)

             60(d) Telephone Applications and Solicitations

    1. Coverage. i. This paragraph applies if:
    A. A telephone conversation between a card issuer and consumer may 
result in the issuance of a card as a consequence of an issuer-initiated 
offer to open an account for which the issuer does not require any 
application (that is, a prescreened telephone solicitation).
    B. The card issuer initiates the contact and at the same time takes 
application information over the telephone.
    ii. This paragraph does not apply to:
    A. Telephone applications initiated by the consumer.
    B. Situations where no card will be issued--because, for example, 
the consumer indicates that he or she does not want the card, or the 
card issuer decides either during the telephone conversation or later 
not to issue the card.
    2. Right to reject the plan. The right to reject the plan referenced 
in this paragraph is the same as the right to reject the plan described 
in Sec. 1026.5(b)(1)(iv). If an issuer substitutes the account-opening 
summary table described in Sec. 1026.6(b)(1) in lieu of the disclosures 
specified in Sec. 1026.60(d)(2)(ii), the disclosure specified in Sec. 
1026.60(d)(2)(ii)(B) must appear in the table, if the issuer is required 
to do so pursuant to Sec. 1026.6(b)(2)(xiii). Otherwise, the disclosure 
specified in Sec. 1026.60(d)(2)(ii)(B) may appear either in or outside 
the table containing the required credit disclosures.
    3. Substituting account-opening table for alternative written 
disclosures. An issuer may substitute the account-opening summary table 
described in Sec. 1026.6(b)(1) in lieu of the disclosures specified in 
Sec. 1026.60(d)(2)(ii).

  60(e) Applications and Solicitations Made Available to General Public

    1. Coverage. Applications and solicitations made available to the 
general public include what are commonly referred to as take-one 
applications typically found at counters in banks and retail 
establishments, as well as applications contained in catalogs, magazines 
and other generally available publications. In the case of credit 
unions, this paragraph applies to applications and solicitations to open 
card accounts made available to those in the general field of 
membership.
    2. In-person applications and solicitations. In-person applications 
and solicitations initiated by a card issuer are subject to Sec. 
1026.60(f), not Sec. 1026.60(e). (See Sec. 1026.60(f) and accompanying 
commentary for rules relating to in-person applications and 
solicitations.)
    3. Toll-free telephone number. If a card issuer, in complying with 
any of the disclosure options of Sec. 1026.60(e), provides a telephone 
number for consumers to call to obtain credit information, the number 
must be toll-free for nonlocal calls made from an area code other than 
the one used in the card issuer's dialing area. Alternatively, a card 
issuer may provide any telephone number that allows a consumer to call 
for information and reverse the telephone charges.

[[Page 1010]]

           60(e)(1) Disclosure of Required Credit Information

    1. Date of printing. Disclosure of the month and year fulfills the 
requirement to disclose the date an application was printed.
    2. Form of disclosures. The disclosures specified in Sec. 
1026.60(e)(1)(ii) and (e)(1)(iii) may appear either in or outside the 
table containing the required credit disclosures.

              60(e)(2) No Disclosure of Credit Information

    1. When disclosure option available. A card issuer may use this 
option only if the issuer does not include on or with the application or 
solicitation any statement that refers to the credit disclosures 
required by Sec. 1026.60(b). Statements such as no annual fee, low 
interest rate, favorable rates, and low costs are deemed to refer to the 
required credit disclosures and, therefore, may not be included on or 
with the solicitation or application, if the card issuer chooses to use 
this option.

          60(e)(3) Prompt Response to Requests for Information

    1. Prompt disclosure. Information is promptly disclosed if it is 
given within 30 days of a consumer's request for information but in no 
event later than delivery of the credit or charge card.
    2. Information disclosed. When a consumer requests credit 
information, card issuers need not provide all the required credit 
disclosures in all instances. For example, if disclosures have been 
provided in accordance with Sec. 1026.60(e)(1) and a consumer calls or 
writes a card issuer to obtain information about changes in the 
disclosures, the issuer need only provide the items of information that 
have changed from those previously disclosed on or with the application 
or solicitation. If a consumer requests information about particular 
items, the card issuer need only provide the requested information. If, 
however, the card issuer has made disclosures in accordance with the 
option in Sec. 1026.60(e)(2) and a consumer calls or writes the card 
issuer requesting information about costs, all the required disclosure 
information must be given.
    3. Manner of response. A card issuer's response to a consumer's 
request for credit information may be provided orally or in writing, 
regardless of the manner in which the consumer's request is received by 
the issuer. Furthermore, the card issuer must provide the information 
listed in Sec. 1026.60(e)(1). Information provided in writing need not 
be in a tabular format.

             60(f) In-Person Applications and Solicitations

    1. Coverage. i. This paragraph applies if:
    A. An in-person conversation between a card issuer and a consumer 
may result in the issuance of a card as a consequence of an issuer-
initiated offer to open an account for which the issuer does not require 
any application (that is, a preapproved in-person solicitation).
    B. The card issuer initiates the contact and at the same time takes 
application information in person. For example, the following are 
covered:
    1. A consumer applies in person for a car loan at a financial 
institution and the loan officer invites the consumer to apply for a 
credit or charge card account; the consumer accepts the invitation and 
submits an application.
    2. An employee of a retail establishment, in the course of 
processing a sales transaction using a bank credit card, asks a customer 
if he or she would like to apply for the retailer's credit or charge 
card; the customer responds affirmatively and submits an application.
    ii. This paragraph does not apply to:
    A. In-person applications initiated by the consumer.
    B. Situations where no card will be issued--because, for example, 
the consumer indicates that he or she does not want the card, or the 
card issuer decides during the in-person conversation not to issue the 
card.

                    Appendix A--Effect on State Laws

    1. Who may make requests. Appendix A sets forth the procedures for 
preemption determinations. As discussed in Sec. 1026.28, which contains 
the standards for preemption, a request for a determination of whether a 
state law is inconsistent with the requirements of chapters 1, 2, or 3 
may be made by creditors, states, or any interested party. However, only 
states may request and receive determinations in connection with the 
fair credit billing provisions of chapter 4.

                      Appendix B--State Exemptions

    1. General. Appendix B sets forth the procedures for exemption 
applications. The exemption standards are found in Sec. 1026.29 and are 
discussed in the commentary to that section.

            Appendix C--Issuance of Official Interpretations

    1. General. This commentary is the vehicle for providing official 
interpretations. Individual interpretations generally will not be issued 
separately from the commentary.

             Appendix D--Multiple-Advance Construction Loans

    1. General rule. Appendix D provides a special procedure that 
creditors may use, at their option, to estimate and disclose the terms 
of multiple-advance construction loans when the amounts or timing of 
advances is unknown at consummation of the

[[Page 1011]]

transaction. This appendix reflects the approach taken in Sec. 
1026.17(c)(6)(ii), which permits creditors to provide separate or 
combined disclosures for the construction period and for the permanent 
financing, if any; i.e., the construction phase and the permanent phase 
may be treated as one transaction or more than one transaction. Appendix 
D may also be used in multiple-advance transactions other than 
construction loans, when the amounts or timing of advances is unknown at 
consummation.
    2. Variable-rate multiple-advance loans. The hypothetical disclosure 
required in variable-rate transactions by Sec. 1026.18(f)(1)(iv) is not 
required for multiple-advance loans disclosed pursuant to Appendix D, 
part I.
    3. Calculation of the total of payments. When disclosures are made 
pursuant to Appendix D, the total of payments may reflect either the sum 
of the payments or the sum of the amount financed and the finance 
charge.
    4. Annual percentage rate. Appendix D does not require the use of 
Volume I of the Bureau's Annual Percentage Rate Tables for calculation 
of the annual percentage rate. Creditors utilizing Appendix D in making 
calculations and disclosures may use other computation tools to 
determine the estimated annual percentage rate, based on the finance 
charge and payment schedule obtained by use of the appendix.
    5. Interest reserves. In a multiple-advance construction loan, a 
creditor may establish an ``interest reserve'' to ensure that interest 
is paid as it accrues by designating a portion of the loan to be used 
for paying the interest that accrues on the loan. An interest reserve is 
not treated as a prepaid finance charge, whether the interest reserve is 
the same as or different from the estimated interest figure calculated 
under Appendix D.
    i. If a creditor permits a consumer to make interest payments as 
they become due, the interest reserve should be disregarded in the 
disclosures and calculations under Appendix D.
    ii. If a creditor requires the establishment of an interest reserve 
and automatically deducts interest payments from the reserve amount 
rather than allow the consumer to make interest payments as they become 
due, the fact that interest will accrue on those interest payments as 
well as the other loan proceeds must be reflected in the calculations 
and disclosures. To reflect the effects of such compounding, a creditor 
should first calculate interest on the commitment amount (exclusive of 
the interest reserve) and then add the figure obtained by assuming that 
one-half of that interest is outstanding at the contract interest rate 
for the entire construction period. For example, using the example shown 
under paragraph A, part I of Appendix D, the estimated interest would be 
$1,117.68 ($1093.75 plus an additional $23.93 calculated by assuming 
half of $1093.75 is outstanding at the contract interest rate for the 
entire construction period), and the estimated annual percentage rate 
would be 21.18%.
    6. Relation to Sec. 1026.18(s). A creditor must disclose an 
interest rate and payment summary table for transactions secured by real 
property or a dwelling, pursuant to Sec. 1026.18(s), instead of the 
general payment schedule required by Sec. 1026.18(g). Accordingly, home 
construction loans that are secured by real property or a dwelling are 
subject to Sec. 1026.18(s) and not Sec. 1026.18(g). Under Sec. 
1026.176(c)(6)(ii), when a multiple-advance construction loan may be 
permanently financed by the same creditor, the construction phase and 
the permanent phase may be treated as either one transaction or more 
than one transaction.
    i. If a creditor uses Appendix D and elects pursuant to Sec. 
1026.17(c)(6)(ii) to disclose the construction and permanent phases as 
separate transactions, the construction phase must be disclosed 
according to the rules in Sec. 1026.18(s). Under Sec. 1026.18(s), the 
creditor must disclose the applicable interest rates and corresponding 
periodic payments during the construction phase in an interest rate and 
payment summary table. The provision in Appendix D, Part I.A.3, which 
allows the creditor to omit the number and amounts of any interest 
payments ``in disclosing the payment schedule under Sec. 1026.18(g)'' 
does not apply because the transaction is governed by Sec. 1026.18(s) 
rather than Sec. 1026.18(g). Also, because the construction phase is 
being disclosed as a separate transaction and its terms do not repay all 
principal, the creditor must disclose a balloon payment, pursuant to 
Sec. 1026.18(s)(5).
    ii. On the other hand, if the creditor elects to disclose the 
construction and permanent phases as a single transaction, the 
construction phase must be disclosed pursuant to Appendix D, Part II.C, 
which provides that the creditor shall disclose the repayment schedule 
without reflecting the number or amounts of payments of interest only 
that are made during the construction phase. Appendix D also provides, 
however, that creditors must disclose (outside of the table) the fact 
that interest payments must be made and the timing of such payments. The 
rate and payment summary table disclosed under Sec. 1026.18(s) must 
reflect only the permanent phase of the transaction. Therefore, in 
determining the rates and payments that must be disclosed in the columns 
of the table, creditors should apply the requirements of Sec. 
1026.18(s) to the permanent phase only. For example, under Sec. 
1026.18(s)(2)(i)(A) or Sec. 1026.18(s)(2)(i)(B)(1), as applicable, the 
creditor should disclose the interest rate corresponding to the first 
installment due under the permanent phase and not any rate applicable 
during the construction phase.

[[Page 1012]]

 Appendix F--Optional Annual Percentage Rate Computations for Creditors 
     Offering Open-End Credit Plans Secured by a Consumer's Dwelling

    1. Daily rate with specific transaction charge. If the finance 
charge results from a charge relating to a specific transaction and the 
application of a daily periodic rate, see comment 14(c)(3)-2 for 
guidance on an appropriate calculation method.

   Appendices G and H--Open-End and Closed-End Model Forms and Clauses

    1. Permissible changes. Although use of the model forms and clauses 
is not required, creditors using them properly will be deemed to be in 
compliance with the regulation with regard to those disclosures. 
Creditors may make certain changes in the format or content of the forms 
and clauses and may delete any disclosures that are inapplicable to a 
transaction or a plan without losing the Act's protection from 
liability, except formatting changes may not be made to model forms and 
samples in H-18, H-19, H-20, H-21, H-22, H-23, G-2(A), G-3(A), G-4(A), 
G-10(A)-(E), G-17(A)-(D), G-18(A) (except as permitted pursuant to Sec. 
1026.7(b)(2)), G-18(B)-(C), G-19, G-20, and G-21, or to the model 
clauses in H-4(E), H-4(F), H-4(G), and H-4(H). Creditors may modify the 
heading of the second column shown in Model Clause H-4(H) to read 
``first adjustment'' or ``first increase,'' as applicable, pursuant to 
Sec. 1026.18(s)(2)(i)(C). The rearrangement of the model forms and 
clauses may not be so extensive as to affect the substance, clarity, or 
meaningful sequence of the forms and clauses. Creditors making revisions 
with that effect will lose their protection from civil liability. Except 
as otherwise specifically required, acceptable changes include, for 
example:
    i. Using the first person, instead of the second person, in 
referring to the borrower.
    ii. Using ``borrower'' and ``creditor'' instead of pronouns.
    iii. Rearranging the sequences of the disclosures.
    iv. Not using bold type for headings.
    v. Incorporating certain state ``plain English'' requirements.
    vi. Deleting inapplicable disclosures by whiting out, blocking out, 
filling in ``N/A'' (not applicable) or ``0,'' crossing out, leaving 
blanks, checking a box for applicable items, or circling applicable 
items. (This should permit use of multipurpose standard forms.)
    vii. Using a vertical, rather than a horizontal, format for the 
boxes in the closed-end disclosures.
    2. Debt-cancellation coverage. This part does not authorize 
creditors to characterize debt-cancellation fees as insurance premiums 
for purposes of this part. Creditors may provide a disclosure that 
refers to debt cancellation or debt suspension coverage whether or not 
the coverage is considered insurance. Creditors may use the model credit 
insurance disclosures only if the debt cancellation coverage constitutes 
insurance under state law.

              Appendix G--Open-End Model Forms and Clauses

    1. Models G-1 and G-1(A). The model disclosures in G-1 and G-1(A) 
(different balance computation methods) may be used in both the account-
opening disclosures under Sec. 1026.6 and the periodic disclosures 
under Sec. 1026.7. As is clear from the models given, ``shorthand'' 
descriptions of the balance computation methods are not sufficient, 
except where Sec. 1026.7(b)(5) applies. For creditors using model G-1, 
the phrase ``a portion of'' the finance charge should be included if the 
total finance charge includes other amounts, such as transaction 
charges, that are not due to the application of a periodic rate. If 
unpaid interest or finance charges are subtracted in calculating the 
balance, that fact must be stated so that the disclosure of the 
computation method is accurate. Only model G-1(b) contains a final 
sentence appearing in brackets, which reflects the total dollar amount 
of payments and credits received during the billing cycle. The other 
models do not contain this language because they reflect plans in which 
payments and credits received during the billing cycle are subtracted. 
If this is not the case, however, the language relating to payments and 
credits should be changed, and the creditor should add either the 
disclosure of the dollar amount as in model G-1(b) or an indication of 
which credits (disclosed elsewhere on the periodic statement) will not 
be deducted in determining the balance. (Such an indication may also 
substitute for the bracketed sentence in model G-1(b).) (See the 
commentary to Sec. 1026.7(a)(5) and (b)(5).) For open-end plans subject 
to the requirements of Sec. 1026.40, creditors may, at their option, 
use the clauses in G-1 or G-1(A).
    2. Models G-2 and G-2(A). These models contain the notice of 
liability for unauthorized use of a credit card. For home-equity plans 
subject to the requirements of Sec. 1026.40, at the creditor's option, 
a creditor either may use G-2 or G-2(A). For open-end plans not subject 
to the requirements of Sec. 1026.40, creditors properly use G-2(A).
    3. Models G-3, G-3(A), G-4 and G-4(A).
    i. These set out models for the long-form billing-error rights 
statement (for use with the account-opening disclosures and as an annual 
disclosure or, at the creditor's option, with each periodic statement) 
and the alternative billing-error rights statement (for use with each 
periodic statement), respectively. For home-equity plans subject to the 
requirements of Sec. 1026.40, at the creditor's option, a creditor 
either may use G-3 or G-3(A), and for creditors that use the short form, 
G-4 or G-4(A). For open-end (not home-

[[Page 1013]]

secured) plans that are not subject to the requirements of Sec. 
1026.40, creditors properly use G-3(A) and G-4(A). Creditors must 
provide the billing-error rights statements in a form substantially 
similar to the models in order to comply with the regulation. The model 
billing-rights statements may be modified in any of the ways set forth 
in the first paragraph to the commentary on Appendices G and H. The 
models may, furthermore, be modified by deleting inapplicable 
information, such as:
    A. The paragraph concerning stopping a debit in relation to a 
disputed amount, if the creditor does not have the ability to debit 
automatically the consumer's savings or checking account for payment.
    B. The rights stated in the special rule for credit card purchases 
and any limitations on those rights.
    ii. The model billing rights statements also contain optional 
language that creditors may use. For example, the creditor may:
    A. Include a statement to the effect that notice of a billing error 
must be submitted on something other than the payment ticket or other 
material accompanying the periodic disclosures.
    B. Insert its address or refer to the address that appears elsewhere 
on the bill.
    C. Include instructions for consumers, at the consumer's option, to 
communicate with the creditor electronically or in writing.
    iii. Additional information may be included on the statements as 
long as it does not detract from the required disclosures. For instance, 
information concerning the reporting of errors in connection with a 
checking account may be included on a combined statement as long as the 
disclosures required by the regulation remain clear and conspicuous.
    4. Models G-5 through G-9. These models set out notices of the right 
to rescind that would be used at different times in an open-end plan. 
The last paragraph of each of the rescission model forms contains a 
blank for the date by which the consumer's notice of cancellation must 
be sent or delivered. A parenthetical is included to address the 
situation in which the consumer's right to rescind the transaction 
exists beyond 3 business days following the date of the transaction, for 
example, when the notice or material disclosures are delivered late or 
when the date of the transaction in paragraph 1 of the notice is an 
estimate. The language of the parenthetical is not optional. See the 
commentary to Sec. 1026.2(a)(25) regarding the specificity of the 
security interest disclosure for model form G-7.
    5. Model G-10(A), samples G-10(B) and G-10(C), model G-10(D), sample 
G-10(E), model G-17(A), and samples G-17(B), 17(C) and 17(D). i. Model 
G-10(A) and Samples G-10(B) and G-10(C) illustrate, in the tabular 
format, the disclosures required under Sec. 1026.60 for applications 
and solicitations for credit cards other than charge cards. Model G-
10(D) and Sample G-10(E) illustrate the tabular format disclosure for 
charge card applications and solicitations and reflect the disclosures 
in the table. Model G-17(A) and Samples G-17(B), G-17(C) and G-17(D) 
illustrate, in the tabular format, the disclosures required under Sec. 
1026.6(b)(2) for account-opening disclosures.
    ii. Except as otherwise permitted, disclosures must be substantially 
similar in sequence and format to Models G-10(A), G-10(D) and G-17(A). 
While proper use of the model forms will be deemed in compliance with 
the regulation, card issuers and other creditors offering open-end (not 
home-secured) plans are permitted to disclose the annual percentage 
rates for purchases, cash advances, or balance transfers in the same row 
in the table for any transaction types for which the issuer or creditor 
charges the same annual percentage rate. Similarly, card issuer and 
other creditors offering open-end (not home-secured) plans are permitted 
to disclose fees of the same amount in the same row if the fees are in 
the same category. Fees in different categories may not be disclosed in 
the same row. For example, a transaction fee and a penalty fee that are 
of the same amount may not be disclosed in the same row. Card issuers 
and other creditors offering open-end (not home-secured) plans are also 
permitted to use headings other than those in the forms if they are 
clear and concise and are substantially similar to the headings 
contained in model forms, with the following exceptions. The heading 
``penalty APR'' must be used when describing rates that may increase due 
to default or delinquency or as a penalty, and in relation to required 
insurance, or debt cancellation or suspension coverage, the term 
``required'' and the name of the product must be used. (See also 
Sec. Sec. 1026.60(b)(5) and 1026.6(b)(2)(v) for guidance on headings 
that must be used to describe the grace period, or lack of grace period, 
in the disclosures required under Sec. 1026.60 for applications and 
solicitations for credit cards other than charge cards, and the 
disclosures required under Sec. 1026.6(b)(2) for account-opening 
disclosures, respectively.)
    iii. Models G-10(A) and G-17(A) contain two alternative headings 
(``Minimum Interest Charge'' and ``Minimum Charge'') for disclosing a 
minimum interest or fixed finance charge under Sec. Sec. 1026.60(b)(3) 
and 1026.6(b)(2)(iii). If a creditor imposes a minimum charge in lieu of 
interest in those months where a consumer would otherwise incur an 
interest charge but that interest charge is less than the minimum 
charge, the creditor should disclose this charge under the heading 
``Minimum Interest Charge'' or a

[[Page 1014]]

substantially similar heading. Other minimum or fixed finance charges 
should be disclosed under the heading ``Minimum Charge'' or a 
substantially similar heading.
    iv. Models G-10(A), G-10(D) and G-17(A) contain two alternative 
headings (``Annual Fees'' and ``Set-up and Maintenance Fees'') for 
disclosing fees for issuance or availability of credit under Sec. 
1026.60(b)(2) or Sec. 1026.6(b)(2)(ii). If the only fee for issuance or 
availability of credit disclosed under Sec. 1026.60(b)(2) or Sec. 
1026.6(b)(2)(ii) is an annual fee, a creditor should use the heading 
``Annual Fee'' or a substantially similar heading to disclose this fee. 
If a creditor imposes fees for issuance or availability of credit 
disclosed under Sec. 1026.60(b)(2) or Sec. 1026.6(b)(2)(ii) other 
than, or in addition to, an annual fee, the creditor should use the 
heading ``Set-up and Maintenance Fees'' or a substantially similar 
heading to disclose fees for issuance or availability of credit, 
including the annual fee.
    v. Although creditors are not required to use a certain paper size 
in disclosing the Sec. Sec. 1026.60 or 1026.6(b)(1) and (2) 
disclosures, samples G-10(B), G-10(C), G-17(B), G-17(C) and G-17(D) are 
designed to be printed on an 8\1/2\ x 14 inch sheet of paper. A creditor 
may use a smaller sheet of paper, such as 8\1/2\ x 11 inch sheet of 
paper. If the table is not provided on a single side of a sheet of 
paper, the creditor must include a reference or references, such as 
``SEE BACK OF PAGE for more important information about your account.'' 
at the bottom of each page indicating that the table continues onto an 
additional page or pages. A creditor that splits the table onto two or 
more pages must disclose the table on consecutive pages and may not 
include any intervening information between portions of the table. In 
addition, the following formatting techniques were used in presenting 
the information in the sample tables to ensure that the information is 
readable:
    A. A readable font style and font size (10-point Arial font style, 
except for the purchase annual percentage rate which is shown in 16-
point type).
    B. Sufficient spacing between lines of the text.
    C. Adequate spacing between paragraphs when several pieces of 
information were included in the same row of the table, as appropriate. 
For example, in the samples in the row of the tables with the heading 
``APR for Balance Transfers,'' the forms disclose two components: The 
applicable balance transfer rate and a cross reference to the balance 
transfer fee. The samples show these two components on separate lines 
with adequate space between each component. On the other hand, in the 
samples, in the disclosure of the late payment fee, the forms disclose 
two components: The late payment fee, and the cross reference to the 
penalty rate. Because the disclosure of both these components is short, 
these components are disclosed on the same line in the tables.
    D. Standard spacing between words and characters. In other words, 
the text was not compressed to appear smaller than 10-point type.
    E. Sufficient white space around the text of the information in each 
row, by providing sufficient margins above, below and to the sides of 
the text.
    F. Sufficient contrast between the text and the background. 
Generally, black text was used on white paper.
    vi. While the Bureau is not requiring issuers to use the above 
formatting techniques in presenting information in the table (except for 
the 10-point and 16-point font requirement), the Bureau encourages 
issuers to consider these techniques when deciding how to disclose 
information in the table, to ensure that the information is presented in 
a readable format.
    vii. Creditors are allowed to use color, shading and similar graphic 
techniques with respect to the table, so long as the table remains 
substantially similar to the model and sample forms in Appendix G.
    viii. Models G-10(A) and G-17(A) contain rows in the table with the 
prescribed language, ``For Credit Card Tips from the Consumer Financial 
Protection Bureau'' and calling for a ``[Reference to the Bureau's Web 
site]'' next to that language. Until January 1, 2013, creditors may 
substitute ``For Credit Card Tips from the Federal Reserve Board'' for 
these two model forms' prescribed language and may provide a reference 
to the Federal Reserve Board's Web site rather than the Bureau's Web 
site.
    6. Model G-11. Model G-11 contains clauses that illustrate the 
general disclosures required under Sec. 1026.60(e) in applications and 
solicitations made available to the general public.
    7. Models G-13(A) and G-13(B). These model forms illustrate the 
disclosures required under Sec. 1026.9(f) when the card issuer changes 
the entity providing insurance on a credit card account. Model G-13(A) 
contains the items set forth in Sec. 1026.9(f)(3) as examples of 
significant terms of coverage that may be affected by the change in 
insurance provider. The card issuer may either list all of these 
potential changes in coverage and place a check mark by the applicable 
changes, or list only the actual changes in coverage. Under either 
approach, the card issuer must either explain the changes or refer to an 
accompanying copy of the policy or group certificate for details of the 
new terms of coverage. Model G-13(A) also illustrates the permissible 
combination of the two notices required by Sec. 1026.9(f)--the notice 
required for a planned change in provider and the notice required once a 
change has occurred. This form may be modified for use in providing only

[[Page 1015]]

the disclosures required before the change if the card issuer chooses to 
send two separate notices. Thus, for example, the references to the 
attached policy or certificate would not be required in a separate 
notice prior to a change in the insurance provider since the policy or 
certificate need not be provided at that time. Model G-13(B) illustrates 
the disclosures required under Sec. 1026.9(f)(2) when the insurance 
provider is changed.
    8. Samples G-18(A)-(D). For home-equity plans subject to the 
requirements of Sec. 1026.40, if a creditor chooses to comply with the 
requirements in Sec. 1026.7(b), the creditor may use Samples G-18(A) 
through G-18(D) to comply with these requirements, as applicable.
    9. Samples G-18(D). Sample G-18(D) illustrates how credit card 
issuers may comply with proximity requirements for payment information 
on periodic statements. Creditors that offer card accounts with a charge 
card feature and a revolving feature may change the disclosure to make 
clear to which feature the disclosures apply.
    10. Forms G-18(F)-(G). Forms G-18(F) and G-18(G) are intended as a 
compliance aid to illustrate front sides of a periodic statement, and 
how a periodic statement for open-end (not home-secured) plans might be 
designed to comply with the requirements of Sec. 1026.7. The samples 
contain information that is not required by Regulation Z. The samples 
also present information in additional formats that are not required by 
Regulation Z.
    i. Creditors are not required to use a certain paper size in 
disclosing the Sec. 1026.7 disclosures. However, Forms G-18(F) and G-
18(G) are designed to be printed on an 8 x 14 inch sheet of paper.
    ii. The due date for a payment, if a late payment fee or penalty 
rate may be imposed, must appear on the front of the first page of the 
statement. See Sample G-18(D) that illustrates how a creditor may comply 
with proximity requirements for other disclosures. The payment 
information disclosures appear in the upper right-hand corner on Samples 
G-18(F) and G-18(G), but may be located elsewhere, as long as they 
appear on the front of the first page of the periodic statement. The 
summary of account activity presented on Samples G-18(F) and G-18(G) is 
not itself a required disclosure, although the previous balance and the 
new balance, presented in the summary, must be disclosed in a clear and 
conspicuous manner on periodic statements.
    iii. Additional information not required by Regulation Z may be 
presented on the statement. The information need not be located in any 
particular place or be segregated from disclosures required by 
Regulation Z, although the effect of proximity requirements for required 
disclosures, such as the due date, may cause the additional information 
to be segregated from those disclosures required to be disclosed in 
close proximity to one another. Any additional information must be 
presented consistent with the creditor's obligation to provide required 
disclosures in a clear and conspicuous manner.
    iv. Model Forms G-18(F) and G-18(G) demonstrate two examples of ways 
in which transactions could be presented on the periodic statement. 
Model Form G-18(G) presents transactions grouped by type and Model Form 
G-18(F) presents transactions in a list in chronological order. Neither 
of these approaches to presenting transactions is required; a creditor 
may present transactions differently, such as in a list grouped by 
authorized user or other means.
    11. Model Form G-19. See Sec. 1026.9(b)(3) regarding the headings 
required to be disclosed when describing in the tabular disclosure a 
grace period (or lack of a grace period) offered on check transactions 
that access a credit card account.
    12. Sample G-24. Sample G-24 includes two model clauses for use in 
complying with Sec. 1026.16(h)(4). Model clause (a) is for use in 
connection with credit card accounts under an open-end (not home-
secured) consumer credit plan. Model clause (b) is for use in connection 
with other open-end credit plans.

             Appendix H--Closed-End Model Forms and Clauses

    1. Models H-1 and H-2. i. Creditors may make several types of 
changes to closed-end model forms H-1 (credit sale) and H-2 (loan) and 
still be deemed to be in compliance with the regulation, provided that 
the required disclosures are made clearly and conspicuously. Permissible 
changes include the addition of the information permitted by Sec. 
1026.17(a)(1) and ``directly related'' information as set forth in the 
commentary to Sec. 1026.17(a).
    ii. The creditor may also delete or, on multi-purpose forms, 
indicate inapplicable disclosures, such as:
    A. The itemization of the amount financed option. (See Samples H-12 
through H-15.)
    B. The credit life and disability insurance disclosures. (See 
Samples H-11 and H-12.)
    C. The property insurance disclosures. (See Samples H-10 through H-
12, and H-14.)
    D. The ``filing fees'' and ``non-filing insurance'' disclosures. 
(See Samples H-11 and H-12.)
    E. The prepayment penalty or rebate disclosures. (See Samples H-12 
and H-14.)
    F. The total sale price. (See Samples H-11 through H-15.)
    iii. Other permissible changes include:
    A. Adding the creditor's address or telephone number. (See the 
commentary to Sec. 1026.18(a).)
    B. Combining required terms where several numerical disclosures are 
the same, for instance, if the ``total of payments'' equals the ``total 
sale price.'' (See the commentary to Sec. 1026.18.)

[[Page 1016]]

    C. Rearranging the sequence or location of the disclosures--for 
instance, by placing the descriptive phrases outside the boxes 
containing the corresponding disclosures, or by grouping the descriptors 
together as a glossary of terms in a separate section of the segregated 
disclosures; by placing the payment schedule at the top of the form; or 
by changing the order of the disclosures in the boxes, including the 
annual percentage rate and finance charge boxes.
    D. Using brackets, instead of checkboxes, to indicate inapplicable 
disclosures.
    E. Using a line for the consumer to initial, rather than a checkbox, 
to indicate an election to receive an itemization of the amount 
financed.
    F. Deleting captions for disclosures.
    G. Using a symbol, such as an asterisk, for estimated disclosures, 
instead of an ``e.''
    H. Adding a signature line to the insurance disclosures to reflect 
joint policies.
    I. Separately itemizing the filing fees.
    J. Revising the late charge disclosure in accordance with the 
commentary to Sec. 1026.18(l).
    2. Model H-3. Creditors have considerable flexibility in filling out 
Model H-3 (itemization of the amount financed). Appropriate revisions, 
such as those set out in the commentary to Sec. 1026.18(c), may be made 
to this form without loss of protection from civil liability for proper 
use of the model forms.
    3. Models H-4 through H-7. The model clauses are not included in the 
model forms although they are mandatory for certain transactions. 
Creditors using the model clauses when applicable to a transaction are 
deemed to be in compliance with the regulation with regard to that 
disclosure.
    4. Model H-4(A). This model contains the variable rate model clauses 
applicable to transactions subject to Sec. 1026.18(f)(1) and is 
intended to give creditors considerable flexibility in structuring 
variable rate disclosures to fit individual plans. The information about 
circumstances, limitations, and effects of an increase may be given in 
terms of the contract interest rate or the annual percentage rate. 
Clauses are shown for hypothetical examples based on the specific amount 
of the transaction and based on a representative amount. Creditors may 
preprint the variable rate disclosures based on a representative amount 
for similar types of transactions, instead of constructing an 
individualized example for each transaction. In both representative 
examples and transaction-specific examples, creditors may refer either 
to the incremental change in rate, payment amount, or number of 
payments, or to the resulting rate, payment amount, or number of 
payments. For example, creditors may state that the rate will increase 
by 2%, with a corresponding $150 increase in the payment, or creditors 
may state that the rate will increase to 16%, with a corresponding 
payment of $850.
    5. Model H-4(B). This model clause illustrates the variable-rate 
disclosure required under Sec. 1026.18(f)(2), which would alert 
consumers to the fact that the transaction contains a variable-rate 
feature and that disclosures were provided earlier.
    6. Model H-4(C). This model clause illustrates the early disclosures 
required generally under Sec. 1026.19(b). It includes information on 
how the consumer's interest rate is determined and how it can change 
over the term of the loan, and explains changes that may occur in the 
borrower's monthly payment. It contains an example of how to disclose 
historical changes in the index or formula values used to compute 
interest rates for the preceding 15 years. The model clause also 
illustrates the disclosure of the initial and maximum interest rates and 
payments based on an initial interest rate (index value plus margin, 
adjusted by the amount of any discount or premium) in effect as of an 
identified month and year for the loan program disclosure and 
illustrates how to provide consumers with a method for calculating the 
monthly payment for the loan amount to be borrowed.
    7. Models H-4(D) through H-4(J). These model clauses illustrate 
certain notices, statements, and other disclosures required as follows:
    i. Model H-4(D) illustrates the adjustment notice required under 
Sec. 1026.20(c), and provides examples of payment change notices and 
annual notices of interest rate changes.
    ii. Model H-4(E) illustrates the interest rate and payment summary 
table required under Sec. 1026.18(s) for a fixed-rate mortgage 
transaction.
    iii. Model H-4(F) illustrates the interest rate and payment summary 
table required under Sec. 1026.18(s) for an adjustable-rate or a step-
rate mortgage transaction.
    iv. Model H-4(G) illustrates the interest rate and payment summary 
table required under Sec. 1026.18(s) for a mortgage transaction with 
negative amortization.
    v. Model H-4(H) illustrates the interest rate and payment summary 
table required under Sec. 1026.18(s) for a fixed-rate, interest-only 
mortgage transaction.
    vi. Model H-4(I) illustrates the introductory rate disclosure 
required by Sec. 1026.18(s)(2)(iii) for an adjustable-rate mortgage 
transaction with an introductory rate.
    vii. Model H-4(J) illustrates the balloon payment disclosure 
required by Sec. 1026.18(s)(5) for a mortgage transaction with a 
balloon payment term.
    viii. Model H-4(K) illustrates the no-guarantee-to-refinance 
statement required by Sec. 1026.18(t) for a mortgage transaction.
    8. Model H-5. This contains the demand feature clause.

[[Page 1017]]

    9. Model H-6. This contains the assumption clause.
    10. Model H-7. This contains the required deposit clause.
    11. Models H-8 and H-9. These models contain the rescission notices 
for a typical closed-end transaction and a refinancing, respectively. 
The last paragraph of each model form contains a blank for the date by 
which the consumer's notice of cancellation must be sent or delivered. A 
parenthetical is included to address the situation in which the 
consumer's right to rescind the transaction exists beyond 3 business 
days following the date of the transaction, for example, where the 
notice or material disclosures are delivered late or where the date of 
the transaction in paragraph 1 of the notice is an estimate. The 
language of the parenthetical is not optional. See the commentary to 
Sec. 1026.2(a)(25) regarding the specificity of the security interest 
disclosure for model form H-9. The prior version of model form H-9 is 
substantially similar to the current version and creditors may continue 
to use it, as appropriate. Creditors are encouraged, however, to use the 
current version when reordering or reprinting forms.
    12. Sample forms. The sample forms (H-10 through H-15) serve a 
different purpose than the model forms. The samples illustrate various 
ways of adapting the model forms to the individual transactions 
described in the commentary to Appendix H. The deletions and 
rearrangements shown relate only to the specific transactions described. 
As a result, the samples do not provide the general protection from 
civil liability provided by the model forms and clauses.
    13. Sample H-10. This sample illustrates an automobile credit sale. 
The cash price is $7,500 with a downpayment of $1,500. There is an 8% 
add-on interest rate and a term of 3 years, with 36 equal monthly 
payments. The credit life insurance premium and the filing fees are 
financed by the creditor. There is a $25 credit report fee paid by the 
consumer before consummation, which is a prepaid finance charge.
    14. Sample H-11. This sample illustrates an installment loan. The 
amount of the loan is $5,000. There is a 12% simple interest rate and a 
term of 2 years. The date of the transaction is expected to be April 15, 
1981, with the first payment due on June 1, 1981. The first payment 
amount is labeled as an estimate since the transaction date is 
uncertain. The odd days' interest ($26.67) is collected with the first 
payment. The remaining 23 monthly payments are equal.
    15. Sample H-12. This sample illustrates a refinancing and 
consolidation loan. The amount of the loan is $5,000. There is a 15% 
simple interest rate and a term of 3 years. The date of the transaction 
is April 1, 1981, with the first payment due on May 1, 1981. The first 
35 monthly payments are equal, with an odd final payment. The credit 
disability insurance premium is financed. In calculating the annual 
percentage rate, the U.S. Rule has been used. Since an itemization of 
the amount financed is included with the disclosures, the statement 
regarding the consumer's option to receive an itemization is deleted.
    16. Samples H-13 through H-15. These samples illustrate various 
mortgage transactions. They assume that the mortgages are subject to the 
Real Estate Settlement Procedures Act (RESPA). As a result, no option 
regarding the itemization of the amount financed has been included in 
the samples, because providing the good faith estimates of settlement 
costs required by RESPA satisfies Truth in Lending's amount financed 
itemization requirement. (See Sec. 1026.18(c).)
    17. Sample H-13. This sample illustrates a mortgage with a demand 
feature. The loan amount is $44,900, payable in 360 monthly installments 
at a simple interest rate of 14.75%. The 15 days of interim interest 
($294.34) is collected as a prepaid finance charge at the time of 
consummation of the loan (April 15, 1981). In calculating the disclosure 
amounts, the minor irregularities provision in Sec. 1026.17(c)(4) has 
been used. The property insurance premiums are not included in the 
payment schedule. This disclosure statement could be used for notes with 
the 7-year call option required by the Federal National Mortgage 
Association (FNMA) in states where due-on-sale clauses are prohibited.
    18. Sample H-14. This sample disclosure form illustrates the 
disclosures under Sec. 1026.19(b) for a variable-rate transaction 
secured by the consumer's principal dwelling with a term greater than 
one year. The sample form shows a creditor how to adapt the model 
clauses in Appendix H-4(C) to the creditor's own particular variable-
rate program. The sample disclosure form describes the features of a 
specific variable-rate mortgage program and alerts the consumer to the 
fact that information on the creditor's other closed-end variable-rate 
programs is available upon request. It includes information on how the 
interest rate is determined and how it can change over time. Section 
1026.19(b)(2)(viii) permits creditors the option to provide either a 
historical example or an initial and maximum interest rates and payments 
disclosure; both are illustrated in the sample disclosure. The 
historical example explains how the monthly payment can change based on 
a $10,000 loan amount, payable in 360 monthly installments, based on 
historical changes in the values for the weekly average yield on U.S. 
Treasury Securities adjusted to a constant maturity of one year. Index 
values are measured for 15 years, as of the first week ending in July. 
This reflects the requirement that the index history

[[Page 1018]]

be based on values for the same date or period each year in the example. 
The sample disclosure also illustrates the alternative disclosure under 
Sec. 1026.19(b)(2)(viii)(B) that the initial and the maximum interest 
rates and payments be shown for a $10,000 loan originated at an initial 
interest rate of 12.41 percent (which was in effect July 1996) and to 
have 2 percentage point annual (and 5 percentage point overall) interest 
rate limitations or caps. Thus, the maximum amount that the interest 
rate could rise under this program is 5 percentage points higher than 
the 12.41 percent initial rate to 17.41 percent, and the monthly payment 
could rise from $106.03 to a maximum of $145.34. The loan would not 
reach the maximum interest rate until its fourth year because of the 2 
percentage point annual rate limitations, and the maximum payment 
disclosed reflects the amortization of the loan during that period. The 
sample form also illustrates how to provide consumers with a method for 
calculating their actual monthly payment for a loan amount other than 
$10,000.
    19. Sample H-15. This sample illustrates a graduated payment 
mortgage with a 5-year graduation period and a 7\1/2\ percent yearly 
increase in payments. The loan amount is $44,900, payable in 360 monthly 
installments at a simple interest rate of 14.75%. Two points ($898), as 
well as an initial mortgage guarantee insurance premium of $225.00, are 
included in the prepaid finance charge. The mortgage guarantee insurance 
premiums are calculated on the basis of \1/4\ of 1% of the outstanding 
principal balance under an annual reduction plan. The abbreviated 
disclosure permitted under Sec. 1026.18(g)(2) is used for the payment 
schedule for years 6 through 30. The prepayment disclosure refers to 
both penalties and rebates because information about penalties is 
required for the simple interest portion of the obligation and 
information about rebates is required for the mortgage insurance portion 
of the obligation.
    20. Sample H-16. This sample illustrates the disclosures required 
under Sec. 1026.32(c). The sample illustrates the amount borrowed and 
the disclosures about optional insurance that are required for mortgage 
refinancings under Sec. 1026.32(c)(5). Creditors may, at their option, 
include these disclosures for all loans subject to Sec. 1026.32. The 
sample also includes disclosures required under Sec. 1026.32(c)(3) when 
the legal obligation includes a balloon payment.
    21. HRSA-500-1 9-82. Pursuant to section 113(a) of the Truth in 
Lending Act, Form HRSA-500-1 9-82 issued by the U.S. Department of 
Health and Human Services for certain student loans has been approved 
for use for loans made prior to the mandatory compliance date of the 
disclosures required under Subpart F. The form was approved for all 
Health Education Assistance Loans (HEAL) with a variable interest rate 
that were considered interim student credit extensions as defined in 
Regulation Z.
    22. HRSA-500-2 9-82. Pursuant to section 113(a) of the Truth in 
Lending Act, Form HRSA-500-2 9-82 issued by the U.S. Department of 
Health and Human Services for certain student loans has been approved 
for use for loans made prior to the mandatory compliance date of the 
disclosures required under Subpart F. The form was approved for all HEAL 
loans with a fixed interest rate that were considered interim student 
credit extensions as defined in Regulation Z.
    23. HRSA-502-1 9-82. Pursuant to section 113(a) of the Truth in 
Lending Act, Form HRSA-502-1 9-82 issued by the U.S. Department of 
Health and Human Services for certain student loans has been approved 
for use for loans made prior to the mandatory compliance date of the 
disclosures required under Subpart F. The form was approved for all HEAL 
loans with a variable interest rate in which the borrower has reached 
repayment status and is making payments of both interest and principal.
    24. HRSA-502-2 9-82. Pursuant to section 113(a) of the Truth in 
Lending Act, Form HRSA-502-2 9-82 issued by the U.S. Department of 
Health and Human Services for certain student loans has been approved 
for use for loans made prior to the mandatory compliance date of the 
disclosures required under Subpart F. The form was approved for all HEAL 
loans with a fixed interest rate in which the borrower has reached 
repayment status and is making payments of both interest and principal.
    25. Models H-18, H-19, H-20. i. These model forms illustrate 
disclosures required under Sec. 1026.47 on or with an application or 
solicitation, at approval, and after acceptance of a private education 
loan. Although use of the model forms is not required, creditors using 
them properly will be deemed to be in compliance with the regulation 
with regard to private education loan disclosures. Creditors may make 
certain types of changes to private education loan model forms H-18 
(application and solicitation), H-19 (approval), and H-20 (final) and 
still be deemed to be in compliance with the regulation, provided that 
the required disclosures are made clearly and conspicuously. The model 
forms aggregate disclosures into groups under specific headings. Changes 
may not include rearranging the sequence of disclosures, for instance, 
by rearranging which disclosures are provided under each heading or by 
rearranging the sequence of the headings and grouping of disclosures. 
Changes to the model forms may not be so extensive as to affect the 
substance or clarity of the forms. Creditors making revisions with that 
effect will lose their protection from civil liability.
    ii. The creditor may delete inapplicable disclosures, such as:

[[Page 1019]]

    A. The Federal student financial assistance alternatives 
disclosures.
    B. The self-certification disclosure.
    iii. Other permissible changes include, for example:
    A. Adding the creditor's address, telephone number, or Web site.
    B. Adding loan identification information, such as a loan 
identification number.
    C. Adding the date on which the form was printed or produced.
    D. Placing the notice of the right to cancel in the top left or top 
right of the disclosure to accommodate a window envelope.
    E. Combining required terms where several numerical disclosures are 
the same. For instance, if the itemization of the amount financed is 
provided, the amount financed need not be separately disclosed.
    F. Combining the disclosure of loan term and payment deferral 
options required in Sec. 1026.47(a)(3) with the disclosure of cost 
estimates required in Sec. 1026.47(a)(4) in the same chart or table 
(See comment 47(a)(3)-4.)
    G. Using the first person, instead of the second person, in 
referring to the borrower.
    H. Using ``borrower'' and ``creditor'' instead of pronouns.
    I. Incorporating certain state ``plain English'' requirements.
    J. Deleting inapplicable disclosures by whiting out, blocking out, 
filling in ``N/A'' (not applicable) or ``0,'' crossing out, leaving 
blanks, checking a box for applicable items, or circling applicable 
items.
    iv. Although creditors are not required to use a certain paper size 
in disclosing the Sec. Sec. 1026.47(a), (b) and (c) disclosures, 
samples H-21, H-22, and H-23 are designed to be printed on two 8\1/2\ x 
11 inch sheets of paper. A creditor may use a larger sheet of paper, 
such as 8\1/2\ x 14 inch sheets of paper, or may use multiple pages. If 
the disclosures are provided on two sides of a single sheet of paper, 
the creditor must include a reference or references, such as ``SEE BACK 
OF PAGE'' at the bottom of each page indicating that the disclosures 
continue onto the back of the page. If the disclosures are on two or 
more pages, a creditor may not include any intervening information 
between portions of the disclosure. In addition, the following 
formatting techniques were used in presenting the information in the 
sample tables to ensure that the information is readable:
    A. A readable font style and font size (10-point Helvetica font 
style for body text).
    B. Sufficient spacing between lines of the text.
    C. Standard spacing between words and characters. In other words, 
the body text was not compressed to appear smaller than the 10-point 
type size.
    D. Sufficient white space around the text of the information in each 
row, by providing sufficient margins above, below and to the sides of 
the text.
    E. Sufficient contrast between the text and the background. 
Generally, black text was used on white paper.
    v. While the Bureau is not requiring issuers to use the above 
formatting techniques in presenting information in the disclosure, the 
Bureau encourages issuers to consider these techniques when deciding how 
to disclose information in the disclosure to ensure that the information 
is presented in a readable format.
    vi. Creditors are allowed to use color, shading and similar graphic 
techniques in the disclosures, so long as the disclosures remain 
substantially similar to the model and sample forms in Appendix H.
    26. Sample H-21. This sample illustrates a disclosure required under 
Sec. 1026.47(a). The sample assumes a range of interest rates between 
7.375% and 17.375%. The sample assumes a variable interest rate that 
will never exceed 25% over the life of the loan. The term of the sample 
loan is 20 years for an amount up to $20,000 and 30 years for an amount 
more than $20,000. The repayment options and sample costs have been 
combined into a single table, as permitted in the commentary to Sec. 
1026.47(a)(3). It demonstrates the loan amount, interest rate, and total 
paid when a consumer makes loan payments while in school, pays only 
interest while in school, and defers all payments while in school.
    27. Sample H-22. This sample illustrates a disclosure required under 
Sec. 1026.47(b). The sample assumes the consumer financed $10,000 at an 
8.23% annual percentage rate. The sample assumes a variable interest 
rate that will never exceed 25% over the life of the loan. The payment 
schedule and terms assumes a 20-year loan term and that the consumer 
elected to defer payments while enrolled in school. This includes a 
sample disclosure of a total loan amount of $10,600 and prepaid finance 
charges totaling $600, for a total amount financed of $10,000.
    28. Sample H-22. This sample illustrates a disclosure required under 
Sec. 1026.47(c). The sample assumes the consumer financed $10,000 at an 
8.23% annual percentage rate. The sample assumes a variable annual 
percentage rate in an instance where there is no maximum interest rate. 
The sample demonstrates disclosure of an assumed maximum rate, and the 
statement that the consumer's actual maximum rate and payment amount 
could be higher. The payment schedule and terms assumes a 20-year loan 
term, the assumed maximum interest rate, and that the consumer elected 
to defer payments while enrolled in school. This includes a sample 
disclosure of a total loan amount of $10,600 and prepaid finance charges 
totaling $600, for a total amount financed of $10,000.

[[Page 1020]]

 Appendix J--Annual Percentage Rate Computations for Closed-End Credit 
                              Transactions

    1. Use of Appendix J. Appendix J sets forth the actuarial equations 
and instructions for calculating the annual percentage rate in closed-
end credit transactions. While the formulas contained in this appendix 
may be directly applied to calculate the annual percentage rate for an 
individual transaction, they may also be utilized to program calculators 
and computers to perform the calculations.
    2. Relation to Bureau tables. The Bureau's Annual Percentage Rate 
Tables also provide creditors with a calculation tool that applies the 
technical information in Appendix J. An annual percentage rate computed 
in accordance with the instructions in the tables is deemed to comply 
with the regulation. Volume I of the tables may be used for credit 
transactions involving equal payment amounts and periods, as well as for 
transactions involving any of the following irregularities: odd first 
period, odd first payment and odd last payment. Volume II of the tables 
may be used for transactions that involve any type of irregularities. 
These tables may be obtained from the Bureau, 1700 G Street, NW., 
Washington, DC 20006, upon request.

    Appendix K--Total Annual Loan Cost Rate Computations for Reverse 
                          Mortgage Transactions

    1. General. The calculation of total annual loan cost rates under 
Appendix K is based on the principles set forth and the estimation or 
``iteration'' procedure used to compute annual percentage rates under 
Appendix J. Rather than restate this iteration process in full, the 
regulation cross-references the procedures found in Appendix J. In other 
aspects the appendix reflects the special nature of reverse mortgage 
transactions. Special definitions and instructions are included where 
appropriate.

   (b) Instructions and equations for the total annual loan cost rate

          (b)(5) Number of unit-periods between two given dates

    1. Assumption as to when transaction begins. The computation of the 
total annual loan cost rate is based on the assumption that the reverse 
mortgage transaction begins on the first day of the month in which 
consummation is estimated to occur. Therefore, fractional unit-periods 
(used under Appendix J for calculating annual percentage rates) are not 
used.

            (b)(9) Assumption for discretionary cash advances

    1. Amount of credit. Creditors should compute the total annual loan 
cost rates for transactions involving discretionary cash advances by 
assuming that 50 percent of the initial amount of the credit available 
under the transaction is advanced at closing or, in an open-end 
transaction, when the consumer becomes obligated under the plan. (For 
the purposes of this assumption, the initial amount of the credit is the 
principal loan amount less any costs to the consumer under Sec. 
1026.33(c)(1).)

   (b)(10) Assumption for variable-rate reverse mortgage transactions

    1. Initial discount or premium rate. Where a variable-rate reverse 
mortgage transaction includes an initial discount or premium rate, the 
creditor should apply the same rules for calculating the total annual 
loan cost rate as are applied when calculating the annual percentage 
rate for a loan with an initial discount or premium rate (see the 
commentary to Sec. 1026.17(c)).

             (d) Reverse mortgage model form and sample form

                           (d)(2) Sample form

    1. General. The ``clear and conspicuous'' standard for reverse 
mortgage disclosures does not require disclosures to be printed in any 
particular type size. Disclosures may be made on more than one page, and 
use both the front and the reverse sides, as long as the pages 
constitute an integrated document and the table disclosing the total 
annual loan cost rates is on a single page.

 Appendix L--Assumed Loan Periods for Computations of Total Annual Loan 
                               Cost Rates

    1. General. The life expectancy figures used in Appendix L are those 
found in the U.S. Decennial Life Tables for women, as rounded to the 
nearest whole year and as published by the U.S. Department of Health and 
Human Services. The figures contained in Appendix L must be used by 
creditors for all consumers (men and women). Appendix L will be revised 
periodically by the Bureau to incorporate revisions to the figures made 
in the Decennial Tables.



PART 1030_TRUTH IN SAVINGS (REGULATION DD)--Table of Contents



Sec.
1030.1 Authority, purpose, coverage, and effect on state laws.
1030.2 Definitions.
1030.3 General disclosure requirements.
1030.4 Account disclosures.

[[Page 1021]]

1030.5 Subsequent disclosures.
1030.6 Periodic statement disclosures.
1030.7 Payment of interest.
1030.8 Advertising.
1030.9 Enforcement and record retention.
1030.10 [Reserved]
1030.11 Additional disclosure requirements for overdraft services.

Appendix A to Part 1030--Annual Percentage Yield Calculation
Appendix B to Part 1030--Model Clauses and Sample Forms
Appendix C to Part 1030--Effect on State Laws
Appendix D to Part 1030--Issuance of Official Interpretations
Supplement I to Part 1030--Official Interpretations

    Authority: 12 U.S.C. 4302-4304, 4308, 5512, 5581.

    Source: 76 FR 79278, Dec. 21, 2011, unless otherwise noted.



Sec. 1030.1  Authority, purpose, coverage, and effect on state laws.

    (a) Authority. This part, known as Regulation DD, is issued by the 
Bureau of Consumer Financial Protection to implement the Truth in 
Savings Act of 1991 (the act), contained in the Federal Deposit 
Insurance Corporation Improvement Act of 1991 (12 U.S.C. 3201 et seq., 
Public Law 102-242, 105 Stat. 2236), as amended by Title X, section 
1100B of the Dodd-Frank Wall Street Reform and Consumer Protection Act 
(Pub. L. 111-203, 124 Stat. 1376). Information-collection requirements 
contained in this part have been approved by the Office of Management 
and Budget under the provisions of 44 U.S.C. 3501 et seq. and have been 
assigned OMB No. 3170-0004.
    (b) Purpose. The purpose of this part is to enable consumers to make 
informed decisions about accounts at depository institutions. This part 
requires depository institutions to provide disclosures so that 
consumers can make meaningful comparisons among depository institutions.
    (c) Coverage. This part applies to depository institutions except 
for credit unions. In addition, the advertising rules in Sec. 1030.8 of 
this part apply to any person who advertises an account offered by a 
depository institution, including deposit brokers.
    (d) Effect on state laws. State law requirements that are 
inconsistent with the requirements of the act and this part are 
preempted to the extent of the inconsistency. Additional information on 
inconsistent state laws and the procedures for requesting a preemption 
determination from the Bureau are set forth in appendix C of this part.



Sec. 1030.2  Definitions.

    For purposes of this part, the following definitions apply:
    (a) Account means a deposit account at a depository institution that 
is held by or offered to a consumer. It includes time, demand, savings, 
and negotiable order of withdrawal accounts. For purposes of the 
advertising requirements in Sec. 1030.8 of this part, the term also 
includes an account at a depository institution that is held by or on 
behalf of a deposit broker, if any interest in the account is held by or 
offered to a consumer.
    (b) Advertisement means a commercial message, appearing in any 
medium, that promotes directly or indirectly:
    (1) The availability or terms of, or a deposit in, a new account; 
and
    (2) For purposes of Sec. Sec. 1030.8(a) and 1030.11 of this part, 
the terms of, or a deposit in, a new or existing account.
    (c) Annual percentage yield means a percentage rate reflecting the 
total amount of interest paid on an account, based on the interest rate 
and the frequency of compounding for a 365-day period and calculated 
according to the rules in appendix A of this part.
    (d) Average daily balance method means the application of a periodic 
rate to the average daily balance in the account for the period. The 
average daily balance is determined by adding the full amount of 
principal in the account for each day of the period and dividing that 
figure by the number of days in the period.
    (e) Bureau means the Bureau of Consumer Financial Protection.
    (f) Bonus means a premium, gift, award, or other consideration worth 
more than $10 (whether in the form of cash, credit, merchandise, or any 
equivalent) given or offered to a consumer during a year in exchange for 
opening, maintaining, renewing, or increasing an account balance. The 
term does not include interest, other consideration worth $10 or less 
given during a year, the waiver or reduction of a fee, or the absorption 
of expenses.

[[Page 1022]]

    (g) Business day means a calendar day other than a Saturday, a 
Sunday, or any of the legal public holidays specified in 5 U.S.C. 
6103(a).
    (h) Consumer means a natural person who holds an account primarily 
for personal, family, or household purposes, or to whom such an account 
is offered. The term does not include a natural person who holds an 
account for another in a professional capacity.
    (i) Daily balance method means the application of a daily periodic 
rate to the full amount of principal in the account each day.
    (j) Depository institution and institution mean an institution 
defined in section 19(b)(1)(A)(i) through (vi) of the Federal Reserve 
Act (12 U.S.C. 461), except credit unions defined in section 
19(b)(1)(A)(iv).
    (k) Deposit broker means any person who is a deposit broker as 
defined in section 29(g) of the Federal Deposit Insurance Act (12 U.S.C. 
1831f(g)).
    (l) Fixed-rate account means an account for which the institution 
contracts to give at least 30 calendar days advance written notice of 
decreases in the interest rate.
    (m) Grace period means a period following the maturity of an 
automatically renewing time account during which the consumer may 
withdraw funds without being assessed a penalty.
    (n) Interest means any payment to a consumer or to an account for 
the use of funds in an account, calculated by application of a periodic 
rate to the balance. The term does not include the payment of a bonus or 
other consideration worth $10 or less given during a year, the waiver or 
reduction of a fee, or the absorption of expenses.
    (o) Interest rate means the annual rate of interest paid on an 
account which does not reflect compounding. For the purposes of the 
account disclosures in Sec. 1030.4(b)(1)(i) of this part, the interest 
rate may, but need not, be referred to as the ``annual percentage rate'' 
in addition to being referred to as the ``interest rate.''
    (p) Passbook savings account means a savings account in which the 
consumer retains a book or other document in which the institution 
records transactions on the account.
    (q) Periodic statement means a statement setting forth information 
about an account (other than a time account or passbook savings account) 
that is provided to a consumer on a regular basis four or more times a 
year.
    (r) State means a state, the District of Columbia, the commonwealth 
of Puerto Rico, and any territory or possession of the United States.
    (s) Stepped-rate account means an account that has two or more 
interest rates that take effect in succeeding periods and are known when 
the account is opened.
    (t) Tiered-rate account means an account that has two or more 
interest rates that are applicable to specified balance levels.
    (u) Time account means an account with a maturity of at least seven 
days in which the consumer generally does not have a right to make 
withdrawals for six days after the account is opened, unless the deposit 
is subject to an early withdrawal penalty of at least seven days' 
interest on amounts withdrawn.
    (v) Variable-rate account means an account in which the interest 
rate may change after the account is opened, unless the institution 
contracts to give at least 30 calendar days advance written notice of 
rate decreases.



Sec. 1030.3  General disclosure requirements.

    (a) Form. Depository institutions shall make the disclosures 
required by Sec. Sec. 1030.4 through 1030.6 of this part, as 
applicable, clearly and conspicuously, in writing, and in a form the 
consumer may keep. The disclosures required by this part may be provided 
to the consumer in electronic form, subject to compliance with the 
consumer consent and other applicable provisions of the Electronic 
Signatures in Global and National Commerce Act (E-Sign Act) (15 U.S.C. 
7001 et seq.). The disclosures required by Sec. Sec. 1030.4(a)(2) and 
1030.8 may be provided to the consumer in electronic form without regard 
to the consumer consent or other provisions of the E-Sign Act in the 
circumstances set forth in those sections. Disclosures for each account 
offered by an institution may be presented separately or

[[Page 1023]]

combined with disclosures for the institution's other accounts, as long 
as it is clear which disclosures are applicable to the consumer's 
account.
    (b) General. The disclosures shall reflect the terms of the legal 
obligation of the account agreement between the consumer and the 
depository institution. Disclosures may be made in languages other than 
English, provided the disclosures are available in English upon request.
    (c) Relation to Regulation E (12 CFR Part 1005). Disclosures 
required by and provided in accordance with the Electronic Fund Transfer 
Act (15 U.S.C. 1693 et seq.) and its implementing Regulation E (12 CFR 
Part 1005) that are also required by this part may be substituted for 
the disclosures required by this part.
    (d) Multiple consumers. If an account is held by more than one 
consumer, disclosures may be made to any one of the consumers.
    (e) Oral response to inquiries. In an oral response to a consumer's 
inquiry about interest rates payable on its accounts, the depository 
institution shall state the annual percentage yield. The interest rate 
may be stated in addition to the annual percentage yield. No other rate 
may be stated.
    (f) Rounding and accuracy rules for rates and yields--(1) Rounding. 
The annual percentage yield, the annual percentage yield earned, and the 
interest rate shall be rounded to the nearest one-hundredth of one 
percentage point (.01%) and expressed to two decimal places. For account 
disclosures, the interest rate may be expressed to more than two decimal 
places.
    (2) Accuracy. The annual percentage yield (and the annual percentage 
yield earned) will be considered accurate if not more than one-twentieth 
of one percentage point (.05%) above or below the annual percentage 
yield (and the annual percentage yield earned) determined in accordance 
with the rules in appendix A of this part.



Sec. 1030.4  Account disclosures.

    (a) Delivery of account disclosures--(1) Account opening. (i) 
General. A depository institution shall provide account disclosures to a 
consumer before an account is opened or a service is provided, whichever 
is earlier. An institution is deemed to have provided a service when a 
fee required to be disclosed is assessed. Except as provided in 
paragraph (a)(1)(ii) of this section, if the consumer is not present at 
the institution when the account is opened or the service is provided 
and has not already received the disclosures, the institution shall mail 
or deliver the disclosures no later than 10 business days after the 
account is opened or the service is provided, whichever is earlier.
    (ii) Timing of electronic disclosures. If a consumer who is not 
present at the institution uses electronic means (for example, an 
Internet Web site) to open an account or request a service, the 
disclosures required under paragraph (a)(1) of this section must be 
provided before the account is opened or the service is provided.
    (2) Requests. (i) A depository institution shall provide account 
disclosures to a consumer upon request. If a consumer who is not present 
at the institution makes a request, the institution shall mail or 
deliver the disclosures within a reasonable time after it receives the 
request and may provide the disclosures in paper form, or electronically 
if the consumer agrees.
    (ii) In providing disclosures upon request, the institution may:
    (A) Specify an interest rate and annual percentage yield that were 
offered within the most recent seven calendar days; state that the rate 
and yield are accurate as of an identified date; and provide a telephone 
number consumers may call to obtain current rate information.
    (B) State the maturity of a time account as a term rather than a 
date.
    (b) Content of account disclosures. Account disclosures shall 
include the following, as applicable:
    (1) Rate information--(i) Annual percentage yield and interest rate. 
The ``annual percentage yield'' and the ``interest rate,'' using those 
terms, and for fixed-rate accounts the period of time the interest rate 
will be in effect.
    (ii) Variable rates. For variable-rate accounts:
    (A) The fact that the interest rate and annual percentage yield may 
change;

[[Page 1024]]

    (B) How the interest rate is determined;
    (C) The frequency with which the interest rate may change; and
    (D) Any limitation on the amount the interest rate may change.
    (2) Compounding and crediting--(i) Frequency. The frequency with 
which interest is compounded and credited.
    (ii) Effect of closing an account. If consumers will forfeit 
interest if they close the account before accrued interest is credited, 
a statement that interest will not be paid in such cases.
    (3) Balance information--(i) Minimum balance requirements. (A) Any 
minimum balance required to:
    (1) Open the account;
    (2) Avoid the imposition of a fee; or
    (3) Obtain the annual percentage yield disclosed.
    (B) Except for the balance to open the account, the disclosure shall 
state how the balance is determined for these purposes.
    (ii) Balance computation method. An explanation of the balance 
computation method specified in Sec. 1030.7 of this part used to 
calculate interest on the account.
    (iii) When interest begins to accrue. A statement of when interest 
begins to accrue on noncash deposits.
    (4) Fees. The amount of any fee that may be imposed in connection 
with the account (or an explanation of how the fee will be determined) 
and the conditions under which the fee may be imposed.
    (5) Transaction limitations. Any limitations on the number or dollar 
amount of withdrawals or deposits.
    (6) Features of time accounts. For time accounts:
    (i) Time requirements. The maturity date.
    (ii) Early withdrawal penalties. A statement that a penalty will or 
may be imposed for early withdrawal, how it is calculated, and the 
conditions for its assessment.
    (iii) Withdrawal of interest prior to maturity. If compounding 
occurs during the term and interest may be withdrawn prior to maturity, 
a statement that the annual percentage yield assumes interest remains on 
deposit until maturity and that a withdrawal will reduce earnings. For 
accounts with a stated maturity greater than one year that do not 
compound interest on an annual or more frequent basis, that require 
interest payouts at least annually, and that disclose an APY determined 
in accordance with section E of appendix A of this part, a statement 
that interest cannot remain on deposit and that payout of interest is 
mandatory.
    (iv) Renewal policies. A statement of whether or not the account 
will renew automatically at maturity. If it will, a statement of whether 
or not a grace period will be provided and, if so, the length of that 
period must be stated. If the account will not renew automatically, a 
statement of whether interest will be paid after maturity if the 
consumer does not renew the account must be stated.
    (7) Bonuses. The amount or type of any bonus, when the bonus will be 
provided, and any minimum balance and time requirements to obtain the 
bonus.
    (c) Notice to existing account holders--(1) Notice of availability 
of disclosures. Depository institutions shall provide a notice to 
consumers who receive periodic statements and who hold existing accounts 
of the type offered by the institution on June 21, 1993. The notice 
shall be included on or with the first periodic statement sent on or 
after June 21, 1993 (or on or with the first periodic statement for a 
statement cycle beginning on or after that date). The notice shall state 
that consumers may request account disclosures containing terms, fees, 
and rate information for their account. In responding to such a request, 
institutions shall provide disclosures in accordance with paragraph 
(a)(2) of this section.
    (2) Alternative to notice. As an alternative to the notice described 
in paragraph (c)(1) of this section, institutions may provide account 
disclosures to consumers. The disclosures may be provided either with a 
periodic statement or separately, but must be sent no later than when 
the periodic statement described in paragraph (c)(1) is sent.



Sec. 1030.5  Subsequent disclosures.

    (a) Change in terms--(1) Advance notice required. A depository 
institution shall

[[Page 1025]]

give advance notice to affected consumers of any change in a term 
required to be disclosed under Sec. 1030.4(b) of this part if the 
change may reduce the annual percentage yield or adversely affect the 
consumer. The notice shall include the effective date of the change. The 
notice shall be mailed or delivered at least 30 calendar days before the 
effective date of the change.
    (2) No notice required. No notice under this section is required 
for:
    (i) Variable-rate changes. Changes in the interest rate and 
corresponding changes in the annual percentage yield in variable-rate 
accounts.
    (ii) Check printing fees. Changes in fees assessed for check 
printing.
    (iii) Short-term time accounts. Changes in any term for time 
accounts with maturities of one month or less.
    (b) Notice before maturity for time accounts longer than one month 
that renew automatically. For time accounts with a maturity longer than 
one month that renew automatically at maturity, institutions shall 
provide the disclosures described below before maturity. The disclosures 
shall be mailed or delivered at least 30 calendar days before maturity 
of the existing account. Alternatively, the disclosures may be mailed or 
delivered at least 20 calendar days before the end of the grace period 
on the existing account, provided a grace period of at least five 
calendar days is allowed.
    (1) Maturities of longer than one year. If the maturity is longer 
than one year, the institution shall provide account disclosures set 
forth in Sec. 1030.4(b) of this part for the new account, along with 
the date the existing account matures. If the interest rate and annual 
percentage yield that will be paid for the new account are unknown when 
disclosures are provided, the institution shall state that those rates 
have not yet been determined, the date when they will be determined, and 
a telephone number consumers may call to obtain the interest rate and 
the annual percentage yield that will be paid for the new account.
    (2) Maturities of one year or less but longer than one month. If the 
maturity is one year or less but longer than one month, the institution 
shall either:
    (i) Provide disclosures as set forth in paragraph (b)(1) of this 
section; or
    (ii) Disclose to the consumer:
    (A) The date the existing account matures and the new maturity date 
if the account is renewed;
    (B) The interest rate and the annual percentage yield for the new 
account if they are known (or that those rates have not yet been 
determined, the date when they will be determined, and a telephone 
number the consumer may call to obtain the interest rate and the annual 
percentage yield that will be paid for the new account); and
    (C) Any difference in the terms of the new account as compared to 
the terms required to be disclosed under Sec. 1030.4(b) of this part 
for the existing account.
    (c) Notice before maturity for time accounts longer than one year 
that do not renew automatically. For time accounts with a maturity 
longer than one year that do not renew automatically at maturity, 
institutions shall disclose to consumers the maturity date and whether 
interest will be paid after maturity. The disclosures shall be mailed or 
delivered at least 10 calendar days before maturity of the existing 
account.



Sec. 1030.6  Periodic statement disclosures.

    (a) General rule. If a depository institution mails or delivers a 
periodic statement, the statement shall include the following 
disclosures:
    (1) Annual percentage yield earned. The ``annual percentage yield 
earned'' during the statement period, using that term, calculated 
according to the rules in appendix A of this part.
    (2) Amount of interest. The dollar amount of interest earned during 
the statement period.
    (3) Fees imposed. Fees required to be disclosed under Sec. 
1030.4(b)(4) of this part that were debited to the account during the 
statement period. The fees shall be itemized by type and dollar amounts. 
Except as provided in Sec. 1030.11(a)(1) of this part, when fees of the 
same type are imposed more than once in a statement period, a depository 
institution may itemize each fee separately or group the fees together 
and disclose a total dollar amount for all fees of that type.

[[Page 1026]]

    (4) Length of period. The total number of days in the statement 
period, or the beginning and ending dates of the period.
    (5) Aggregate fee disclosure. If applicable, the total overdraft and 
returned item fees required to be disclosed by Sec. 1030.11(a).
    (b) Special rule for average daily balance method. In making the 
disclosures described in paragraph (a) of this section, institutions 
that use the average daily balance method and that calculate interest 
for a period other than the statement period shall calculate and 
disclose the annual percentage yield earned and amount of interest 
earned based on that period rather than the statement period. The 
information in paragraph (a)(4) of this section shall be stated for that 
period as well as for the statement period.



Sec. 1030.7  Payment of interest.

    (a) Permissible methods--(1) Balance on which interest is 
calculated. Institutions shall calculate interest on the full amount of 
principal in an account for each day by use of either the daily balance 
method or the average daily balance method. Institutions shall calculate 
interest by use of a daily rate of at least 1/365 of the interest rate. 
In a leap year a daily rate of 1/366 of the interest rate may be used.
    (2) Determination of minimum balance to earn interest. An 
institution shall use the same method to determine any minimum balance 
required to earn interest as it uses to determine the balance on which 
interest is calculated. An institution may use an additional method that 
is unequivocally beneficial to the consumer.
    (b) Compounding and crediting policies. This section does not 
require institutions to compound or credit interest at any particular 
frequency.
    (c) Date interest begins to accrue. Interest shall begin to accrue 
not later than the business day specified for interest-bearing accounts 
in section 606 of the Expedited Funds Availability Act (12 U.S.C. 4005 
et seq.) and the Board of Governors of the Federal Reserve System's 
implementing Regulation CC (12 CFR part 229). Interest shall accrue 
until the day funds are withdrawn.



Sec. 1030.8  Advertising.

    (a) Misleading or inaccurate advertisements. An advertisement shall 
not:
    (1) Be misleading or inaccurate or misrepresent a depository 
institution's deposit contract; or
    (2) Refer to or describe an account as ``free'' or ``no cost'' (or 
contain a similar term) if any maintenance or activity fee may be 
imposed on the account. The word ``profit'' shall not be used in 
referring to interest paid on an account.
    (b) Permissible rates. If an advertisement states a rate of return, 
it shall state the rate as an ``annual percentage yield'' using that 
term. (The abbreviation ``APY'' may be used provided the term ``annual 
percentage yield'' is stated at least once in the advertisement.) The 
advertisement shall not state any other rate, except that the ``interest 
rate,'' using that term, may be stated in conjunction with, but not more 
conspicuously than, the annual percentage yield to which it relates.
    (c) When additional disclosures are required. Except as provided in 
paragraph (e) of this section, if the annual percentage yield is stated 
in an advertisement, the advertisement shall state the following 
information, to the extent applicable, clearly and conspicuously:
    (1) Variable rates. For variable-rate accounts, a statement that the 
rate may change after the account is opened.
    (2) Time annual percentage yield is offered. The period of time the 
annual percentage yield will be offered, or a statement that the annual 
percentage yield is accurate as of a specified date.
    (3) Minimum balance. The minimum balance required to obtain the 
advertised annual percentage yield. For tiered-rate accounts, the 
minimum balance required for each tier shall be stated in close 
proximity and with equal prominence to the applicable annual percentage 
yield.
    (4) Minimum opening deposit. The minimum deposit required to open 
the account, if it is greater than the minimum balance necessary to 
obtain the advertised annual percentage yield.
    (5) Effect of fees. A statement that fees could reduce the earnings 
on the account.

[[Page 1027]]

    (6) Features of time accounts. For time accounts:
    (i) Time requirements. The term of the account.
    (ii) Early withdrawal penalties: A statement that a penalty will or 
may be imposed for early withdrawal.
    (iii) Required interest payouts. For noncompounding time accounts 
with a stated maturity greater than one year that do not compound 
interest on an annual or more frequent basis, that require interest 
payouts at least annually, and that disclose an APY determined in 
accordance with section E of appendix A of this part, a statement that 
interest cannot remain on deposit and that payout of interest is 
mandatory.
    (d) Bonuses. Except as provided in paragraph (e) of this section, if 
a bonus is stated in an advertisement, the advertisement shall state the 
following information, to the extent applicable, clearly and 
conspicuously:
    (1) The ``annual percentage yield,'' using that term;
    (2) The time requirement to obtain the bonus;
    (3) The minimum balance required to obtain the bonus;
    (4) The minimum balance required to open the account, if it is 
greater than the minimum balance necessary to obtain the bonus; and
    (5) When the bonus will be provided.
    (e) Exemption for certain advertisements--(1) Certain media. If an 
advertisement is made through one of the following media, it need not 
contain the information in paragraphs (c)(1), (c)(2), (c)(4), (c)(5), 
(c)(6)(ii), (d)(4), and (d)(5) of this section:
    (i) Broadcast or electronic media, such as television or radio;
    (ii) Outdoor media, such as billboards; or
    (iii) Telephone response machines.
    (2) Indoor signs. (i) Signs inside the premises of a depository 
institution (or the premises of a deposit broker) are not subject to 
paragraphs (b), (c), (d) or (e)(1) of this section.
    (ii) If a sign exempt by paragraph (e)(2) of this section states a 
rate of return, it shall:
    (A) State the rate as an ``annual percentage yield,'' using that 
term or the term ``APY.'' The sign shall not state any other rate, 
except that the interest rate may be stated in conjunction with the 
annual percentage yield to which it relates.
    (B) Contain a statement advising consumers to contact an employee 
for further information about applicable fees and terms.
    (f) Additional disclosures in connection with the payment of 
overdrafts. Institutions that promote the payment of overdrafts in an 
advertisement shall include in the advertisement the disclosures 
required by Sec. 1030.11(b) of this part.



Sec. 1030.9  Enforcement and record retention.

    (a) Administrative enforcement. Section 270 of the act (12 U.S.C. 
4309) contains the provisions relating to administrative sanctions for 
failure to comply with the requirements of the act and this part. 
Compliance is enforced by the agencies listed in that section.
    (b) [Reserved]
    (c) Record retention. A depository institution shall retain evidence 
of compliance with this part for a minimum of two years after the date 
disclosures are required to be made or action is required to be taken. 
The administrative agencies responsible for enforcing this part may 
require depository institutions under their jurisdiction to retain 
records for a longer period if necessary to carry out their enforcement 
responsibilities under section 270 of the act.



Sec. 1030.10  [Reserved]



Sec. 1030.11  Additional disclosure requirements for overdraft services.

    (a) Disclosure of total fees on periodic statements--(1) General. A 
depository institution must separately disclose on each periodic 
statement, as applicable:
    (i) The total dollar amount for all fees or charges imposed on the 
account for paying checks or other items when there are insufficient or 
unavailable funds and the account becomes overdrawn, using the term 
``Total Overdraft Fees;'' and
    (ii) The total dollar amount for all fees or charges imposed on the 
account for returning items unpaid.

[[Page 1028]]

    (2) Totals required. The disclosures required by paragraph (a)(1) of 
this section must be provided for the statement period and for the 
calendar year-to-date;
    (3) Format requirements. The aggregate fee disclosures required by 
paragraph (a) of this section must be disclosed in close proximity to 
fees identified under Sec. 1030.6(a)(3), using a format substantially 
similar to Sample Form B-10 in appendix B to this part.
    (b) Advertising disclosures for overdraft services--(1) Disclosures. 
Except as provided in paragraphs (b)(2) through (4) of this section, any 
advertisement promoting the payment of overdrafts shall disclose in a 
clear and conspicuous manner:
    (i) The fee or fees for the payment of each overdraft;
    (ii) The categories of transactions for which a fee for paying an 
overdraft may be imposed;
    (iii) The time period by which the consumer must repay or cover any 
overdraft; and
    (iv) The circumstances under which the institution will not pay an 
overdraft.
    (2) Communications about the payment of overdrafts not subject to 
additional advertising disclosures. Paragraph (b)(1) of this section 
does not apply to:
    (i) An advertisement promoting a service where the institution's 
payment of overdrafts will be agreed upon in writing and subject to 
Regulation Z (12 CFR Part 1026);
    (ii) A communication by an institution about the payment of 
overdrafts in response to a consumer-initiated inquiry about deposit 
accounts or overdrafts. Providing information about the payment of 
overdrafts in response to a balance inquiry made through an automated 
system, such as a telephone response machine, ATM, or an institution's 
Internet site, is not a response to a consumer-initiated inquiry for 
purposes of this paragraph;
    (iii) An advertisement made through broadcast or electronic media, 
such as television or radio;
    (iv) An advertisement made on outdoor media, such as billboards;
    (v) An ATM receipt;
    (vi) An in-person discussion with a consumer;
    (vii) Disclosures required by federal or other applicable law;
    (viii) Information included on a periodic statement or a notice 
informing a consumer about a specific overdrawn item or the amount the 
account is overdrawn;
    (ix) A term in a deposit account agreement discussing the 
institution's right to pay overdrafts;
    (x) A notice provided to a consumer, such as at an ATM, that 
completing a requested transaction may trigger a fee for overdrawing an 
account, or a general notice that items overdrawing an account may 
trigger a fee;
    (xi) Informational or educational materials concerning the payment 
of overdrafts if the materials do not specifically describe the 
institution's overdraft service; or
    (xii) An opt-out or opt-in notice regarding the institution's 
payment of overdrafts or provision of discretionary overdraft services.
    (3) Exception for ATM screens and telephone response machines. The 
disclosures described in paragraphs (b)(1)(ii) and (iv) of this section 
are not required in connection with any advertisement made on an ATM 
screen or using a telephone response machine.
    (4) Exception for indoor signs. Paragraph (b)(1) of this section 
does not apply to advertisements for the payment of overdrafts on indoor 
signs as described by Sec. 1030.8(e)(2) of this part, provided that the 
sign contains a clear and conspicuous statement that fees may apply and 
that consumers should contact an employee for further information about 
applicable fees and terms. For purposes of this paragraph (b)(4), an 
indoor sign does not include an ATM screen.
    (c) Disclosure of account balances. If an institution discloses 
balance information to a consumer through an automated system, the 
balance may not include additional amounts that the institution may 
provide to cover an item when there are insufficient or unavailable 
funds in the consumer's account, whether under a service provided in its 
discretion, a service subject to Regulation Z (12 CFR part 1026), or a 
service to transfer funds from another account of the consumer. The 
institution may,

[[Page 1029]]

at its option, disclose additional account balances that include such 
additional amounts, if the institution prominently state s that any such 
balance includes such additional amounts and, if applicable, that 
additional amounts are not available for all transactions.



    Sec. Appendix A to Part 1030--Annual Percentage Yield Calculation

    The annual percentage yield measures the total amount of interest 
paid on an account based on the interest rate and the frequency of 
compounding. The annual percentage yield reflects only interest and does 
not include the value of any bonus (or other consideration worth $10 or 
less) that may be provided to the consumer to open, maintain, increase 
or renew an account. Interest or other earnings are not to be included 
in the annual percentage yield if such amounts are determined by 
circumstances that may or may not occur in the future. The annual 
percentage yield is expressed as an annualized rate, based on a 365-day 
year. Institutions may calculate the annual percentage yield based on a 
365-day or a 366-day year in a leap year. Part I of this appendix 
discusses the annual percentage yield calculations for account 
disclosures and advertisements, while Part II discusses annual 
percentage yield earned calculations for periodic statements.

Part I. Annual Percentage Yield for Account Disclosures and Advertising 
                                Purposes

    In general, the annual percentage yield for account disclosures 
under Sec. Sec. 1030.4 and 1030.5 and for advertising under Sec. 
1030.8 is an annualized rate that reflects the relationship between the 
amount of interest that would be earned by the consumer for the term of 
the account and the amount of principal used to calculate that interest. 
Special rules apply to accounts with tiered and stepped interest rates, 
and to certain time accounts with a stated maturity greater than one 
year.

                            A. General Rules

    Except as provided in Part I.E. of this appendix, the annual 
percentage yield shall be calculated by the formula shown below. 
Institutions shall calculate the annual percentage yield based on the 
actual number of days in the term of the account. For accounts without a 
stated maturity date (such as a typical savings or transaction account), 
the calculation shall be based on an assumed term of 365 days. In 
determining the total interest figure to be used in the formula, 
institutions shall assume that all principal and interest remain on 
deposit for the entire term and that no other transactions (deposits or 
withdrawals) occur during the term. This assumption shall not be used if 
an institution requires, as a condition of the account, that consumers 
withdraw interest during the term. In such a case, the interest (and 
annual percentage yield calculation) shall reflect that requirement. For 
time accounts that are offered in multiples of months, institutions may 
base the number of days on either the actual number of days during the 
applicable period, or the number of days that would occur for any actual 
sequence of that many calendar months. If institutions choose to use the 
latter rule, they must use the same number of days to calculate the 
dollar amount of interest earned on the account that is used in the 
annual percentage yield formula (where ``Interest'' is divided by 
``Principal'').
    The annual percentage yield is calculated by use of the following 
general formula (``APY'' is used for convenience in the formulas):

APY = 100 [(1 + Interest/Principal)(365/Days in term)-1]

    ``Principal'' is the amount of funds assumed to have been deposited 
at the beginning of the account.
    ``Interest'' is the total dollar amount of interest earned on the 
Principal for the term of the account.
    ``Days in term'' is the actual number of days in the term of the 
account. When the ``days in term'' is 365 (that is, where the stated 
maturity is 365 days or where the account does not have a stated 
maturity), the annual percentage yield can be calculated by use of the 
following simple formula:
    APY=100 (Interest/Principal)

                                Examples

    (1) If an institution pays $61.68 in interest for a 365-day year on 
$1,000 deposited into a NOW account, using the general formula above, 
the annual percentage yield is 6.17%:

APY = 100 [(1 + 61.68/1,000) (365/365) - 1]
APY = 6.17%

    Or, using the simple formula above (since, as an account without a 
stated term, the term is deemed to be 365 days):

APY = 100 (61.68/1,000)
APY = 6.17%

    (2) If an institution pays $30.37 in interest on a $1,000 six-month 
certificate of deposit (where the six-month period used by the 
institution contains 182 days), using the general formula above, the 
annual percentage yield is 6.18%:

APY = 100 [(1 + 30.37/1,000) (365/182) - 1]
APY = 6.18%


[[Page 1030]]



 B. Stepped-Rate Accounts (Different Rates Apply in Succeeding Periods)

    For accounts with two or more interest rates applied in succeeding 
periods (where the rates are known at the time the account is opened), 
an institution shall assume each interest rate is in effect for the 
length of time provided for in the deposit contract.

                                Examples

    (1) If an institution offers a $1,000 6-month certificate of deposit 
on which it pays a 5% interest rate, compounded daily, for the first 
three months (which contain 91 days), and a 5.5% interest rate, 
compounded daily, for the next three months (which contain 92 days), the 
total interest for six months is $26.68 and, using the general formula 
above, the annual percentage yield is 5.39%:

APY = 100 [(1 + 26.68/1,000) (365/183) - 1]
APY = 5.39%

    (2) If an institution offers a $1,000 two-year certificate of 
deposit on which it pays a 6% interest rate, compounded daily, for the 
first year, and a 6.5% interest rate, compounded daily, for the next 
year, the total interest for two years is $133.13, and, using the 
general formula above, the annual percentage yield is 6.45%:

APY = 100 [(1 + 133.13/1,000) (365/730) - 1]
APY = 6.45%

                        C. Variable-Rate Accounts

    For variable-rate accounts without an introductory premium or 
discounted rate, an institution must base the calculation only on the 
initial interest rate in effect when the account is opened (or 
advertised), and assume that this rate will not change during the year.
    Variable-rate accounts with an introductory premium (or discount) 
rate must be calculated like a stepped-rate account. Thus, an 
institution shall assume that: (1) The introductory interest rate is in 
effect for the length of time provided for in the deposit contract; and 
(2) the variable interest rate that would have been in effect when the 
account is opened or advertised (but for the introductory rate) is in 
effect for the remainder of the year. If the variable rate is tied to an 
index, the index-based rate in effect at the time of disclosure must be 
used for the remainder of the year. If the rate is not tied to an index, 
the rate in effect for existing consumers holding the same account (who 
are not receiving the introductory interest rate) must be used for the 
remainder of the year.
    For example, if an institution offers an account on which it pays a 
7% interest rate, compounded daily, for the first three months (which, 
for example, contain 91 days), while the variable interest rate that 
would have been in effect when the account was opened was 5%, the total 
interest for a 365-day year for a $1,000 deposit is $56.52 (based on 91 
days at 7% followed by 274 days at 5%). Using the simple formula, the 
annual percentage yield is 5.65%:

APY = 100 (56.52/1,000)
APY = 5.65%

  D. Tiered-Rate Accounts (Different Rates Apply to Specified Balance 
                                 Levels)

    For accounts in which two or more interest rates paid on the account 
are applicable to specified balance levels, the institution must 
calculate the annual percentage yield in accordance with the method 
described below that it uses to calculate interest. In all cases, an 
annual percentage yield (or a range of annual percentage yields, if 
appropriate) must be disclosed for each balance tier.
    For purposes of the examples discussed below, assume the following:

----------------------------------------------------------------------------------------------------------------
          Interest rate  (percent)                          Deposit balance required to earn rate
----------------------------------------------------------------------------------------------------------------
5.25.......................................  Up to but not exceeding $2,500.
5.50.......................................  Above $2,500 but not exceeding $15,000.
5.75.......................................  Above $15,000.
----------------------------------------------------------------------------------------------------------------

    Tiering Method A. Under this method, an institution pays on the full 
balance in the account the stated interest rate that corresponds to the 
applicable deposit tier. For example, if a consumer deposits $8,000, the 
institution pays the 5.50% interest rate on the entire $8,000.
    When this method is used to determine interest, only one annual 
percentage yield will apply to each tier. Within each tier, the annual 
percentage yield will not vary with the amount of principal assumed to 
have been deposited.
    For the interest rates and deposit balances assumed above, the 
institution will state three annual percentage yields--one corresponding 
to each balance tier. Calculation of each annual percentage yield is 
similar for this type of account as for accounts with a single interest 
rate. Thus, the calculation is based on the total amount of interest 
that would be received by the consumer for each tier of the account for 
a year and the principal assumed to have been deposited to earn that 
amount of interest.

[[Page 1031]]

    First tier. Assuming daily compounding, the institution will pay 
$53.90 in interest on a $1,000 deposit. Using the general formula, for 
the first tier, the annual percentage yield is 5.39%:

APY = 100 [(1 + 53.90/1,000) (365/365) - 1]
APY = 5.39%

    Using the simple formula:

APY = 100 (53.90/1,000)
APY = 5.39%

    Second tier. The institution will pay $452.29 in interest on an 
$8,000 deposit. Thus, using the simple formula, the annual percentage 
yield for the second tier is 5.65%:

APY = 100 (452.29/8,000)
APY = 5.65%

    Third tier. The institution will pay $1,183.61 in interest on a 
$20,000 deposit. Thus, using the simple formula, the annual percentage 
yield for the third tier is 5.92%:

APY = 100 (1,183.61/20,000)
APY = 5.92%

    Tiering Method B. Under this method, an institution pays the stated 
interest rate only on that portion of the balance within the specified 
tier. For example, if a consumer deposits $8,000, the institution pays 
5.25% on $2,500 and 5.50% on $5,500 (the difference between $8,000 and 
the first tier cut-off of $2,500).
    The institution that computes interest in this manner must provide a 
range that shows the lowest and the highest annual percentage yields for 
each tier (other than for the first tier, which, like the tiers in 
Method A, has the same annual percentage yield throughout). The low 
figure for an annual percentage yield range is calculated based on the 
total amount of interest earned for a year assuming the minimum 
principal required to earn the interest rate for that tier. The high 
figure for an annual percentage yield range is based on the amount of 
interest the institution would pay on the highest principal that could 
be deposited to earn that same interest rate. If the account does not 
have a limit on the maximum amount that can be deposited, the 
institution may assume any amount.
    For the tiering structure assumed above, the institution would state 
a total of five annual percentage yields--one figure for the first tier 
and two figures stated as a range for the other two tiers.
    First tier. Assuming daily compounding, the institution would pay 
$53.90 in interest on a $1,000 deposit. For this first tier, using the 
simple formula, the annual percentage yield is 5.39%:

APY = 100 (53.90/1,000)
APY = 5.39%

    Second tier. For the second tier, the institution would pay between 
$134.75 and $841.45 in interest, based on assumed balances of $2,500.01 
and $15,000, respectively. For $2,500.01, interest would be figured on 
$2,500 at 5.25% interest rate plus interest on $.01 at 5.50%. For the 
low end of the second tier, therefore, the annual percentage yield is 
5.39%, using the simple formula:

APY = 100 (134.75/2,500)
APY = 5.39%

    For $15,000, interest is figured on $2,500 at 5.25% interest rate 
plus interest on $12,500 at 5.50% interest rate. For the high end of the 
second tier, the annual percentage yield, using the simple formula, is 
5.61%:

APY = 100 (841.45/15,000)
APY = 5.61%

    Thus, the annual percentage yield range for the second tier is 5.39% 
to 5.61%.
    Third tier. For the third tier, the institution would pay $841.45 in 
interest on the low end of the third tier (a balance of $15,000.01). For 
$15,000.01, interest would be figured on $2,500 at 5.25% interest rate, 
plus interest on $12,500 at 5.50% interest rate, plus interest on $.01 
at 5.75% interest rate. For the low end of the third tier, therefore, 
the annual percentage yield (using the simple formula) is 5.61%:

APY = 100 (841.45/15,000)
APY = 5.61%

    Since the institution does not limit the account balance, it may 
assume any maximum amount for the purposes of computing the annual 
percentage yield for the high end of the third tier. For an assumed 
maximum balance amount of $100,000, interest would be figured on $2,500 
at 5.25% interest rate, plus interest on $12,500 at 5.50% interest rate, 
plus interest on $85,000 at 5.75% interest rate. For the high end of the 
third tier, therefore, the annual percentage yield, using the simple 
formula, is 5.87%.

APY = 100 (5,871.79/100,000)
APY = 5.87%

    Thus, the annual percentage yield range that would be stated for the 
third tier is 5.61% to 5.87%.
    If the assumed maximum balance amount is $1,000,000 instead of 
$100,000, the institution would use $985,000 rather than $85,000 in the 
last calculation. In that case, for the high end of the third tier the 
annual percentage yield, using the simple formula, is 5.91%:

APY = 100 (59,134.22/1,000,000)
APY = 5.91%

    Thus, the annual percentage yield range that would be stated for the 
third tier is 5.61% to 5.91%.

 E. Time Accounts With a Stated Maturity Greater Than One Year That Pay 
                       Interest at Least Annually

    1. For time accounts with a stated maturity greater than one year 
that do not compound interest on an annual or more frequent basis, and 
that require the consumer

[[Page 1032]]

to withdraw interest at least annually, the annual percentage yield may 
be disclosed as equal to the interest rate.

                                 Example

    (1) If an institution offers a $1,000 two-year certificate of 
deposit that does not compound and that pays out interest semi-annually 
by check or transfer at a 6.00% interest rate, the annual percentage 
yield may be disclosed as 6.00%.
    (2) For time accounts covered by this paragraph that are also 
stepped-rate accounts, the annual percentage yield may be disclosed as 
equal to the composite interest rate.

                                 Example

    (1) If an institution offers a $1,000 three-year certificate of 
deposit that does not compound and that pays out interest annually by 
check or transfer at a 5.00% interest rate for the first year, 6.00% 
interest rate for the second year, and 7.00% interest rate for the third 
year, the institution may compute the composite interest rate and APY as 
follows:
    (a) Multiply each interest rate by the number of days it will be in 
effect;
    (b) Add these figures together; and
    (c) Divide by the total number of days in the term.
    (2) Applied to the example, the products of the interest rates and 
days the rates are in effect are (5.00% x 365 days) 1825, (6.00% x 365 
days) 2190, and (7.00% x 365 days) 2555, respectively. The sum of these 
products, 6570, is divided by 1095, the total number of days in the 
term. The composite interest rate and APY are both 6.00%.

     Part II. Annual Percentage Yield Earned for Periodic Statements

    The annual percentage yield earned for periodic statements under 
Sec. 1030.6(a) is an annualized rate that reflects the relationship 
between the amount of interest actually earned on the consumer's account 
during the statement period and the average daily balance in the account 
for the statement period. Pursuant to Sec. 1030.6(b), however, if an 
institution uses the average daily balance method and calculates 
interest for a period other than the statement period, the annual 
percentage yield earned shall reflect the relationship between the 
amount of interest earned and the average daily balance in the account 
for that other period.
    The annual percentage yield earned shall be calculated by using the 
following formulas (``APY Earned'' is used for convenience in the 
formulas):

                           A. General Formula

APY Earned = 100 [(1 + Interest earned/Balance) (365/Days in period) - 
          1]
``Balance'' is the average daily balance in the account for the period.
``Interest earned'' is the actual amount of interest earned on the 
          account for the period.
``Days in period'' is the actual number of days for the period.

                                Examples

    (1) Assume an institution calculates interest for the statement 
period (and uses either the daily balance or the average daily balance 
method), and the account has a balance of $1,500 for 15 days and a 
balance of $500 for the remaining 15 days of a 30-day statement period. 
The average daily balance for the period is $1,000. The interest earned 
(under either balance computation method) is $5.25 during the period. 
The annual percentage yield earned (using the formula above) is 6.58%:

APY Earned = 100 [(1 + 5.25/1,000) (365/30) - 1]
APY Earned = 6.58%

    (2) Assume an institution calculates interest on the average daily 
balance for the calendar month and provides periodic statements that 
cover the period from the 16th of one month to the 15th of the next 
month. The account has a balance of $2,000 September 1 through September 
15 and a balance of $1,000 for the remaining 15 days of September. The 
average daily balance for the month of September is $1,500, which 
results in $6.50 in interest earned for the month. The annual percentage 
yield earned for the month of September would be shown on the periodic 
statement covering September 16 through October 15. The annual 
percentage yield earned (using the formula above) is 5.40%:

APY Earned = 100 [(6.50/1,500) (365/30) - 1]
APY Earned = 5.40%

    (3) Assume an institution calculates interest on the average daily 
balance for a quarter (for example, the calendar months of September 
through November), and provides monthly periodic statements covering 
calendar months. The account has a balance of $1,000 throughout the 30 
days of September, a balance of $2,000 throughout the 31 days of 
October, and a balance of $3,000 throughout the 30 days of November. The 
average daily balance for the quarter is $2,000, which results in $21 in 
interest earned for the quarter. The annual percentage yield earned 
would be shown on the periodic statement for November. The annual 
percentage yield earned (using the formula above) is 4.28%:

APY Earned = 100 [(1 + 21/2,000) (365/91) - 1]
APY Earned = 4.28%

 B. Special Formula for Use Where Periodic Statement Is Sent More Often 
            Than the Period for Which Interest Is Compounded

    Institutions that use the daily balance method to accrue interest 
and that issue

[[Page 1033]]

periodic statements more often than the period for which interest is 
compounded shall use the following special formula:
[GRAPHIC] [TIFF OMITTED] TR21DE11.035

    The following definition applies for use in this formula (all other 
terms are defined under Part II):
    ``Compounding'' is the number of days in each compounding period.
    Assume an institution calculates interest for the statement period 
using the daily balance method, pays a 5.00% interest rate, compounded 
annually, and provides periodic statements for each monthly cycle. The 
account has a daily balance of $1,000 for a 30-day statement period. The 
interest earned is $4.11 for the period, and the annual percentage yield 
earned (using the special formula above) is 5.00%:
[GRAPHIC] [TIFF OMITTED] TR21DE11.036

APY Earned = 5.00%



      Sec. Appendix B to Part 1030--Model Clauses and Sample Forms

                            Table of Contents

B-1--Model Clauses for Account Disclosures (Section 1030.4(b))
B-2--Model Clauses for Change in Terms (Section 1030.5(a))
B-3--Model Clauses for Pre-Maturity Notices for Time Accounts (Section 
1030.5(b)(2) and 1030.5(d))
B-4--Sample Form (Multiple Accounts)
B-5--Sample Form (Now Account)
B-6--Sample Form (Tiered Rate Money Market Account)
B-7--Sample Form (Certificate of Deposit)
B-8--Sample Form (Certificate of Deposit Advertisement)
B-9--Sample Form (Money Market Account Advertisement)
B-10--Sample Form (Aggregate Overdraft and Returned Item Fees)

               B-1--Model Clauses for Account Disclosures

                          (a) Rate Information

                         (i) Fixed-Rate Accounts

    The interest rate on your account is ----% with an annual percentage 
yield of ----%. You will be paid this rate [for (time period)/until 
(date)/for at least 30 calendar days].

                       (ii) Variable-Rate Accounts

    The interest rate on your account is ----% with an annual percentage 
yield of ----%.
    Your interest rate and annual percentage yield may change.

                          Determination of Rate

    The interest rate on your account is based on (name of index) [plus/
minus a margin of ----]; or
    At our discretion, we may change the interest rate on your account.

                        Frequency of Rate Changes

    We may change the interest rate on your account [every (time 
period)/at any time].

                       Limitations on Rate Changes

    The interest rate for your account will never change by more than --
--% each (time period).
    The interest rate will never be [less/more] than ----%; or
    The interest rate will never [exceed----% above/drop more than ----% 
below] the interest rate initially disclosed to you.

                       (iii) Stepped-Rate Accounts

    The initial interest rate for your account is ----%. You will be 
paid this rate [for (time period)/until (date)]. After that time, the 
interest rate for your account will be ----%, and you will be paid this 
rate [for (time period)/until (date)]. The annual percentage yield for 
your account is ----%.

[[Page 1034]]

                        (iv) Tiered-Rate Accounts

                            Tiering Method A

     If your [daily balance/average daily balance] is 
$---- or more, the interest rate paid on the entire balance in your 
account will be ----% with an annual percentage yield of ----%.
     If your [daily balance/average daily balance] is 
more than $----, but less than $----, the interest rate paid on the 
entire balance in your account will be ----% with an annual percentage 
yield of ----%.
     If your [daily balance/average daily balance] is 
$---- or less, the interest rate paid on the entire balance will be ----
% with an annual percentage yield of ----%.

                            Tiering Method B

     An interest rate of ----% will be paid only for 
that portion of your [daily balance/average daily balance] that is 
greater than $----. The annual percentage yield for this tier will range 
from ----% to ----%, depending on the balance in the account.
     An interest rate of ----% will be paid only for 
that portion of your [daily balance/average daily balance] that is 
greater than $----. The annual percentage yield for this tier will range 
from ----% to ----%, depending on the balance in the account.
     If your [daily balance/average daily balance] is 
$---- or less, the interest rate paid on the entire balance will be ----
% with an annual percentage yield of ----%.

                      (b) Compounding and Crediting

                              (i) Frequency

    Interest will be compounded [on a ---- basis/every (time period)]. 
Interest will be credited to your account [on a ---- basis/every (time 
period)].

                    (ii) Effect of Closing an Account

    If you close your account before interest is credited, you will not 
receive the accrued interest.

                    (c) Minimum Balance Requirements

                         (i) To Open the Account

    You must deposit $---- to open this account.

                    (ii) To Avoid Imposition of Fees

    A minimum balance fee of $---- will be imposed every (time period) 
if the balance in the account falls below $---- any day of the (time 
period).
    A minimum balance fee of $---- will be imposed every (time period) 
if the average daily balance for the (time period) falls below $----. 
The average daily balance is calculated by adding the principal in the 
account for each day of the period and dividing that figure by the 
number of days in the period.

          (iii) To Obtain the Annual Percentage Yield Disclosed

    You must maintain a minimum balance of $---- in the account each day 
to obtain the disclosed annual percentage yield.
    You must maintain a minimum average daily balance of $---- to obtain 
the disclosed annual percentage yield. The average daily balance is 
calculated by adding the principal in the account for each day of the 
period and dividing that figure by the number of days in the period.

                     (d) Balance Computation Method

                        (i) Daily Balance Method

    We use the daily balance method to calculate the interest on your 
account. This method applies a daily periodic rate to the principal in 
the account each day.

                    (ii) Average Daily Balance Method

    We use the average daily balance method to calculate interest on 
your account. This method applies a periodic rate to the average daily 
balance in the account for the period. The average daily balance is 
calculated by adding the principal in the account for each day of the 
period and dividing that figure by the number of days in the period.

               (e) Accrual of Interest on Noncash Deposits

    Interest begins to accrue no later than the business day we receive 
credit for the deposit of noncash items (for example, checks); or
    Interest begins to accrue on the business day you deposit noncash 
items (for example, checks).

                                (f) Fees

    The following fees may be assessed against your account:

----$----
----$----
----$----
----(conditions for imposing fee) $----
----% of ----.

                       (g) Transaction Limitations

    The minimum amount you may [withdraw/write a check for] is $----.
    You may make ---- [deposits into/withdrawals from] your account each 
(time period).
    You may not make [deposits into/withdrawals from] your account until 
the maturity date.

                (h) Disclosures Relating to Time Accounts

                          (i) Time Requirements

    Your account will mature on (date).

[[Page 1035]]

    Your account will mature in (time period).

                     (ii) Early Withdrawal Penalties

    We [will/may] impose a penalty if you withdraw [any/all] of the 
[deposited funds/principal] before the maturity date. The fee imposed 
will equal ---- days/week[s]/month[s] of interest; or
    We [will/may] impose a penalty of $---- if you withdraw [any/all] of 
the [deposited funds/principal] before the maturity date.
    If you withdraw some of your funds before maturity, the interest 
rate for the remaining funds in your account will be ----% with an 
annual percentage yield of ----%.

             (iii) Withdrawal of Interest Prior to Maturity

    The annual percentage yield assumes interest will remain on deposit 
until maturity. A withdrawal will reduce earnings.

                          (iv) Renewal Policies

                (1) Automatically Renewable Time Accounts

    This account will automatically renew at maturity.
    You will have [---- calendar/business] days after the maturity date 
to withdraw funds without penalty; or
    There is no grace period following the maturity of this account to 
withdraw funds without penalty.

              (2) Non-Automatically Renewable Time Accounts

    This account will not renew automatically at maturity. If you do not 
renew the account, your deposit will be placed in [an interest-bearing/a 
noninterest-bearing] account.

                   (v) Required Interest Distribution

    This account requires the distribution of interest and does not 
allow interest to remain in the account.

                               (i) Bonuses

    You will [be paid/receive] [$----/(description of item)] as a bonus 
[when you open the account/on (date) ----].s
    You must maintain a minimum [daily balance/average daily balance] of 
$---- to obtain the bonus.
    To earn the bonus, [$----/your entire principal] must remain on 
deposit [for (time period)/until (date)----].

                 B-2--Model Clauses for Change in Terms

    On (date), the cost of (type of fee) will increase to $----.
    On (date), the interest rate on your account will decrease to ----% 
with an annual percentage yield of ----%.
    On (date), the minimum [daily balance/average daily balance] 
required to avoid imposition of a fee will increase to $----.

      B-3--Model Clauses for Pre-Maturity Notices for Time Accounts

(a) Automatically Renewable Time Accounts With Maturities of One Year or 
                     Less But Longer Than One Month

    Your account will mature on (date).
    If the account renews, the new maturity date will be (date).
    The interest rate for the renewed account will be ----% with an 
annual percentage yield of ----%; or
    The interest rate and annual percentage yield have not yet been 
determined. They will be available on (date). Please call (phone number) 
to learn the interest rate and annual percentage yield for your new 
account.

  (b) Non-Automatically Renewable Time Accounts With Maturities Longer 
                              Than One Year

    Your account will mature on (date).
    If you do not renew the account, interest [will/will not] be paid 
after maturity.

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           Sec. Appendix C to Part 1030--Effect on State Laws

                      (a) Inconsistent Requirements

    State law requirements that are inconsistent with the requirements 
of the act and this part are preempted to the extent of the 
inconsistency. A state law is inconsistent if it requires a depository 
institution to make disclosures or take actions that contradict the 
requirements of the federal law. A state law is also contradictory if it 
requires the use of the same term to represent a different amount or a 
different meaning than the federal law, requires the use of a term 
different from that required in the federal law to describe the same 
item, or permits a method of calculating interest on an account 
different from that required in the federal law.

                      (b) Preemption Determinations

    A depository institution, state, or other interested party may 
request the Bureau to determine whether a state law requirement is 
inconsistent with the federal requirements. A request for a 
determination shall be in writing and addressed to the Bureau of 
Consumer Financial Protection, 1700 G Street NW., Washington, DC 20006. 
Notice that the Bureau intends to make a determination (either on 
request or on its own motion) will be published in the Federal Register, 
with an opportunity for public comment unless the Bureau finds that 
notice and opportunity for comment would be impracticable, unnecessary, 
or contrary to the public interest and publishes its reasons for such 
decision. Notice of a final determination will be published in the 
Federal Register and furnished to the party who made the request and to 
the appropriate state official.

                 (c) Effect of Preemption Determinations

    After the Bureau determines that a state law is inconsistent, a 
depository institution may not make disclosures using the inconsistent 
term or take actions relying on the inconsistent law.

                      (d) Reversal of Determination

    The Bureau reserves the right to reverse a determination for any 
reason bearing on the coverage or effect of state or federal law. Notice 
of reversal of a determination will be published in the Federal Register 
and a copy furnished to the appropriate state official.



   Sec. Appendix D to Part 1030--Issuance of Official Interpretations

    Except in unusual circumstances, interpretations will not be issued 
separately but will be incorporated in an official commentary to this 
part, which will be amended periodically. No interpretations will be 
issued approving depository institutions' forms, statements, or 
calculation tools or methods.



        Sec. Supplement I to Part 1030--Official Interpretations

                              Introduction

    1. Official status. This commentary is the means by which the Bureau 
of Consumer Financial Protection issues official interpretations of 
Regulation DD.

  Section 1030.1 Authority, purpose, coverage, and effect on state laws

                              (c) Coverage

    1. Foreign applicability. Regulation DD applies to all depository 
institutions, except credit unions, that offer deposit accounts to 
residents (including resident aliens) of any state as defined in Sec. 
1030.2(r). Accounts held in an institution located in a state are 
covered, even if funds are transferred periodically to a location 
outside the United States. Accounts held in an institution located 
outside the United States are not covered, even if held by a U.S. 
resident.
    2. Persons who advertise accounts. Persons who advertise accounts 
are subject to the advertising rules. For example, if a deposit broker 
places an advertisement offering consumers an interest in an account at 
a depository institution, the advertising rules apply to the 
advertisement, whether the account is to be held by the broker or 
directly by the consumer.

                       Section 1030.2--Definitions

    (a) Account.
    1. Covered accounts. Examples of accounts subject to the regulation 
are:
    i. Interest-bearing and noninterest-bearing accounts.
    ii. Deposit accounts opened as a condition of obtaining a credit 
card.
    iii. Accounts denominated in a foreign currency.
    iv. Individual retirement accounts (IRAs) and simplified employee 
pension (SEP) accounts.
    v. Payable on death (POD) or ``Totten trust'' accounts.
    2. Other accounts. Examples of accounts not subject to the 
regulation are:
    i. Mortgage escrow accounts for collecting taxes and property 
insurance premiums.
    ii. Accounts established to make periodic disbursements on 
construction loans.
    iii. Trust accounts opened by a trustee pursuant to a formal written 
trust agreement (not merely declarations of trust on a signature card 
such as a ``Totten trust,'' or an IRA and SEP account).
    iv. Accounts opened by an executor in the name of a decedent's 
estate.

[[Page 1046]]

    3. Other investments. The term ``account'' does not apply to all 
products of a depository institution. Examples of products not covered 
are:
    i. Government securities.
    ii. Mutual funds.
    iii. Annuities.
    iv. Securities or obligations of a depository institution.
    v. Contractual arrangements such as repurchase agreements, interest 
rate swaps, and bankers acceptances.
    (b) Advertisement.
    1. Covered messages. Advertisements include commercial messages in 
visual, oral, or print media that invite, offer, or otherwise announce 
generally to prospective customers the availability of consumer 
accounts--such as:
    i. Telephone solicitations.
    ii. Messages on automated teller machine (ATM) screens.
    iii. Messages on a computer screen in an institution's lobby 
(including any printout) other than a screen viewed solely by the 
institution's employee.
    iv. Messages in a newspaper, magazine, or promotional flyer or on 
radio.
    v. Messages that are provided along with information about the 
consumer's existing account and that promote another account at the 
institution.
    2. Other messages. Examples of messages that are not advertisements 
are:
    i. Rate sheets in a newspaper, periodical, or trade journal (unless 
the depository institution, or a deposit broker offering accounts at the 
institution, pays a fee for or otherwise controls publication).
    ii. In-person discussions with consumers about the terms for a 
specific account.
    iii. For purposes of Sec. 1030.8(b) of this part through Sec. 
1030.8(e) of this part, information given to consumers about existing 
accounts, such as current rates recorded on a voice-response machine or 
notices for automatically renewable time account sent before renewal.
    iv. Information about a particular transaction in an existing 
account.
    v. Disclosures required by federal or other applicable law.
    vi. A deposit account agreement.
    (f) Bonus.
    1. Examples. Bonuses include items of value, other than interest, 
offered as incentives to consumers, such as an offer to pay the final 
installment deposit for a holiday club account. Items that are not a 
bonus include discount coupons for goods or services at restaurants or 
stores.
    2. De minimis rule. Items with a de minimis value of $10 or less are 
not bonuses. Institutions may rely on the valuation standard used by the 
Internal Revenue Service to determine if the value of the item is de 
minimis. Examples of items of de minimis value are:
    i. Disability insurance premiums valued at an amount of $10 or less 
per year.
    ii. Coffee mugs, T-shirts or other merchandise with a market value 
of $10 or less.
    3. Aggregation. In determining if an item valued at $10 or less is a 
bonus, institutions must aggregate per account per calendar year items 
that may be given to consumers. In making this determination, 
institutions aggregate per account only the market value of items that 
may be given for a specific promotion. To illustrate, assume an 
institution offers in January to give consumers an item valued at $7 for 
each calendar quarter during the year that the average account balance 
in a negotiable order of withdrawal (NOW) account exceeds $10,000. The 
bonus rules are triggered, since consumers are eligible under the 
promotion to receive up to $28 during the year. However, the bonus rules 
are not triggered if an item valued at $7 is offered to consumers 
opening a NOW account during the month of January, even though in 
November the institution introduces a new promotion that includes, for 
example, an offer to existing NOW account holders for an item valued at 
$8 for maintaining an average balance of $5,000 for the month.
    4. Waiver or reduction of a fee or absorption of expenses. Bonuses 
do not include value that consumers receive through the waiver or 
reduction of fees (even if the fees waived exceed $10) for banking-
related services such as the following:
    i. A safe deposit box rental fee for consumers who open a new 
account.
    ii. Fees for travelers checks for account holders.
    iii. Discounts on interest rates charged for loans at the 
institution.
    (h) Consumer.
    1. Professional capacity. Examples of accounts held by a natural 
person in a professional capacity for another are attorney-client trust 
accounts and landlord-tenant security accounts.
    2. Other accounts. Accounts not held in a professional capacity 
include accounts held by an individual for a child under the Uniform 
Gifts to Minors Act.
    3. Sole proprietors. Accounts held by individuals as sole 
proprietors are not covered.
    4. Retirement plans. IRAs and SEP accounts are consumer accounts to 
the extent that funds are invested in covered accounts. Keogh accounts 
are not subject to the regulation.
    (j) Depository institution and institution.
    1. Foreign institutions. Branches of foreign institutions located in 
the United States are subject to the regulation if they offer deposit 
accounts to consumers. Edge Act and Agreement corporations, and agencies 
of foreign institutions, are not depository institutions for purposes of 
this part.
    (k) Deposit broker.

[[Page 1047]]

    1. General. A deposit broker is a person who is in the business of 
placing or facilitating the placement of deposits in an institution, as 
defined by the Federal Deposit Insurance Act (12 U.S.C. 29(g)).
    (n) Interest.
    1. Relation to bonuses. Bonuses are not interest for purposes of 
this part.
    (p) Passbook savings account.
    1. Relation to Regulation E. Passbook savings accounts include 
accounts accessed by preauthorized electronic fund transfers to the 
account (as defined in 12 CFR 1005.2(j)), such as an account that 
receives direct deposit of social security payments. Accounts permitting 
access by other electronic means are not ``passbook saving accounts'' 
and must comply with the requirements of Sec. 1030.6 if statements are 
sent four or more times a year.
    (q) Periodic statement.
    1. Examples. Periodic statements do not include:
    i. Additional statements provided solely upon request.
    ii. General service information such as a quarterly newsletter or 
other correspondence describing available services and products.
    (t) Tiered-rate account.
    1. Time accounts. Time accounts paying different rates based solely 
on the amount of the initial deposit are not tiered-rate accounts.
    2. Minimum balance requirements. A requirement to maintain a minimum 
balance to earn interest does not make an account a tiered-rate account.
    (u) Time account.
    1. Club accounts. Although club accounts typically have a maturity 
date, they are not time accounts unless they also require a penalty of 
at least seven days' interest for withdrawals during the first six days 
after the account is opened.
    2. Relation to Regulation D. Regulation D of the Board of Governors 
of the Federal Reserve System (12 CFR part 204) permits in limited 
circumstances the withdrawal of funds without penalty during the first 
six days after a ``time deposit'' is opened. (See 12 CFR 
204.2(c)(1)(i).) But the fact that a consumer makes a withdrawal as 
permitted by Regulation D does not disqualify the account from being a 
time account for purposes of this part.
    (v) Variable-rate account.
    1. General. A certificate of deposit permitting one or more rate 
adjustments prior to maturity at the consumer's option is a variable-
rate account.

             Section 1030.3--General Disclosure Requirements

    (a) Form.
    1. Design requirements. Disclosures must be presented in a format 
that allows consumers to readily understand the terms of their account. 
Institutions are not required to use a particular type size or typeface, 
nor are institutions required to state any term more conspicuously than 
any other term. Disclosures may be made:
    i. In any order.
    ii. In combination with other disclosures or account terms.
    iii. In combination with disclosures for other types of accounts, as 
long as it is clear to consumers which disclosures apply to their 
account.
    iv. On more than one page and on the front and reverse sides.
    v. By using inserts to a document or filling in blanks.
    vi. On more than one document, as long as the documents are provided 
at the same time.
    2. Consistent terminology. Institutions must use consistent 
terminology to describe terms or features required to be disclosed. For 
example, if an institution describes a monthly fee (regardless of 
account activity) as a ``monthly service fee'' in account-opening 
disclosures, the periodic statement and change-in-term notices must use 
the same terminology so that consumers can readily identify the fee.
    (b) General.
    1. Specificity of legal obligation. Institutions may refer to the 
calendar month or to roughly equivalent intervals during a calendar year 
as a ``month.''
    (c) Relation to Regulation E.
    1. General rule. Compliance with Regulation E (12 CFR Part 1005) is 
deemed to satisfy the disclosure requirements of this part, such as 
when:
    i. An institution changes a term that triggers a notice under 
Regulation E, and uses the timing and disclosure rules of Regulation E 
for sending change-in-term notices.
    ii. Consumers add an ATM access feature to an account, and the 
institution provides disclosures pursuant to Regulation E, including 
disclosure of fees (see 12 CFR 1005.7.)
    iii. An institution complying with the timing rules of Regulation E 
discloses at the same time fees for electronic services (such as for 
balance inquiry fees at ATMs) required to be disclosed by this part but 
not by Regulation E.
    iv. An institution relies on Regulation E's rules regarding 
disclosure of limitations on the frequency and amount of electronic fund 
transfers, including security-related exceptions. But any limitations on 
``intra-institutional transfers'' to or from the consumer's other 
accounts during a given time period must be disclosed, even though 
intra-institutional transfers are exempt from Regulation E.
    (e) Oral response to inquiries.
    1. Application of rule. Institutions are not required to provide 
rate information orally.

[[Page 1048]]

    2. Relation to advertising. The advertising rules do not cover an 
oral response to a question about rates.
    3. Existing accounts. This paragraph does not apply to oral 
responses about rate information for existing accounts. For example, if 
a consumer holding a one-year certificate of deposit (CD) requests 
interest rate information about the CD during the term, the institution 
need not disclose the annual percentage yield.
    (f) Rounding and accuracy rules for rates and yields
    (f)(1) Rounding.
    1. Permissible rounding. Examples of permissible rounding are an 
annual percentage yield calculated to be 5.644%, rounded down and 
disclosed as 5.64%; 5.645% rounded up and disclosed as 5.65%.
    (f)(2) Accuracy.
    1. Annual percentage yield and annual percentage yield earned. The 
tolerance for annual percentage yield and annual percentage yield earned 
calculations is designed to accommodate inadvertent errors. Institutions 
may not purposely incorporate the tolerance into their calculation of 
yields.

                   Section 1030.4--Account Disclosures

    (a) Delivery of account disclosures.
    (a)(1) Account opening.
    1. New accounts. New account disclosures must be provided when:
    i. A time account that does not automatically rollover is renewed by 
a consumer.
    ii. A consumer changes a term for a renewable time account (see 
comment 5(b)-5 regarding disclosure alternatives.)
    iii. An institution transfers funds from an account to open a new 
account not at the consumer's request, unless the institution previously 
gave account disclosures and any change-in-term notices for the new 
account.
    iv. An institution accepts a deposit from a consumer to an account 
that the institution had deemed closed for the purpose of treating 
accrued but uncredited interest as forfeited interest (see comment 7(b)-
3.)
    2. Acquired accounts. New account disclosures need not be given when 
an institution acquires an account through an acquisition of or merger 
with another institution (but see Sec. 1030.5(a) of this part regarding 
advance notice requirements if terms are changed).
    (a)(2) Requests.
    Paragraph (a)(2)(i).
    1. Inquiries versus requests. A response to an oral inquiry (by 
telephone or in person) about rates and yields or fees does not trigger 
the duty to provide account disclosures. But when consumers ask for 
written information about an account (whether by telephone, in person, 
or by other means), the institution must provide disclosures unless the 
account is no longer offered to the public.
    2. General requests. When responding to a consumer's general request 
for disclosures about a type of account (a NOW account, for example), an 
institution that offers several variations may provide disclosures for 
any one of them.
    3. Timing for response. Ten business days is a reasonable time for 
responding to requests for account information that consumers do not 
make in person, including requests made by electronic means (such as by 
electronic mail).
    4. Use of electronic means. If a consumer who is not present at the 
institution makes a request for account disclosures, including a request 
made by telephone, email, or via the institution's Web site, the 
institution may send the disclosures in paper form or, if the consumer 
agrees, may provide the disclosures electronically, such as to an email 
address that the consumer provides for that purpose, or on the 
institution's Web site, without regard to the consumer consent or other 
provisions of the E-Sign Act. The regulation does not require an 
institution to provide, nor a consumer to agree to receive, the 
disclosures required by Sec. 1030.4(a)(2) in electronic form.
    Paragraph (a)(2)(ii)(A).
    1. Recent rates. Institutions comply with this paragraph if they 
disclose an interest rate and annual percentage yield accurate within 
the seven calendar days preceding the date they send the disclosures.
    Paragraph (a)(2)(ii)(B).
    1. Term. Describing the maturity of a time account as ``1 year'' or 
``6 months,'' for example, illustrates a statement of the maturity of a 
time account as a term rather than a date (``January 10, 1995'').
    (b) Content of account disclosures.
    (b)(1) Rate information.
    (b)(1)(i) Annual percentage yield and interest rate.
    1. Rate disclosures. In addition to the interest rate and annual 
percentage yield, institutions may disclose a periodic rate 
corresponding to the interest rate. No other rate or yield (such as 
``tax effective yield'') is permitted. If the annual percentage yield is 
the same as the interest rate, institutions may disclose a single figure 
but must use both terms.
    2. Fixed-rate accounts. For fixed-rate time accounts paying the 
opening rate until maturity, institutions may disclose the period of 
time the interest rate will be in effect by stating the maturity date. 
(See Appendix B, B-7--Sample Form.) For other fixed-rate accounts, 
institutions may use a date (``This rate will be in effect through May 
4, 1995'') or a period (``This rate will be in effect for at least 30 
days'').
    3. Tiered-rate accounts. Each interest rate, along with the 
corresponding annual percentage yield for each specified balance level 
(or range of annual percentage yields, if appropriate), must be 
disclosed for tiered-rate

[[Page 1049]]

accounts. (See Appendix A, Part I, Paragraph D.)
    4. Stepped-rate accounts. A single composite annual percentage yield 
must be disclosed for stepped-rate accounts. (See Appendix A, Part I, 
Paragraph B.) The interest rates and the period of time each will be in 
effect also must be provided. When the initial rate offered for a 
specified time on a variable-rate account is higher or lower than the 
rate that would otherwise be paid on the account, the calculation of the 
annual percentage yield must be made as if for a stepped-rate account. 
(See Appendix A, Part I, Paragraph C.)
    (b)(1)(ii) Variable rates.
    Paragraph (b)(1)(ii)(B).
    1. Determining interest rates. To disclose how the interest rate is 
determined, institutions must:
    i. Identify the index and specific margin, if the interest rate is 
tied to an index.
    ii. State that rate changes are within the institution's discretion, 
if the institution does not tie changes to an index.
    Paragraph (b)(1)(ii)(C).
    1. Frequency of rate changes. An institution reserving the right to 
change rates at its discretion must state the fact that rates may change 
at any time.
    Paragraph (b)(1)(ii)(D).
    1. Limitations. A floor or ceiling on rates or on the amount the 
rate may decrease or increase during any time period must be disclosed. 
Institutions need not disclose the absence of limitations on rate 
changes.
    (b)(2) Compounding and crediting.
    (b)(2)(ii) Effect of closing an account.
    1. Deeming an account closed. An institution may, subject to state 
or other law, provide in its deposit contracts the actions by consumers 
that will be treated as closing the account and that will result in the 
forfeiture of accrued but uncredited interest. An example is the 
withdrawal of all funds from the account prior to the date that interest 
is credited.
    (b)(3) Balance information.
    (b)(3)(ii) Balance computation method.
    1. Methods and periods. Institutions may use different methods or 
periods to calculate minimum balances for purposes of imposing a fee 
(the daily balance for a calendar month, for example) and accruing 
interest (the average daily balance for a statement period, for 
example). Each method and corresponding period must be disclosed.
    (b)(3)(iii) When interest begins to accrue.
    1. Additional information. Institutions may disclose additional 
information such as the time of day after which deposits are treated as 
having been received the following business day, and may use additional 
descriptive terms such as ``ledger'' or ``collected'' balances to 
disclose when interest begins to accrue.
    (b)(4) Fees.
    1. Covered fees. The following are types of fees that must be 
disclosed:
    i. Maintenance fees, such as monthly service fees.
    ii. Fees to open or to close an account.
    iii. Fees related to deposits or withdrawals, such as fees for use 
of the institution's ATMs.
    iv. Fees for special services, such as stop-payment fees, fees for 
balance inquiries or verification of deposits, fees associated with 
checks returned unpaid, and fees for regularly sending to consumers 
checks that otherwise would be held by the institution.
    2. Other fees. Institutions need not disclose fees such as the 
following:
    i. Fees for services offered to account and nonaccount holders 
alike, such as travelers checks and wire transfers (even if different 
amounts are charged to account and nonaccount holders).
    ii. Incidental fees, such as fees associated with state escheat 
laws, garnishment or attorneys fees, and fees for photocopying.
    3. Amount of fees. Institutions must state the amount and conditions 
under which a fee may be imposed. Naming and describing the fee (such as 
``$4.00 monthly service fee'') will typically satisfy these 
requirements.
    4. Tied-accounts. Institutions must state if fees that may be 
assessed against an account are tied to other accounts at the 
institution. For example, if an institution ties the fees payable on a 
NOW account to balances held in the NOW account and a savings account, 
the NOW account disclosures must state that fact and explain how the fee 
is determined.
    5. Fees for overdrawing an account. Under Sec. 1030.4(b)(4) of this 
part, institutions must disclose the conditions under which a fee may be 
imposed. In satisfying this requirement institutions must specify the 
categories of transactions for which an overdraft fee may be imposed. An 
exhaustive list of transactions is not required. It is sufficient for an 
institution to state that the fee applies to overdrafts ``created by 
check, in-person withdrawal, ATM withdrawal, or other electronic 
means,'' as applicable. Disclosing a fee ``for overdraft items'' would 
not be sufficient.
    (b)(5) Transaction limitations.
    1. General rule. Examples of limitations on the number or dollar 
amount of deposits or withdrawals that institutions must disclose are:
    i. Limits on the number of checks that may be written on an account 
within a given time period.
    ii. Limits on withdrawals or deposits during the term of a time 
account.
    iii. Limitations required by Regulation D of the Board of Governors 
of the Federal Reserve System (12 CFR part 204) on the number of 
withdrawals permitted from money market deposit accounts by check to 
third parties each month. Institutions need not

[[Page 1050]]

disclose reservations of right to require notices for withdrawals from 
accounts required by federal or state law.
    (b)(6) Features of time accounts.
    (b)(6)(i) Time requirements.
    1. ``Callable'' time accounts. In addition to the maturity date, an 
institution must state the date or the circumstances under which it may 
redeem a time account at the institution's option (a ``callable'' time 
account).
    (b)(6)(ii) Early withdrawal penalties.
    1. General. The term ``penalty'' may but need not be used to 
describe the loss of interest that consumers may incur for early 
withdrawal of funds from time accounts.
    2. Examples. Examples of early withdrawal penalties are:
    i. Monetary penalties, such as ``$10.00'' or ``seven days' interest 
plus accrued but uncredited interest.''
    ii. Adverse changes to terms such as a lowering of the interest 
rate, annual percentage yield, or compounding frequency for funds 
remaining on deposit.
    iii. Reclamation of bonuses.
    3. Relation to rules for IRAs or similar plans. Penalties imposed by 
the Internal Revenue Code for certain withdrawals from IRAs or similar 
pension or savings plans are not early withdrawal penalties for purposes 
of this part.
    4. Disclosing penalties. Penalties may be stated in months, whether 
institutions assess the penalty using the actual number of days during 
the period or using another method such as a number of days that occurs 
in any actual sequence of the total calendar months involved. For 
example, stating ``one month's interest'' is permissible, whether the 
institution assesses 30 days' interest during the month of April, or 
selects a time period between 28 and 31 days for calculating the 
interest for all early withdrawals regardless of when the penalty is 
assessed.
    (b)(6)(iv) Renewal policies.
    1. Rollover time accounts. Institutions offering a grace period on 
time accounts that automatically renew need not state whether interest 
will be paid if the funds are withdrawn during the grace period.
    2. Nonrollover time accounts. Institutions paying interest on funds 
following the maturity of time accounts that do not renew automatically 
need not state the rate (or annual percentage yield) that may be paid. 
(See Appendix B, Model Clause B-1(h)(iv)(2).)

                 Section 1030.5--Subsequent Disclosures

    (a) Change in terms.
    (a)(1) Advance notice required.
    1. Form of notice. Institutions may provide a change-in-term notice 
on or with a periodic statement or in another mailing. If an institution 
provides notice through revised account disclosures, the changed term 
must be highlighted in some manner. For example, institutions may note 
that a particular fee has been changed (also specifying the new amount) 
or use an accompanying letter that refers to the changed term.
    2. Effective date. An example of language for disclosing the 
effective date of a change is ``As of November 21, 1994.''
    3. Terms that change upon the occurrence of an event. An institution 
offering terms that will automatically change upon the occurrence of a 
stated event need not send an advance notice of the change provided the 
institution fully describes the conditions of the change in the account 
opening disclosures (and sends any change-in-term notices regardless of 
whether the changed term affects that consumer's account at that time).
    4. Examples. Examples of changes not requiring an advance change-in-
terms notice are:
    i. The termination of employment for consumers for whom account 
maintenance or activity fees were waived during their employment by the 
depository institution.
    ii. The expiration of one year in a promotion described in the 
account opening disclosures to ``waive $4.00 monthly service charges for 
one year.''
    (a)(2) No notice required.
    (a)(2)(ii) Check printing fees.
    1. Increase in fees. A notice is not required for an increase in 
fees for printing checks (or deposit and withdrawal slips) even if the 
institution adds some amount to the price charged by the vendor.
    (b) Notice before maturity for time accounts longer than one month 
that renew automatically.
    1. Maturity dates on nonbusiness days. In determining the term of a 
time account, institutions may disregard the fact that the term will be 
extended beyond the disclosed number of days because the disclosed 
maturity falls on a nonbusiness day. For example, a holiday or weekend 
may cause a ``one-year'' time account to extend beyond 365 days (or 366, 
in a leap year) or a ``one-month'' time account to extend beyond 31 
days.
    2. Disclosing when rates will be determined. Ways to disclose when 
the annual percentage yield will be available include the use of:
    i. A specific date, such as ``October 28.''
    ii. A date that is easily determinable, such as ``the Tuesday before 
the maturity date stated on this notice'' or ``as of the maturity date 
stated on this notice.''
    3. Alternative timing rule. Under the alternative timing rule, an 
institution offering a 10-day grace period would have to provide the 
disclosures at least 10 days prior to the scheduled maturity date.
    4. Club accounts. If consumers have agreed to the transfer of 
payments from another account to a club time account for the next club 
period, the institution must comply with the requirements for 
automatically renewable time accounts--even though consumers may 
withdraw funds from the club

[[Page 1051]]

account at the end of the current club period.
    5. Renewal of a time account. In the case of a change in terms that 
becomes effective if a rollover time account is subsequently renewed:
    i. If the change is initiated by the institution, the disclosure 
requirements of this paragraph apply. (Paragraph 1030.5(a) applies if 
the change becomes effective prior to the maturity of the existing time 
account.)
    ii. If the change is initiated by the consumer, the account opening 
disclosure requirements of Sec. 1030.4(b) apply. (If the notice 
required by this paragraph has been provided, institutions may give new 
account disclosures or disclosures highlighting only the new term.)
    6. Example. If a consumer receives a prematurity notice on a one-
year time account and requests a rollover to a six-month account, the 
institution must provide either account opening disclosures including 
the new maturity date or, if all other terms previously disclosed in the 
prematurity notice remain the same, only the new maturity date.
    (b)(1) Maturities of longer than one year.
    1. Highlighting changed terms. Institutions need not highlight terms 
that changed since the last account disclosures were provided.
    (c) Notice before maturity for time accounts longer than one year 
that do not renew automatically.
    1. Subsequent account. When funds are transferred following maturity 
of a nonrollover time account, institutions need not provide account 
disclosures unless a new account is established.

             Section 1030.6--Periodic Statement Disclosures

    (a) General rule.
    1. General. Institutions are not required to provide periodic 
statements. If they do provide statements, disclosures need only be 
furnished to the extent applicable. For example, if no interest is 
earned for a statement period, institutions need not state that fact. 
Or, institutions may disclose ``$0'' interest earned and ``0%'' annual 
percentage yield earned.
    2. Regulation E interim statements. When an institution provides 
regular quarterly statements, and in addition provides a monthly interim 
statement to comply with Regulation E, the interim statement need not 
comply with this section unless it states interest or rate information. 
(See 12 CFR 1005.9(b).)
    3. Combined statements. Institutions may provide information about 
an account (such as a MMDA) on the periodic statement for another 
account (such as a NOW account) without triggering the disclosures 
required by this section, as long as:
    i. The information is limited to the account number, the type of 
account, or balance information, and
    ii. The institution also provides a periodic statement complying 
with this section for each account.
    4. Other information. Additional information that may be given on or 
with a periodic statement includes:
    i. Interest rates and corresponding periodic rates applied to 
balances during the statement period.
    ii. The dollar amount of interest earned year-to-date.
    iii. Bonuses paid (or any de minimis consideration of $10 or less).
    iv. Fees for products such as safe deposit boxes.
    (a)(1) Annual percentage yield earned.
    1. Ledger and collected balances. Institutions that accrue interest 
using the collected balance method may use either the ledger or the 
collected balance in determining the annual percentage yield earned.
    (a)(2) Amount of interest.
    1. Accrued interest. Institutions must state the amount of interest 
that accrued during the statement period, even if it was not credited.
    2. Terminology. In disclosing interest earned for the period, 
institutions must use the term ``interest'' or terminology such as:
    i. ``Interest paid,'' to describe interest that has been credited.
    ii. ``Interest accrued'' or ``interest earned,'' to indicate that 
interest is not yet credited.
    3. Closed accounts. If consumers close an account between crediting 
periods and forfeits accrued interest, the institution may not show any 
figures for interest earned or annual percentage yield earned for the 
period (other than zero, at the institution's option).
    (a)(3) Fees imposed.
    1. General. Periodic statements must state fees disclosed under 
Sec. 1030.4(b) that were debited to the account during the statement 
period, even if assessed for an earlier period.
    2. Itemizing fees by type. In itemizing fees imposed more than once 
in the period, institutions may group fees if they are the same type. 
(See Sec. 1030.11(a)(1) of this part regarding certain fees that are 
required to be grouped.) When fees of the same type are grouped 
together, the description must make clear that the dollar figure 
represents more than a single fee, for example, ``total fees for checks 
written this period.'' Examples of fees that may not be grouped together 
are--
    i. Monthly maintenance and excess-activity fees.
    ii. ``Transfer'' fees, if different dollar amounts are imposed, such 
as $.50 for deposits and $1.00 for withdrawals.
    iii. Fees for electronic fund transfers and fees for other services, 
such as balance-inquiry or maintenance fees.
    iv. Fees for paying overdrafts and fees for returning checks or 
other items unpaid.

[[Page 1052]]

    3. Identifying fees. Statement details must enable consumers to 
identify the specific fee. For example:
    i. Institutions may use a code to identify a particular fee if the 
code is explained on the periodic statement or in documents accompanying 
the statement.
    ii. Institutions using debit slips may disclose the date the fee was 
debited on the periodic statement and show the amount and type of fee on 
the dated debit slip.
    4. Relation to Regulation E. Disclosure of fees in compliance with 
Regulation E complies with this section for fees related to electronic 
fund transfers (for example, totaling all electronic funds transfer fees 
in a single figure).
    (a)(4) Length of period.
    1. General. Institutions providing the beginning and ending dates of 
the period must make clear whether both dates are included in the 
period.
    2. Opening or closing an account mid-cycle. If an account is opened 
or closed during the period for which a statement is sent, institutions 
must calculate the annual percentage yield earned based on account 
balances for each day the account was open.
    (b) Special rule for average daily balance method.
    1. Monthly statements and quarterly compounding. This rule applies, 
for example, when an institution calculates interest on a quarterly 
average daily balance and sends monthly statements. In this case, the 
first two monthly statements would omit annual percentage yield earned 
and interest earned figures; the third monthly statement would reflect 
the interest earned and the annual percentage yield earned for the 
entire quarter.
    2. Length of the period. Institutions must disclose the length of 
both the interest calculation period and the statement period. For 
example, a statement could disclose a statement period of April 16 
through May 15 and further state that ``the interest earned and the 
annual percentage yield earned are based on your average daily balance 
for the period April 1 through April 30.''
    3. Quarterly statements and monthly compounding. Institutions that 
use the average daily balance method to calculate interest on a monthly 
basis and that send statements on a quarterly basis may disclose a 
single interest (and annual percentage yield earned) figure. 
Alternatively, an institution may disclose three interest and three 
annual percentage yield earned figures, one for each month in the 
quarter, as long as the institution states the number of days (or 
beginning and ending dates) in the interest period if different from the 
statement period.

                   Section 1030.7--Payment of Interest

    (a)(1) Permissible methods.
    1. Prohibited calculation methods. Calculation methods that do not 
comply with the requirement to pay interest on the full amount of 
principal in the account each day include:
    i. Paying interest on the balance in the account at the end of the 
period (the ``ending balance'' method).
    ii. Paying interest for the period based on the lowest balance in 
the account for any day in that period (the ``low balance'' method).
    iii. Paying interest on a percentage of the balance, excluding the 
amount set aside for reserve requirements (the ``investable balance'' 
method).
    2. Use of 365-day basis. Institutions may apply a daily periodic 
rate greater than 1/365 of the interest rate--such as 1/360 of the 
interest rate--as long as it is applied 365 days a year.
    3. Periodic interest payments. An institution can pay interest each 
day on the account and still make uniform interest payments. For 
example, for a one-year certificate of deposit an institution could make 
monthly interest payments equal to 1/12 of the amount of interest that 
will be earned for a 365-day period (or 11 uniform monthly payments--
each equal to roughly 1/12 of the total amount of interest--and one 
payment that accounts for the remainder of the total amount of interest 
earned for the period).
    4. Leap year. Institutions may apply a daily rate of 1/366 or 1/365 
of the interest rate for 366 days in a leap year, if the account will 
earn interest for February 29.
    5. Maturity of time accounts. Institutions are not required to pay 
interest after time accounts mature. (See 12 CFR Part 217, Regulation Q 
of the Board of Governors of the Federal Reserve System, for limitations 
on duration of interest payments.) Examples include:
    i. During a grace period offered for an automatically renewable time 
account, if consumers decide during that period not to renew the 
account.
    ii. Following the maturity of nonrollover time accounts.
    iii. When the maturity date falls on a holiday, and consumers must 
wait until the next business day to obtain the funds.
    6. Dormant accounts. Institutions must pay interest on funds in an 
account, even if inactivity or the infrequency of transactions would 
permit the institution to consider the account to be ``inactive'' or 
``dormant'' (or similar status) as defined by state or other law or the 
account contract.
    (a)(2) Determination of minimum balance to earn interest.
    1. Daily balance accounts. Institutions that require a minimum 
balance may choose not to pay interest for days when the balance drops 
below the required minimum, if they

[[Page 1053]]

use the daily balance method to calculate interest.
    2. Average daily balance accounts. Institutions that require a 
minimum balance may choose not to pay interest for the period in which 
the balance drops below the required minimum, if they use the average 
daily balance method to calculate interest.
    3. Beneficial method. Institutions may not require that consumers 
maintain both a minimum daily balance and a minimum average daily 
balance to earn interest, such as by requiring consumers to maintain a 
$500 daily balance and a prescribed average daily balance (whether 
higher or lower). But an institution could offer a minimum balance to 
earn interest that includes an additional method that is ``unequivocally 
beneficial'' to consumers such as the following: An institution using 
the daily balance method to calculate interest and requiring a $500 
minimum daily balance could offer to pay interest on the account for 
those days the minimum balance is not met as long as consumers maintain 
an average daily balance throughout the month of $400.
    4. Paying on full balance. Institutions must pay interest on the 
full balance in the account that meets the required minimum balance. For 
example, if $300 is the minimum daily balance required to earn interest, 
and a consumer deposits $500, the institution must pay the stated 
interest rate on the full $500 and not just on $200.
    5. Negative balances prohibited. Institutions must treat a negative 
account balance as zero to determine:
    i. The daily or average daily balance on which interest will be 
paid.
    ii. Whether any minimum balance to earn interest is met.
    6. Club accounts. Institutions offering club accounts (such as a 
``holiday'' or ``vacation'' club) cannot impose a minimum balance 
requirement for interest based on the total number or dollar amount of 
payments required under the club plan. For example, if a plan calls for 
$10 weekly payments for 50 weeks, the institution cannot set a $500 
``minimum balance'' and then pay interest only if the consumer has made 
all 50 payments.
    7. Minimum balances not affecting interest. Institutions may use the 
daily balance, average daily balance, or any other computation method to 
calculate minimum balance requirements not involving the payment of 
interest--such as to compute minimum balances for assessing fees.
    (b) Compounding and crediting policies.
    1. General. Institutions choosing to compound interest may compound 
or credit interest annually, semi-annually, quarterly, monthly, daily, 
continuously, or on any other basis.
    2. Withdrawals prior to crediting date. If consumers withdraw funds 
(without closing the account) prior to a scheduled crediting date, 
institutions may delay paying the accrued interest on the withdrawn 
amount until the scheduled crediting date, but may not avoid paying 
interest.
    3. Closed accounts. Subject to state or other law, an institution 
may choose not to pay accrued interest if consumers close an account 
prior to the date accrued interest is credited, as long as the 
institution has disclosed that fact.
    (c) Date interest begins to accrue.
    1. Relation to Regulation CC. Institutions may rely on the Expedited 
Funds Availability Act (EFAA) and Regulation CC of the Board of 
Governors of the Federal Reserve System (12 CFR part 229) to determine, 
for example, when a deposit is considered made for purposes of interest 
accrual, or when interest need not be paid on funds because a deposited 
check is later returned unpaid.
    2. Ledger and collected balances. Institutions may calculate 
interest by using a ``ledger'' or ``collected'' balance method, as long 
as the crediting requirements of the EFAA are met (12 CFR 229.14).
    3. Withdrawal of principal. Institutions must accrue interest on 
funds until the funds are withdrawn from the account. For example, if a 
check is debited to an account on a Tuesday, the institution must accrue 
interest on those funds through Monday.

                       Section 1030.8--Advertising

    (a) Misleading or inaccurate advertisements.
    1. General. All advertisements are subject to the rule against 
misleading or inaccurate advertisements, even though the disclosures 
applicable to various media differ.
    2. Indoor signs. An indoor sign advertising an annual percentage 
yield is not misleading or inaccurate when:
    i. For a tiered-rate account, it also provides the lower dollar 
amount of the tier corresponding to the advertised annual percentage 
yield.
    ii. For a time account, it also provides the term required to obtain 
the advertised annual percentage yield.
    3. Fees affecting ``free'' accounts. For purposes of determining 
whether an account can be advertised as ``free'' or ``no cost,'' 
maintenance and activity fees include:
    i. Any fee imposed when a minimum balance requirement is not met, or 
when consumers exceed a specified number of transactions.
    ii. Transaction and service fees that consumers reasonably expect to 
be imposed on a regular basis.
    iii. A flat fee, such as a monthly service fee.
    iv. Fees imposed to deposit, withdraw, or transfer funds, including 
per-check or per-transaction charges (for example, $.25 for each 
withdrawal, whether by check or in person).

[[Page 1054]]

    4. Other fees. Examples of fees that are not maintenance or activity 
fees include:
    i. Fees not required to be disclosed under Sec. 1030.4(b)(4).
    ii. Check printing fees.
    iii. Balance inquiry fees.
    iv. Stop-payment fees and fees associated with checks returned 
unpaid.
    v. Fees assessed against a dormant account.
    vi. Fees for ATM or electronic transfer services (such as 
preauthorized transfers or home banking services) not required to obtain 
an account.
    5. Similar terms. An advertisement may not use the term ``fees 
waived'' if a maintenance or activity fee may be imposed because it is 
similar to the terms ``free'' or ``no cost.''
    6. Specific account services. Institutions may advertise a specific 
account service or feature as free if no fee is imposed for that service 
or feature. For example, institutions offering an account that is free 
of deposit or withdrawal fees could advertise that fact, as long as the 
advertisement does not mislead consumers by implying that the account is 
free and that no other fee (a monthly service fee, for example) may be 
charged.
    7. Free for limited time. If an account (or a specific account 
service) is free only for a limited period of time--for example, for one 
year following the account opening--the account (or service) may be 
advertised as free if the time period is also stated.
    8. Conditions not related to deposit accounts. Institutions may 
advertise accounts as ``free'' for consumers meeting conditions not 
related to deposit accounts, such as the consumer's age. For example, 
institutions may advertise a NOW account as ``free for persons over 65 
years old,'' even though a maintenance or activity fee is assessed on 
accounts held by consumers 65 or younger.
    9. Electronic advertising. If an electronic advertisement (such as 
an advertisement appearing on an Internet Web site) displays a 
triggering term (such as a bonus or annual percentage yield) the 
advertisement must clearly refer the consumer to the location where the 
additional required information begins. For example, an advertisement 
that includes a bonus or annual percentage yield may be accompanied by a 
link that directly takes the consumer to the additional information.
    10. Examples. Examples of advertisements that would ordinarily be 
misleading, inaccurate, or misrepresent the deposit contract are:
    i. Representing an overdraft service as a ``line of credit,'' unless 
the service is subject to Regulation Z, 12 CFR part 1026.
    ii. Representing that the institution will honor all checks or 
authorize payment of all transactions that overdraw an account, with or 
without a specified dollar limit, when the institution retains 
discretion at any time not to honor checks or authorize transactions.
    iii. Representing that consumers with an overdrawn account are 
allowed to maintain a negative balance when the terms of the account's 
overdraft service require consumers promptly to return the deposit 
account to a positive balance.
    iv. Describing an institution's overdraft service solely as 
protection against bounced checks when the institution also permits 
overdrafts for a fee for overdrawing their accounts by other means, such 
as ATM withdrawals, debit card transactions, or other electronic fund 
transfers.
    v. Advertising an account-related service for which the institution 
charges a fee in an advertisement that also uses the word ``free'' or 
``no cost'' (or a similar term) to describe the account, unless the 
advertisement clearly and conspicuously indicates that there is a cost 
associated with the service. If the fee is a maintenance or activity fee 
under Sec. 1030.8(a)(2) of this part, however, an advertisement may not 
describe the account as ``free'' or ``no cost'' (or contain a similar 
term) even if the fee is disclosed in the advertisement.
    11. Additional disclosures in connection with the payment of 
overdrafts. The rule in Sec. 1030.3(a), providing that disclosures 
required by Sec. 1030.8 may be provided to the consumer in electronic 
form without regard to E-Sign Act requirements, applies to the 
disclosures described in Sec. 1030.11(b), which are incorporated by 
reference in Sec. 1030.8(f).
    (b) Permissible rates.
    1. Tiered-rate accounts. An advertisement for a tiered-rate account 
that states an annual percentage yield must also state the annual 
percentage yield for each tier, along with corresponding minimum balance 
requirements. Any interest rates stated must appear in conjunction with 
the applicable annual percentage yields for each tier.
    2. Stepped-rate accounts. An advertisement that states an interest 
rate for a stepped-rate account must state all the interest rates and 
the time period that each rate is in effect.
    3. Representative examples. An advertisement that states an annual 
percentage yield for a given type of account (such as a time account for 
a specified term) need not state the annual percentage yield applicable 
to other time accounts offered by the institution or indicate that other 
maturity terms are available. In an advertisement stating that rates for 
an account may vary depending on the amount of the initial deposit or 
the term of a time account, institutions need not list each balance 
level and term offered. Instead, the advertisement may:
    i. Provide a representative example of the annual percentage yields 
offered, clearly described as such. For example, if an institution 
offers a $25 bonus on all time accounts

[[Page 1055]]

and the annual percentage yield will vary depending on the term 
selected, the institution may provide a disclosure of the annual 
percentage yield as follows: ``For example, our 6-month certificate of 
deposit currently pays a 3.15% annual percentage yield.''
    ii. Indicate that various rates are available, such as by stating 
short-term and longer-term maturities along with the applicable annual 
percentage yields: ``We offer certificates of deposit with annual 
percentage yields that depend on the maturity you choose. For example, 
our one-month CD earns a 2.75% APY. Or, earn a 5.25% APY for a three-
year CD.''
    (c) When additional disclosures are required.
    1. Trigger terms. The following are examples of information stated 
in advertisements that are not ``trigger'' terms:
    i. ``One, three, and five year CDs available.''
    ii. ``Bonus rates available.''
    iii. ``1% over our current rates,'' so long as the rates are not 
determinable from the advertisement.
    (c)(2) Time annual percentage yield is offered.
    1. Specified date. If an advertisement discloses an annual 
percentage yield as of a specified date, that date must be recent in 
relation to the publication or broadcast frequency of the media used, 
taking into account the particular circumstances or production deadlines 
involved. For example, the printing date of a brochure printed once for 
a deposit account promotion that will be in effect for six months would 
be considered ``recent,'' even though rates change during the six-month 
period. Rates published in a daily newspaper or on television must 
reflect rates offered shortly before (or on) the date the rates are 
published or broadcast.
    2. Reference to date of publication. An advertisement may refer to 
the annual percentage yield as being accurate as of the date of 
publication, if the date is on the publication itself. For instance, an 
advertisement in a periodical may state that a rate is ``current through 
the date of this issue,'' if the periodical shows the date.
    (c)(5) Effect of fees.
    1. Scope. This requirement applies only to maintenance or activity 
fees described in comment 8(a).
    (c)(6) Features of time accounts.
    (c)(6)(i) Time requirements.
    1. Club accounts. If a club account has a maturity date but the term 
may vary depending on when the account is opened, institutions may use a 
phrase such as: ``The maturity date of this club account is November 15; 
its term varies depending on when the account is opened.''
    (c)(6)(ii) Early withdrawal penalties.
    1. Discretionary penalties. Institutions imposing early withdrawal 
penalties on a case-by-case basis may disclose that they ``may'' (rather 
than ``will'') impose a penalty if such a disclosure accurately 
describes the account terms.
    (d) Bonuses.
    1. General reference to ``bonus.'' General statements such as 
``bonus checking'' or ``get a bonus when you open a checking account'' 
do not trigger the bonus disclosures.
    (e) Exemption for certain advertisements.
    (e)(1) Certain media.
    Paragraph (e)(1)(i).
    1. Internet advertisements. The exemption for advertisements made 
through broadcast or electronic media does not extend to advertisements 
posted on the Internet or sent by email.
    Paragraph (e)(1)(iii).
    1. Tiered-rate accounts. Solicitations for a tiered-rate account 
made through telephone response machines must provide the annual 
percentage yields and the balance requirements applicable to each tier.
    (e)(2) Indoor signs.
    Paragraph (e)(2)(i).
    1. General. Indoor signs include advertisements displayed on 
computer screens, banners, preprinted posters, and chalk or peg boards. 
Any advertisement inside the premises that can be retained by a consumer 
(such as a brochure or a printout from a computer) is not an indoor 
sign.

            Section 1030.9--Enforcement and Record Retention

    (c) Record retention.
    1. Evidence of required actions. Institutions comply with the 
regulation by demonstrating that they have done the following:
    i. Established and maintained procedures for paying interest and 
providing timely disclosures as required by the regulation, and
    ii. Retained sample disclosures for each type of account offered to 
consumers, such as account-opening disclosures, copies of 
advertisements, and change-in-term notices; and information regarding 
the interest rates and annual percentage yields offered.
    2. Methods of retaining evidence. Institutions must be able to 
reconstruct the required disclosures or other actions. They need not 
keep disclosures or other business records in hard copy. Records 
evidencing compliance may be retained on microfilm, microfiche, or by 
other methods that reproduce records accurately (including computer 
files).
    3. Payment of interest. Institutions must retain sufficient rate and 
balance information to permit the verification of interest paid on an 
account, including the payment of interest on the full principal 
balance.

[[Page 1056]]

                       Section 1030.10 [Reserved]

    Section 1030.11--Additional Disclosures Regarding the Payment of 
                               Overdrafts

    (a) Disclosure of total fees on periodic statements.
    (a)(1) General.
    1. Transfer services. The overdraft services covered by Sec. 
1030.11(a)(1) of this part do not include a service providing for the 
transfer of funds from another deposit account of the consumer to permit 
the payment of items without creating an overdraft, even if a fee is 
charged for the transfer.
    2. Fees for paying overdrafts. Institutions must disclose on 
periodic statements a total dollar amount for all fees or charges 
imposed on the account for paying overdrafts. The institution must 
disclose separate totals for the statement period and for the calendar 
year-to-date. The total dollar amount for each of these periods includes 
per-item fees as well as interest charges, daily or other periodic fees, 
or fees charged for maintaining an account in overdraft status, whether 
the overdraft is by check, debit card transaction, or by any other 
transaction type. It also includes fees charged when there are 
insufficient funds because previously deposited funds are subject to a 
hold or are uncollected. It does not include fees for transferring funds 
from another account of the consumer to avoid an overdraft, or fees 
charged under a service subject to Regulation Z (12 CFR part 1026). See 
also comment 11(c)-2. Under Sec. 1030.11(a)(1)(i), the disclosure must 
describe the total dollar amount for all fees or charges imposed on the 
account for the statement period and calendar year-to-date for paying 
overdrafts using the term ``Total Overdraft Fees.'' This requirement 
applies notwithstanding comment 3(a)-2.
    3. Fees for returning items unpaid. The total dollar amount for all 
fees for returning items unpaid must include all fees charged to the 
account for dishonoring or returning checks or other items drawn on the 
account. The institution must disclose separate totals for the statement 
period and for the calendar year-to-date. Fees imposed when deposited 
items are returned are not included. Institutions may use terminology 
such as ``returned item fee'' or ``NSF fee'' to describe fees for 
returning items unpaid.
    4. Waived fees. In some cases, an institution may provide a 
statement for the current period reflecting that fees imposed during a 
previous period were waived and credited to the account. Institutions 
may, but are not required to, reflect the adjustment in the total for 
the calendar year-to-date and in the applicable statement period. For 
example, if an institution assesses a fee in January and refunds the fee 
in February, the institution could disclose a year-to-date total 
reflecting the amount credited, but it should not affect the total 
disclosed for the February statement period, because the fee was not 
assessed in the February statement period. If an institution assesses 
and then waives and credits a fee within the same cycle, the institution 
may, at its option, reflect the adjustment in the total disclosed for 
fees imposed during the current statement period and for the total for 
the calendar year-to-date. Thus, if the institution assesses and waives 
the fee in the February statement period, the February fee total could 
reflect a total net of the waived fee.
    5. Totals for the calendar year to date. Some institutions' 
statement periods do not coincide with the calendar month. In such 
cases, the institution may disclose a calendar year-to-date total by 
aggregating fees for 12 monthly cycles, starting with the period that 
begins during January and finishing with the period that begins during 
December. For example, if statement periods begin on the 10th day of 
each month, the statement covering December 10, 2006 through January 9, 
2007 may disclose the year-to-date total for fees imposed from January 
10, 2006 through January 9, 2007. Alternatively, the institution could 
provide a statement for the cycle ending January 9, 2007 showing the 
year-to-date total for fees imposed January 1, 2006 through December 31, 
2006.
    6. Itemization of fees. An institution may itemize each fee in 
addition to providing the disclosures required by Sec. 1030.11(a)(1) of 
this part.
    (a)(3) Format requirements.
    1. Time period covered by periodic statement disclosures. The 
disclosures under Sec. 1030.11(a) must be included on periodic 
statements provided by an institution starting the first statement 
period that begins after January 1, 2010. For example, if a consumer's 
statement period typically closes on the 15th of each month, an 
institution must provide the disclosures required by Sec. 1030.11(a)(1) 
on subsequent periodic statements for that consumer beginning with the 
statement reflecting the period from January 16, 2010 to February 15, 
2010.
    (b) Advertising disclosures for overdraft services.
    1. Examples of institutions promoting the payment of overdrafts. A 
depository institution would be required to include the advertising 
disclosures in Sec. 1030.11(b)(1) of this part if the institution:
    i. Promotes the institution's policy or practice of paying 
overdrafts (unless the service would be subject to Regulation Z (12 CFR 
part 1026)). This includes advertisements using print media such as 
newspapers or brochures, telephone solicitations, electronic mail, or 
messages posted on an Internet site. (But see Sec. 1030.11(b)(2) of 
this part for communications that are not subject to the additional 
advertising disclosures.)
    ii. Includes a message on a periodic statement informing the 
consumer of an overdraft

[[Page 1057]]

limit or the amount of funds available for overdrafts. For example, an 
institution that includes a message on a periodic statement informing 
the consumer of a $500 overdraft limit or that the consumer has $300 
remaining on the overdraft limit, is promoting an overdraft service.
    iii. Discloses an overdraft limit or includes the dollar amount of 
an overdraft limit in a balance disclosed on an automated system, such 
as a telephone response machine, ATM screen or the institution's 
Internet site. (See, however, Sec. 1030.11(b)(3) of this part.)
    2. Transfer services. The overdraft services covered by Sec. 
1030.11(b)(1) of this part do not include a service providing for the 
transfer of funds from another deposit account of the consumer to permit 
the payment of items without creating an overdraft, even if a fee is 
charged for the transfer.
    3. Electronic media. The exception for advertisements made through 
broadcast or electronic media, such as television or radio, does not 
apply to advertisements posted on an institution's Internet site, on an 
ATM screen, provided on telephone response machines, or sent by 
electronic mail.
    4. Fees. The fees that must be disclosed under Sec. 1030.11(b)(1) 
of this part include per-item fees as well as interest charges, daily or 
other periodic fees, and fees charged for maintaining an account in 
overdraft status, whether the overdraft is by check or by other means. 
The fees also include fees charged when there are insufficient funds 
because previously deposited funds are subject to a hold or are 
uncollected. The fees do not include fees for transferring funds from 
another account to avoid an overdraft, or fees charged when the 
institution has previously agreed in writing to pay items that overdraw 
the account and the service is subject to Regulation Z, 12 CFR Part 
1026.
    5. Categories of transactions. An exhaustive list of transactions is 
not required. Disclosing that a fee may be imposed for covering 
overdrafts ``created by check, in-person withdrawal, ATM withdrawal, or 
other electronic means'' would satisfy the requirements of Sec. 
1030.11(b)(1)(ii) of this part where the fee may be imposed in these 
circumstances. See comment 4(b)(4)-5 of this part.
    6. Time period to repay. If a depository institution reserves the 
right to require a consumer to pay an overdraft immediately or on demand 
instead of affording consumers a specific time period to establish a 
positive balance in the account, an institution may comply with Sec. 
1030.11(b)(1)(iii) of this part by disclosing this fact.
    7. Circumstances for nonpayment. An institution must describe the 
circumstances under which it will not pay an overdraft. It is sufficient 
to state, as applicable: ``Whether your overdrafts will be paid is 
discretionary and we reserve the right not to pay. For example, we 
typically do not pay overdrafts if your account is not in good standing, 
or you are not making regular deposits, or you have too many 
overdrafts.''
    8. Advertising an account as ``free.'' If the advertised account-
related service is an overdraft service subject to the requirements of 
Sec. 1030.11(b)(1) of this part, institutions must disclose the fee or 
fees for the payment of each overdraft, not merely that a cost is 
associated with the overdraft service, as well as other required 
information. Compliance with comment 8(a)-10.v. is not sufficient.
    (c) Disclosure of account balances.
    1. Balance that does not include additional amounts. For purposes of 
the balance disclosure requirement in Sec. 1030.11(c), if an 
institution discloses balance information to a consumer through an 
automated system, it must disclose a balance that excludes any funds 
that the institution may provide to cover an overdraft pursuant to a 
discretionary overdraft service, that will be paid by the institution 
under a service subject to Regulation Z (12 CFR Part 1026), or that will 
be transferred from another account held individually or jointly by a 
consumer. The balance may, but need not, include funds that are 
deposited in the consumer's account, such as from a check, that are not 
yet made available for withdrawal in accordance with the funds 
availability rules under Regulation CC of the Board of Governors of the 
Federal Reserve System (12 CFR part 229). In addition, the balance may, 
but need not, include funds that are held by the institution to satisfy 
a prior obligation of the consumer (for example, to cover a hold for an 
ATM or debit card transaction that has been authorized but for which the 
bank has not settled).
    2. Retail sweep programs. In a retail sweep program, an institution 
establishes two legally distinct subaccounts, a transaction subaccount 
and a savings subaccount, which together make up the consumer's account. 
The institution allocates and transfers funds between the two 
subaccounts in order to maximize the balance in the savings account 
while complying with the monthly limitations on transfers out of savings 
accounts under Regulation D of the Board of Governors of the Federal 
Reserve System (12 CFR 204.2(d)(2)). Retail sweep programs are generally 
not established for the purpose of covering overdrafts. Rather, 
institutions typically establish retail sweep programs by agreement with 
the consumer, in order for the institution to minimize its transaction 
account reserve requirements and, in some cases, to provide a higher 
interest rate than the consumer would earn on a transaction account 
alone. Section 1030.11(c) does not require an institution to exclude 
from the consumer's balance funds that may be transferred from another 
account pursuant to a retail sweep program that is established for

[[Page 1058]]

such purposes and that has the following characteristics:
    i. The account involved complies with Regulation D of the Board of 
Governors of the Federal Reserve System (12 CFR 204.2(d)(2));
    ii. The consumer does not have direct access to the non-transaction 
subaccount that is part of the retail sweep program; and
    iii. The consumer's periodic statements show the account balance as 
the combined balance in the subaccounts.
    3. Additional balance. The institution may disclose additional 
balances supplemented by funds that may be provided by the institution 
to cover an overdraft, whether pursuant to a discretionary overdraft 
service, a service subject to Regulation Z (12 CFR Part 1026), or a 
service that transfers funds from another account held individually or 
jointly by the consumer, so long as the institution prominently states 
that any additional balance includes these additional overdraft amounts. 
The institution may not simply state, for instance, that the second 
balance is the consumer's ``available balance,'' or contains ``available 
funds.'' Rather, the institution should provide enough information to 
convey that the second balance includes these amounts. For example, the 
institution may state that the balance includes ``overdraft funds.'' 
Where a consumer has not opted into, or as applicable, has opted out of 
the institution's discretionary overdraft service, any additional 
balance disclosed should not include funds that otherwise might be 
available under that service. Where a consumer has not opted into, or as 
applicable, has opted out of, the institution's discretionary overdraft 
service for some, but not all transactions (e.g. , the consumer has not 
opted into overdraft services for ATM and one-time debit card 
transactions), an institution that includes these additional overdraft 
funds in the second balance should convey that the overdraft funds are 
not available for all transactions. For example, the institution could 
state that overdraft funds are not available for ATM and one-time (or 
everyday) debit card transactions. Similarly, if funds are not available 
for all transactions pursuant to a service subject to Regulation Z (12 
CFR part 1026) or a service that transfers funds from another account, a 
second balance that includes such funds should also indicate this fact.
    4. Automated systems. The balance disclosure requirement in Sec. 
1030.11(c) applies to any automated system through which the consumer 
requests a balance, including, but not limited to, a telephone response 
system, the institution's Internet site, or an ATM. The requirement 
applies whether the institution discloses a balance through an ATM owned 
or operated by the institution or through an ATM not owned or operated 
by the institution (including an ATM operated by a non-depository 
institution). If the balance is obtained at an ATM, the requirement also 
applies whether the balance is disclosed on the ATM screen or on a paper 
receipt.

      Appendix A to Part 1030--Annual Percentage Yield Calculation

Part I. Annual Percentage Yield for Account Disclosures and Advertising 
                                Purposes

    1. Rounding for calculations. The following are examples of 
permissible rounding for calculating interest and the annual percentage 
yield:
    i. The daily rate applied to a balance carried to five or more 
decimal places
    ii. The daily interest earned carried to five or more decimal places

     Part II. Annual Percentage Yield Earned for Periodic Statements

    1. Balance method. The interest figure used in the calculation of 
the annual percentage yield earned may be derived from the daily balance 
method or the average daily balance method. The balance used in the 
formula for the annual percentage yield earned is the sum of the 
balances for each day in the period divided by the number of days in the 
period.
    2. Negative balances prohibited. Institutions must treat a negative 
account balance as zero to determine the balance on which the annual 
percentage yield earned is calculated. (See commentary to Sec. 
1030.7(a)(2).)

                           A. General Formula

    1. Accrued but uncredited interest. To calculate the annual 
percentage yield earned, accrued but uncredited interest:
    i. May not be included in the balance for statements issued at the 
same time or less frequently than the account's compounding and 
crediting frequency. For example, if monthly statements are sent for an 
account that compounds interest daily and credits interest monthly, the 
balance may not be increased each day to reflect the effect of daily 
compounding.
    ii. Must be included in the balance for succeeding statements if a 
statement is issued more frequently than compounded interest is credited 
on an account. For example, if monthly statements are sent for an 
account that compounds interest daily and credits interest quarterly, 
the balance for the second monthly statement would include interest that 
had accrued for the prior month.
    2. Rounding. The interest earned figure used to calculate the annual 
percentage yield earned must be rounded to two decimals and reflect the 
amount actually paid. For example, if the interest earned for a 
statement period is $20.074 and the institution pays the consumer 
$20.07, the institution must use $20.07 (not $20.074) to calculate

[[Page 1059]]

the annual percentage yield earned. For accounts paying interest based 
on the daily balance method that compound and credit interest quarterly, 
and send monthly statements, the institution may, but need not, round 
accrued interest to two decimals for calculating the annual percentage 
yield earned on the first two monthly statements issued during the 
quarter. However, on the quarterly statement the interest earned figure 
must reflect the amount actually paid.

 B. Special Formula for Use Where Periodic Statement Is Sent More Often 
            Than the Period for Which Interest Is Compounded

    1. Statements triggered by Regulation E. Institutions may, but need 
not, use this formula to calculate the annual percentage yield earned 
for accounts that receive quarterly statements and are subject to 
Regulation E's rule calling for monthly statements when an electronic 
fund transfer has occurred. They may do so even though no monthly 
statement was issued during a specific quarter. But institutions must 
use this formula for accounts that compound and credit interest 
quarterly and receive monthly statements that, while triggered by 
Regulation E, comply with the provisions of Sec. 1030.6.
    2. Days in compounding period. Institutions using the special annual 
percentage yield earned formula must use the actual number of days in 
the compounding period.

         Appendix B to Part 1030--Model Clauses and Sample Forms

    1. Modifications. Institutions that modify the model clauses will be 
deemed in compliance as long as they do not delete required information 
or rearrange the format in a way that affects the substance or clarity 
of the disclosures.
    2. Format. Institutions may use inserts to a document (see Sample 
Form B-4) or fill-in blanks (see Sample Forms B-5, B-6 and B-7, which 
use underlining to indicate terms that have been filled in) to show 
current rates, fees, or other terms.
    3. Disclosures for opening accounts. The sample forms illustrate the 
information that must be provided to consumers when an account is 
opened, as required by Sec. 1030.4(a)(1). (See Sec. 1030.4(a)(2), 
which states the requirements for disclosing the annual percentage 
yield, the interest rate, and the maturity of a time account in 
responding to a consumer's request.)
    4. Compliance with Regulation E. Institutions may satisfy certain 
requirements under Regulation DD with disclosures that meet the 
requirements of Regulation E. (See Sec. 1030.3(c).) For disclosures 
covered by both this part and Regulation E (such as the amount of fees 
for ATM usage, institutions should consult Appendix A to Regulation E 
for appropriate model clauses.
    5. Duplicate disclosures. If a requirement such as a minimum balance 
applies to more than one account term (to obtain a bonus and determine 
the annual percentage yield, for example), institutions need not repeat 
the requirement for each term, as long as it is clear which terms the 
requirement applies to.
    6. Sample forms. The sample forms (B-4 through B-8) serve a purpose 
different from the model clauses. They illustrate ways of adapting the 
model clauses to specific accounts. The clauses shown relate only to the 
specific transactions described.

                B-1 Model Clauses for Account Disclosures

              B-1(h) Disclosures Relating to Time Accounts

    1. Maturity. The disclosure in Clause (h)(i) stating a specific date 
may be used in all cases. The statement describing a time period is 
appropriate only when providing disclosures in response to a consumer's 
request.

                  B-2 Model Clauses for Change in Terms

    1. General. The second clause, describing a future decrease in the 
interest rate and annual percentage yield, applies to fixed-rate 
accounts only.

                   B-4 Sample Form (Multiple Accounts)

    1. Rate sheet insert. In the rate sheet insert, the calculations of 
the annual percentage yield for the three-month and six-month 
certificates are based on 92 days and 181 days respectively. All 
calculations in the insert assume daily compounding.

           B-6 Sample Form (Tiered-Rate Money Market Account)

    1. General. Sample Form B-6 uses Tiering Method A (discussed in 
Appendix A and Clause (a)(iv)) to calculate interest. It gives a 
narrative description of a tiered-rate account; institutions may use 
different formats (for example, a chart similar to the one in Sample 
Form B-4), as long as all required information for each tier is clearly 
presented. The form does not contain a separate disclosure of the 
minimum balance required to obtain the annual percentage yield; the 
tiered-rate disclosure provides that information.



PART 1070_DISCLOSURE OF RECORDS AND INFORMATION--Table of Contents



              Subpart A_General Provisions and Definitions

Sec.
1070.1 Authority, purpose, and scope.

[[Page 1060]]

1070.2 General definitions.
1070.3 Custodian of records; certification; alternative authority.
1070.4 Records of the CFPB not to be otherwise disclosed.

                  Subpart B_Freedom of Information Act

1070.10 General.
1070.11 Information made available; discretionary disclosures.
1070.12 Publication in the Federal Register.
1070.13 Public inspection and copying.
1070.14 Requests for CFPB records.
1070.15 Responsibility for responding to requests for CFPB records.
1070.16 Timing of responses to requests for CFPB records.
1070.17 Requests for expedited processing.
1070.18 Responses to requests for CFPB records.
1070.19 Classified information.
1070.20 Requests for business information provided to the CFPB.
1070.21 Administrative appeals.
1070.22 Fees for processing requests for CFPB records.
1070.23 Authority and responsibilities of the Chief FOIA Officer.

   Subpart C_Disclosure of CFPB Information in Connection With Legal 
                               Proceedings

1070.30 Purpose and scope; definitions.
1070.31 Service of summonses and complaints.
1070.32 Service of subpoenas, court orders, and other demands for CFPB 
          information or action.
1070.33 Testimony and production of documents prohibited unless approved 
          by the General Counsel.
1070.34 Procedure when testimony or production of documents is sought; 
          general.
1070.35 Procedure when response to demand is required prior to receiving 
          instructions.
1070.36 Procedure in the event of an adverse ruling.
1070.37 Considerations in determining whether the CFPB will comply with 
          a demand or request.
1070.38 Prohibition on providing expert or opinion testimony.

                   Subpart D_Confidential Information

1070.40 Purpose and scope.
1070.41 Non-disclosure of confidential information.
1070.42 Disclosure of confidential supervisory information to and by 
          supervised financial institutions.
1070.43 Disclosure of confidential information to law enforcement 
          agencies and other government agencies.
1070.44 Disclosure of confidential consumer complaint information.
1070.45 Affirmative disclosure of confidential information.
1070.46 Other disclosures of confidential information.
1070.47 Other rules regarding the disclosure of confidential 
          information.

                        Subpart E_The Privacy Act

1070.50 Purpose and scope; definitions.
1070.51 Authority and responsibilities of the Chief Privacy Officer.
1070.52 Fees.
1070.53 Request for access to records.
1070.54 CFPB procedures for responding to a request for access.
1070.55 Special procedures for medical records.
1070.56 Request for amendment of records.
1070.57 CFPB review of a request for amendment of records.
1070.58 Appeal of adverse determination of request for access or 
          amendment.
1070.59 Restrictions on disclosure.
1070.60 Exempt records.
1070.61 Training; rules of conduct; penalties for non-compliance.
1070.62 Preservation of records.
1070.63 Use and collection of Social Security numbers.

    Authority: 12 U.S.C. 3401; 12 U.S.C. 5481 et seq.; 5 U.S.C. 552; 5 
U.S.C. 552a; 18 U.S.C. 1905; 18 U.S.C. 641; 44 U.S.C. ch. 30; 5 U.S.C. 
301.

    Source: 76 FR 45377, July 28, 2011, unless otherwise noted.



              Subpart A_General Provisions and Definitions



Sec. 1070.1  Authority, purpose, and scope.

    (a) Authority. (1) This part is issued by the Bureau of Consumer 
Financial Protection, an independent Bureau within the Federal Reserve 
System, pursuant to the Consumer Financial Protection Act of 2010, 12 
U.S.C. 5481 et seq.; the Freedom of Information Act, 5 U.S.C. 552; the 
Privacy Act of 1974, 5 U.S.C. 552a; the Federal Records Act, 44 U.S.C. 
3101; the Paperwork Reduction Act, 44 U.S.C. 3510; the Right to 
Financial Privacy Act of 1978, 12 U.S.C. 3401; the Trade Secrets Act, 18 
U.S.C. 1905; 18 U.S.C. 641; and any other applicable law that 
establishes a basis for the exercise of governmental authority by the 
CFPB.
    (2) This part establishes mechanisms for carrying out the CFPB's 
statutory responsibilities under the statutes in

[[Page 1061]]

paragraph (a)(1) of this section to the extent those responsibilities 
require the disclosure, production, or withholding of information. In 
this regard, the CFPB has determined that the CFPB, and its delegates, 
may disclose information of the CFPB, in accordance with the procedures 
set forth in this part, whenever it is necessary or appropriate to do so 
in the exercise of any of the CFPB's authority. The CFPB has determined 
that all such disclosures, made in accordance with the rules and 
procedures specified in this part, are authorized by law.
    (b) Purpose and scope. This part contains the CFPB's rules relating 
to the disclosure of records and information generated by and obtained 
by the CFPB.
    (1) Subpart A contains general provisions and definitions used in 
this part.
    (2) Subpart B implements the Freedom of Information Act, 5 U.S.C. 
552.
    (3) Subpart C sets forth the procedures with respect to subpoenas, 
orders, or other requests for CFPB information in connection with legal 
proceedings.
    (4) Subpart D provides for the protection of confidential 
information and procedures for sharing confidential information with 
supervised institutions, government agencies, and others in certain 
circumstances.
    (5) Subpart E implements the Privacy Act of 1974, 5 U.S.C. 552a.



Sec. 1070.2  General definitions.

    For purposes of this part:
    (a) Business day means any day except Saturday, Sunday or a legal 
federal holiday.
    (b) CFPB means the Bureau of Consumer Financial Protection.
    (c) Chief FOIA Officer means the Chief Operating Officer of the 
CFPB, or any CFPB employee to whom the Chief Operating Officer has 
delegated authority to act under this part.
    (d) Chief Operating Officer means the Chief Operating Officer of the 
CFPB, or any CFPB employee to whom the Chief Operating Officer has 
delegated authority to act under this part.
    (e) Civil investigative demand material means any documentary 
material, written report, or answers to questions, tangible thing, or 
transcript of oral testimony received by the CFPB in any form or format 
pursuant to a civil investigative demand, as those terms are set forth 
in 12 U.S.C. 5562, or received by the CFPB voluntarily in lieu of a 
civil investigative demand.
    (f) Confidential information means confidential consumer complaint 
information, confidential investigative information, and confidential 
supervisory information, as well as any other CFPB information that may 
be exempt from disclosure under the Freedom of Information Act pursuant 
to 5 U.S.C. 552(b). Confidential information does not include 
information contained in records that have been made publicly available 
by the CFPB or information that has otherwise been publicly disclosed by 
an employee with the authority to do so.
    (g) Confidential consumer complaint information means information 
received or generated by the CFPB, pursuant to 12 U.S.C. 5493 and 5534, 
that comprises or documents consumer complaints or inquiries concerning 
financial institutions or consumer financial products and services and 
responses thereto, to the extent that such information is exempt from 
disclosure pursuant to 5 U.S.C. 552(b).
    (h) Confidential investigative information means:
    (1) Civil investigative demand material; and
    (2) Any documentary material prepared by, on behalf of, received by, 
or for the use by the CFPB or any other federal or state agency in the 
conduct of an investigation of or enforcement action against a person, 
and any information derived from such documents.
    (i)(1) Confidential supervisory information means:
    (i) Reports of examination, inspection and visitation, non-public 
operating, condition, and compliance reports, and any information 
contained in, derived from, or related to such reports;
    (ii) Any documents, including reports of examination, prepared by, 
or on behalf of, or for the use of the CFPB or any other federal, state, 
or foreign government agency in the exercise of supervisory authority 
over a financial institution, and any information derived from such 
documents;

[[Page 1062]]

    (iii) any communications between the CFPB and a supervised financial 
institution or a federal, state, or foreign government agency related to 
the CFPB's supervision of the institution;
    (iv) Any information provided to the CFPB by a financial institution 
to enable the CFPB to monitor for risks to consumers in the offering or 
provision of consumer financial products or services, or to assess 
whether an institution should be considered a covered person, as that 
term is defined by 12 U.S.C. 5481; and/or
    (v) Information that is exempt from disclosure pursuant to 5 U.S.C. 
552(b)(8).
    (2) Confidential supervisory information does not include documents 
prepared by a financial institution for its own business purposes and 
that the CFPB does not possess.
    (j) Director means the Director of the CFPB or his or her designee, 
or a person authorized to perform the functions of the Director in 
accordance with law.
    (k) Employee means all current employees or officials of the CFPB, 
including employees of contractors and any other individuals who have 
been appointed by, or are subject to the supervision, jurisdiction, or 
control of the Director, as well as the Director. The procedures 
established within this part also apply to former employees where 
specifically noted.
    (l) Financial institution means any person involved in the offering 
or provision of a ``financial product or service,'' including a 
``covered person'' or ``service provider,'' as those terms are defined 
by 12 U.S.C. 5481.
    (m) General Counsel means the General Counsel of the CFPB or any 
CFPB employee to whom the General Counsel has delegated authority to act 
under this part.
    (n) Person means an individual, partnership, company, corporation, 
association (incorporated or unincorporated), trust, estate, cooperative 
organization, or other entity.
    (o) Report of examination means the report prepared by the CFPB 
concerning the examination or inspection of a supervised financial 
institution.
    (p) Supervised financial institution means a financial institution 
subject to the CFPB's supervisory authority.



Sec. 1070.3  Custodian of records; certification; alternative authority.

    (a) Custodian of records. The Chief Operating Officer is the 
official custodian of all records of the CFPB, including records that 
are in the possession or control of the CFPB or any CFPB employee.
    (b) Certification of record. The Chief Operating Officer may certify 
the authenticity of any CFPB record or any copy of such record, for any 
purpose, and for or before any duly constituted federal or state court, 
tribunal, or agency.
    (c) Alternative authority. Any action or determination required or 
permitted to be done by the Chief Operating Officer may be done by any 
employee who has been duly designated for this purpose by the Chief 
Operating Officer.



Sec. 1070.4  Records of the CFPB not to be otherwise disclosed.

    Except as provided by this part, employees or former employees of 
the CFPB, or others in possession of a record of the CFPB that the CFPB 
has not already made public, are prohibited from disclosing such 
records, without authorization, to any person who is not an employee of 
the CFPB.



                  Subpart B_Freedom of Information Act



Sec. 1070.10  General.

    This subpart contains the regulations of the CFPB implementing the 
Freedom of Information Act (the ``FOIA''), 5 U.S.C. 552, as amended. 
These regulations set forth procedures for requesting access to records 
maintained by the CFPB. These regulations should be read together with 
the FOIA, the 1987 Office of Management and Budget Guidelines for FOIA 
Fees, the CFPB's Privacy Act regulations set forth in subpart E, and the 
FOIA webpage on the CFPB's Web site, http://www.consumerfinance.gov, 
which provide additional information about this topic.

[[Page 1063]]



Sec. 1070.11  Information made available; discretionary disclosures.

    (a) In general. The FOIA provides for public access to information 
and records developed or maintained by federal agencies. Generally, the 
FOIA divides agency information into three major categories and provides 
methods by which each category of information is to be made available to 
the public. The three major categories of information are as follows:
    (1) Information required to be published in the Federal Register 
(see section 1070.12 of this subpart);
    (2) Information required to be made available for public inspection 
and copying or, in the alternative, to be published and offered for sale 
(see section 1070.13 of this subpart); and
    (3) Information required to be made available to any member of the 
public upon specific request (see sections 1070.14 through 1070.22 of 
this subpart).
    (b) Discretionary disclosures. Even though a FOIA exemption may 
apply to the information or records requested, the CFPB may, if not 
precluded by law, elect under the circumstances not to apply the 
exemption. The fact that the exemption is not applied by the CFPB in 
response to a particular request shall have no precedential significance 
in processing other requests, but is merely an indication that, in the 
processing of the particular request, the CFPB finds no necessity for 
applying the exemption.
    (c) Disclosures of records frequently requested. Subject to the 
application of the FOIA exemptions and exclusions (5 U.S.C. 552(b) and 
(c)), the CFPB shall make publicly available, as provided by section 
1070.13 of this subpart, all records regardless of form or format, which 
have been released previously to any person under 5 U.S.C. 552(a)(3) and 
sections 1070.14 through 1070.22 of this subpart, and which the CFPB 
determines have become or are likely to become the subject of subsequent 
requests for substantially the same records because they are clearly of 
interest to the public at large. When the CFPB receives three (3) or 
more requests for substantially the same records, then the CFPB shall 
also make the released records publicly available.



Sec. 1070.12  Publication in the Federal Register.

    (a) Requirement. The CFPB shall separately state, publish and 
maintain current in the Federal Register for the guidance of the public 
the following information:
    (1) Descriptions of its central and field organization and the 
established place at which, the persons from whom, and the methods 
whereby, the public may obtain information, make submissions or 
requests, or obtain decisions;
    (2) Statements of the general course and method by which its 
functions are channeled and determined, including the nature and 
requirements of all formal and informal procedures available;
    (3) Rules of procedure, descriptions of forms available or the 
places at which forms may be obtained, and instructions as to the scope 
and contents of all papers, reports, or examinations;
    (4) Substantive rules of general applicability adopted as authorized 
by law, and statements of general policy or interpretations of general 
applicability formulated and adopted by the CFPB; and
    (5) Each amendment, revision, or repeal of matters referred to in 
paragraphs (a)(1) through (4) of this section.
    (b) Exceptions. Publication of the information under clause (a) of 
this subpart shall be subject to the application of the FOIA exemptions 
and exclusions (5 U.S.C. 552(b) and (c)) and the limitations provided in 
5 U.S.C. 552(a)(1).



Sec. 1070.13  Public inspection and copying.

    (a) In general. Subject to the application of the FOIA exemptions 
and exclusions (5 U.S.C. 552(b) and (c)), the CFPB shall, in conformance 
with 5 U.S.C. 552(a)(2), make available for public inspection and 
copying, including by posting on the CFPB's Web site, http://
www.consumerfinance.gov, or, in the alternative, promptly publish and 
offer for sale the following information:
    (1) Final opinions, including concurring and dissenting opinions, 
and orders made in the adjudication of cases;
    (2) Those statements of policy and interpretations which have been 
adopted by the CFPB but are not published in the Federal Register;

[[Page 1064]]

    (3) Its administrative staff manuals and instructions to staff that 
affect a member of the public;
    (4) Copies of all records made publicly available pursuant to 
section 1070.11 of this subpart; and
    (5) A general index of the records referred to in paragraph (a)(4) 
of this section.
    (b) Information made available online. For records required to be 
made available for public inspection and copying pursuant to 5 U.S.C. 
552(a)(2) (paragraphs (a)(1) through (4) of this section), as soon as 
practicable, the CFPB shall make such records available on its e-FOIA 
Library, located at http://www.consumerfinance.gov.
    (c) Record availability at the on-site e-FOIA Library. Any member of 
the public may, upon request, access the CFPB's e-FOIA Library via a 
computer terminal at 1801 L Street, NW., Washington, DC 20036. Such a 
request may be made by electronic means as set forth on the CFPB's Web 
site, http://www.consumerfinance.gov, or in writing, to the Chief FOIA 
Officer, Bureau of Consumer Financial Protection, 1801 L Street, NW., 
Washington, DC 20036. The request must indicate a preferred date and 
time for the requested access. The CFPB reserves the right to arrange a 
different date and time with the requester, if necessary.
    (d) Redaction of identifying details. To prevent a clearly 
unwarranted invasion of personal privacy, the CFPB may redact 
identifying details contained in any matter described in paragraphs 
(a)(1) through (4) of this section before making such matters available 
for inspection or publication. The justification for the redaction shall 
be explained fully in writing, and the extent of such redaction shall be 
indicated on the portion of the record which is made available or 
published, unless including that indication would harm an interest 
protected by the exemption in 5 U.S.C. 552(b) under which the redaction 
is made. If technically feasible, the extent of the redaction shall be 
indicated at the place in the record where the redaction is made.



Sec. 1070.14  Requests for CFPB records.

    (a) In general. Subject to the application of the FOIA exemptions 
and exclusions (5 U.S.C. 552(b) and (c)), the CFPB shall promptly make 
its records available to any person pursuant to a request that conforms 
to the rules and procedures of this section.
    (b) Form of request. A request for records of the CFPB shall be made 
in writing or by electronic means.
    (1) If a request is made in writing, it shall be addressed to the 
Chief FOIA Officer, Bureau of Consumer Financial Protection, 1801 L 
Street, NW., Washington, DC 20036. The request shall be labeled 
``Freedom of Information Act Request.''
    (2) If a request is made by electronic means, it shall be submitted 
as set forth on the CFPB's Web site, http://www.consumerfinance.gov. The 
request shall be labeled ``Freedom of Information Act Request.''
    (c) Content of request. (1) In order to ensure the CFPB's ability to 
respond in a timely manner, a FOIA request should describe the records 
that the requester seeks in sufficient detail to enable CFPB personnel 
to locate them with a reasonable amount of effort. Whenever possible, 
the request should include specific information about each record 
sought, such as the date, title or name, author, recipient, and subject 
matter of the record. If known, the requester should include any file 
designations or descriptions for the records requested. As a general 
rule, the more specific the requester is about the records or type of 
records requested, the more likely the CFPB will be able to locate those 
records in response to the request;
    (2) In order to ensure the CFPB's ability to communicate effectively 
with the requester, a request should include contact information for the 
requester, including, to the extent available, a mailing address, 
telephone number, and e-mail address at which the CFPB may contact the 
requester regarding the request;
    (3) The request should state whether the requester wishes to inspect 
the records or desires to receive an electronic copy or have a copy made 
and furnished without first inspecting the records;
    (4) For the purpose of determining any fees that may apply to 
processing a request, a requester should indicate

[[Page 1065]]

in the request whether the requester is a commercial user, an 
educational institution, non-commercial scientific institution, 
representative of the news media, governmental entity, or ``other'' 
requester, as those terms are defined in section 1070.22(b) of this 
subpart, and the basis for claiming that fee category. Requesters may 
seek assistance in determining the appropriate fee category by 
contacting the CFPB's FOIA Public Liaison at the telephone number listed 
on the CFPB's Web site, http://www.consumerfinance.gov. The CFPB will 
use any information provided to the FOIA Public Liaison solely for the 
purpose of determining the appropriate fee category that applies to the 
requester;
    (5) If a requester seeks a waiver or reduction of fees associated 
with processing a request, then the request shall include a statement to 
that effect as is required by section 1070.22(e) of this subpart. Any 
request that does not seek a waiver or reduction of fees constitutes an 
agreement of the requester to pay any and all fees (of up to $25) that 
may apply to the request, as otherwise set forth in section 1070.22 of 
this subpart, except that the requester may specify in the request an 
upper limit (of not less than $25) that the requester is willing to pay 
to process the request; and
    (6) If a requester seeks expedited processing of a request, then the 
request must include a statement to that effect as is required by 
section 1070.17 of this subpart.
    (d) Perfected requests; effect of request deficiencies. For purposes 
of computing its deadline to respond to a request, the CFPB will deem 
itself to have received a request only if, and on the date that, it 
receives a request that contains all of the information required by and 
that otherwise conforms with paragraphs (b) and (c) of this section. A 
request that another agency refers to the CFPB will be deemed to have 
been received by the CFPB on the date the request was received from the 
referring agency. The CFPB need not accept a request, process a request, 
or be bound by any deadlines in this subpart for processing a request 
that fails to conform to the requirements of paragraphs (b) and (c) of 
this section. If a request is deficient in any material respect, then 
the CFPB may return it to the requester and advise the requester in what 
respect the request is deficient, and what additional information is 
needed to respond to the request. The requester may then amend or 
resubmit the request. A determination by the CFPB that a request is 
deficient in any respect is not a denial of a request for records and 
such determinations are not subject to appeal. If a requester fails to 
respond to a CFPB notification that a request is deficient within thirty 
(30) days of the CFPB's notification, the CFPB will deem the request 
withdrawn.
    (e) Requests by an individual for CFPB records pertaining to that 
individual. An individual who wishes to inspect or obtain copies of 
records of the Bureau that pertain to that individual shall file a 
request in accordance with subpart E of these rules.
    (f) Requests for CFPB records pertaining to another individual. 
Where a request for records pertains to a third party, a requester may 
receive greater access by submitting either a notarized authorization 
signed by that individual or a declaration by that individual made in 
compliance with the requirements set forth in 28 U.S.C. 1746 authorizing 
disclosure of the records to the requester, or submits proof that the 
individual is deceased (e.g., a copy of a death certificate or an 
obituary). The CFPB may require a requester to supply additional 
information if necessary in order to verify that a particular individual 
has consented to disclosure.



Sec. 1070.15  Responsibility for responding to requests for CFPB records.

    (a) In general. In determining which records are responsive to a 
request, the CFPB ordinarily will include only records in its possession 
as of the date the CFPB begins its search for them. If any other date is 
used, the CFPB shall inform the requester of that date.
    (b) Authority to grant or deny requests. The Chief FOIA Officer 
shall be authorized to grant or deny any request for a record of the 
CFPB.

[[Page 1066]]

    (c) Consultations and referrals. (1) When a requested record has 
been created by an agency other than the CFPB, the CFPB shall refer the 
record to the originating agency for a direct response to the requester.
    (2) When a FOIA request is received for a record created by the CFPB 
that includes information originated by another agency, the CFPB shall 
consult the originating agency for review and recommendation on 
disclosure. The CFPB shall not release any such records without prior 
consultation with the originating agency.
    (d) Notice of referral. Whenever the CFPB refers all or any part of 
the responsibility for responding to a request to another agency, it 
will notify the requester of the referral and inform the requester of 
the name of each agency to which the request has been referred, in whole 
or in part.



Sec. 1070.16  Timing of responses to requests for CFPB records.

    (a) In general. Except as set forth in paragraphs (b) through (d) of 
this section, and Sec. 1070.17 of this subpart, the CFPB shall respond 
to requests according to their order of receipt.
    (b) Multitrack processing. (1) The CFPB may establish separate 
tracks to process simple and complex requests. The CFPB may assign a 
request to the simple or complex track(s) based on the amount of work 
and/or time needed to process the request. The CFPB shall process 
requests in each track based on the date the request was perfected in 
accordance with section 1070.14(d).
    (2) The CFPB may provide a requester in its complex track with an 
opportunity to limit the scope of the request to qualify for faster 
processing within the specified limits of the simple track(s).
    (c) Time period for responding to requests for records. Ordinarily, 
the CFPB shall have twenty (20) business days from when a request is 
received by the CFPB to determine whether to grant or deny a request for 
records. The twenty (20) business day time period set forth in this 
paragraph shall not be tolled by the CFPB except that the CFPB may:
    (1) Make one reasonable demand to the requester for clarifying 
information about the request and toll the twenty (20) business day time 
period while it awaits the clarifying information; or
    (2) Toll the twenty (20) business day time period while it awaits 
clarification from or addresses any dispute with the requester regarding 
the assessment of fees.
    (d) Unusual circumstances. (1) Where the CFPB determines that due to 
unusual circumstances it cannot respond either to a request within the 
time period set forth in paragraph (c) of this section or to an appeal 
within the time period set forth in Sec. 1070.21 of this subpart, the 
CFPB may extend the applicable time periods by informing the requester 
in writing of the unusual circumstances and of the date by which the 
CFPB expects to complete its processing of the request or appeal. Any 
extension or extensions of time with respect to a request or an appeal 
shall not cumulatively total more than ten (10) business days. However, 
if the CFPB determines that it needs additional time beyond a ten (10) 
business day extension to process the request or appeal, then the CFPB 
shall notify the requester and provide the requester with an opportunity 
to limit the scope of the request or appeal or to arrange for an 
alternative time frame for processing the request or appeal or a 
modified request or appeal. The requester shall retain the right to 
define the desired scope of the request or appeal, as long as it meets 
the requirements contained in this subpart.
    (2) As used in this paragraph, unusual circumstances means:
    (i) The need to search for and collect the requested records from 
field facilities or other establishments that are separate from the 
office processing the request;
    (ii) The need to search for, collect, and appropriately examine a 
voluminous amount of separate and distinct records which are demanded in 
a single request; or
    (iii) The need for consultation, which shall be conducted with all 
practicable speed, with another agency having a substantial interest in 
the determination of the request, or among two or more CFPB offices 
having substantial subject matter interest therein.

[[Page 1067]]



Sec. 1070.17  Requests for expedited processing.

    (a) In general. The CFPB shall process a request on an expedited 
basis whenever a requester demonstrates a compelling need for expedited 
processing in accordance with the requirements of this paragraph.
    (b) Form and content of a request for expedited processing. A 
request for expedited processing shall be made as follows:
    (1) A request for expedited processing shall be made in writing or 
by electronic means and submitted as part of a request for records in 
accordance with section 1070.14(b). When a request for records includes 
a request for expedited processing, the request shall be labeled 
``Expedited Processing Requested.''
    (2) A request for expedited processing shall contain a statement 
that demonstrates a compelling need for the requester to obtain 
expedited processing of the requested records. A compelling need is 
defined as follows:
    (i) Failure to obtain the requested records on an expedited basis 
could reasonably be expected to pose an imminent threat to the life or 
physical safety of an individual. The requester shall fully explain the 
circumstances warranting such an expected threat so that the CFPB may 
make a reasoned determination that a delay in obtaining the requested 
records could pose such a threat; or
    (ii) With respect to a request made by a person primarily engaged in 
disseminating information, urgency to inform the public concerning 
actual or alleged federal government activity. A person ``primarily 
engaged in disseminating information'' does not include individuals who 
are engaged only incidentally in the dissemination of information. The 
standard of ``urgency to inform'' requires that the records requested 
pertain to a matter of current exigency to the American public and that 
delaying a response to a request for records would compromise a 
significant recognized interest to and throughout the American general 
public. The requester must adequately explain the matter or activity and 
why the records sought are necessary to be provided on an expedited 
basis.
    (3) The requester shall certify the written statement that purports 
to demonstrate a compelling need for expedited processing to be true and 
correct to the best of the requester's knowledge and belief. The 
certification must be in the form prescribed by 28 U.S.C. 1746: ``I 
declare under penalty of perjury that the foregoing is true and correct 
to the best of my knowledge and belief. Executed on [date].'' The 
requester shall mail or submit electronically a copy of such written 
certification to the Chief FOIA Officer as set forth in Section 
1070.14(b) of this subpart. The CFPB may waive this certification 
requirement in appropriate circumstances.
    (c) Determinations of requests for expedited processing. Within ten 
(10) calendar days of its receipt of a request for expedited processing, 
the CFPB shall decide whether to grant it and shall notify the requester 
of the determination in writing.
    (d) Effect of granting requests for expedited processing. If the 
CFPB grants a request for expedited processing, then the CFPB shall give 
the expedited request priority over non-expedited requests and shall 
process the expedited request as soon as practicable. The CFPB may 
assign expedited requests to their own simple and complex processing 
tracks based upon the amount of work and/or time needed to process them. 
Within each such track, an expedited request shall be processed in the 
order of its receipt.
    (e) Appeals of denials of requests for expedited processing. If the 
CFPB denies a request for expedited processing, then the requester shall 
have the right to submit an appeal of the denial determination in 
accordance with section 1070.21 of this subpart. The CFPB shall 
communicate this appeal right as part of its written notification to the 
requester denying expedited processing. The requester shall label its 
appeal request ``Appeal for Expedited Processing.'' The CFPB shall act 
expeditiously upon an appeal of a denial of a request for expedited 
processing.



Sec. 1070.18  Responses to requests for CFPB records.

    (a) Acknowledgements of requests. Upon receipt of a perfected 
request, the

[[Page 1068]]

CFPB will assign to the request a unique tracking number. The CFPB will 
send an acknowledgement letter to the requester by mail or email within 
ten (10) calendar days of receipt of the request. The acknowledgment 
letter will contain the following information:
    (1) The applicable request tracking number;
    (2) The date of receipt of the request, as determined in accordance 
with section 1070.14(d) of this subpart, as well as the date when the 
requester may expect a response;
    (3) A brief statement identifying the subject matter of the request; 
and
    (4) A confirmation, with respect to any fees that may apply to the 
request pursuant to section 1070.22 of this subpart, that the requester 
has sought a waiver or reduction in such fees, has agreed to pay any and 
all applicable fees, or has specified an upper limit (of not less than 
$25) that the requester is willing to pay in fees to process the 
request.
    (b) Initial determination to grant or deny a request. (1) The 
officer designated in section 1070.15(b) to this subpart, or his or her 
delegate, shall make initial determinations either to grant or to deny 
in whole or in part requests for records.
    (2) If the request is granted in full or in part, and if the 
requester requests a copy of the records requested, then a copy of the 
records shall be mailed or emailed to the requester in the requested 
format, to the extent the records are readily produceable in the 
requested format. The CFPB shall also send the requester a statement of 
the applicable fees, either at the time of the determination or shortly 
thereafter.
    (3) In the case of a request for inspection, the requester shall be 
notified in writing of the determination, when and where the requested 
records may be inspected, and of the fees incurred in complying with the 
request. The CFPB shall then promptly make the records available for 
inspection at the time and place stated, in a manner that will not 
interfere with CFPB's operations and will not exclude other persons from 
making inspections. The requester shall not be permitted to remove the 
records from the room where inspection is made. If, after making 
inspection, the requester desires copies of all or a portion of the 
requested records, copies shall be furnished upon payment of the 
established fees prescribed by section 1070.22 of this subpart. Fees may 
be charged for search and review time as stated in section 1070.22 of 
this subpart.
    (4) If it is determined that the request for records should be 
denied in whole or in part, the requester shall be notified by mail or 
by email. The letter of notification shall:
    (i) State the exemptions relied upon in denying the request;
    (ii) If technically feasible, indicate the amount of information 
deleted and the exemptions under which the deletion is made at the place 
in the record where such deletion is made (unless providing such 
indication would harm an interest protected by the exemption relied upon 
to deny such material);
    (iii) Set forth the name and title or position of the responsible 
official;
    (iv) Advise the requester of the right to administrative appeal in 
accordance with Sec. 1070.21 of this subpart; and
    (v) Specify the official or office to which such appeal shall be 
submitted.
    (5) If it is determined, after a reasonable search for records, that 
no responsive records have been found to exist, the requester shall be 
notified in writing or by email. The notification shall also advise the 
requester of the right to administratively appeal the CFPB's 
determination that no responsive records exist (i.e., to challenge the 
adequacy of the CFPB's search for responsive records) in accordance with 
section 1070.21 of this subpart. The response shall specify the official 
or office to which the appeal shall be submitted for review.



Sec. 1070.19  Classified information.

    Whenever a request is made for a record containing information that 
another agency has classified, or which may be appropriate for 
classification by another agency under Executive Order 13526 or any 
other executive order concerning the classification of information, the 
CFPB shall refer the responsibility for responding to the request to the 
classifying or originating agency, as appropriate.

[[Page 1069]]



Sec. 1070.20  Requests for business information provided to the CFPB.

    (a) In general. Business information provided to the CFPB by a 
business submitter shall not be disclosed pursuant to a FOIA request 
except in accordance with this section.
    (b) Definitions. For purposes of this section:
    (1) Business information. means commercial or financial information 
obtained by the CFPB from a submitter that may be protected from 
disclosure under Exemption 4 of the FOIA, 5 U.S.C. 552(b)(4).
    (2) Submitter. means any person from whom the CFPB obtains business 
information, directly or indirectly. The term includes, without 
limitation, corporations, state, local, and tribal governments, and 
foreign governments.
    (c) Designation of business information. A submitter of business 
information will use good-faith efforts to designate, by appropriate 
markings, either at the time of submission or at a reasonable time 
thereafter, any portions of its submission that it considers to be 
protected from disclosure under Exemption 4 of the FOIA. These 
designations will expire ten (10) years after the date of the submission 
unless the submitter requests otherwise and provides justification for, 
a longer designation period.
    (d) Notice to submitters. The CFPB shall provide a submitter with 
prompt written notice of receipt of a request or appeal encompassing its 
business information whenever required in accordance with paragraph (e) 
of this section. Such written notice shall either describe the exact 
nature of the business information requested or provide copies of the 
records or portions of records containing the business information. When 
notification of a voluminous number of submitters is required, 
notification may be made by posting or publishing the notice in a place 
reasonably likely to accomplish it.
    (e) When notice is required. (1) The CFPB shall provide a submitter 
with notice of receipt of a request or appeal whenever:
    (i) The information has been designated in good faith by the 
submitter as information considered protected from disclosure under 
Exemption 4; or
    (ii) The CFPB has reason to believe that the information may be 
protected from disclosure under Exemption 4.
    (2) The notice requirements of this subsection shall not apply if:
    (i) The CFPB determines that the information is exempt under the 
FOIA;
    (ii) The information lawfully has been published or otherwise made 
available to the public;
    (iii) Disclosure of the information is required by statute (other 
than the FOIA) or by a regulation issued in accordance with the 
requirements of Executive Order 12600 (3 CFR, 1988 Comp., p. 235); or
    (iv) The designation made by the submitter under paragraph (1)(i) 
appears obviously frivolous, except that, in such a case, the CFPB 
shall, within a reasonable time prior to a specified disclosure date, 
give the submitter written notice of any final decision to disclose the 
information.
    (f) Opportunity to object to disclosure. (1) Through the notice 
described in paragraph (d) of this section, the CFPB shall afford a 
submitter ten (10) business days from the date of the notice to provide 
the CFPB with a detailed statement of any objection to disclosure. Such 
statement shall specify all grounds for withholding any of the 
information under any exemption of the FOIA and, in the case of 
Exemption 4, shall demonstrate why the information is considered to be a 
trade secret or commercial or financial information that is privileged 
or confidential. In the event that a submitter fails to respond to the 
notice within the time specified in it, the submitter shall be 
considered to have no objection to disclosure of the information. 
Information provided by a submitter pursuant to this paragraph may 
itself be subject to disclosure under the FOIA.
    (2) When notice is given to a submitter under this section, the 
requester shall be advised that such notice has been given to the 
submitter. The requester shall be further advised that a delay in 
responding to the request may be considered a denial of access to 
records and that the requester may proceed with an administrative appeal 
or seek judicial review, if appropriate. However, the requester will be

[[Page 1070]]

invited to agree to a voluntary extension of time so that the CFPB may 
review the submitter's objection to disclose, if any.
    (g) Notice of intent to disclose. The CFPB shall consider carefully 
a submitter's objections and specific grounds for nondisclosure prior to 
determining whether to disclose business information. Whenever the CFPB 
decides to disclose business information over the objection of a 
submitter, the CFPB shall forward to the submitter a written notice 
which shall include:
    (1) A statement of the reasons for which the submitter's disclosure 
objections were not sustained;
    (2) A description of the business information to be disclosed; and
    (3) A specified disclosure date which is not less than ten (10) 
business days after the notice of the final decision to release the 
requested information has been mailed to the submitter. Except as 
otherwise prohibited by law, a copy of the disclosure notice shall be 
forwarded to the requester at the same time.
    (h) Notice to submitter of FOIA lawsuit. Whenever a requester brings 
suit seeking to compel disclosure of business information, the CFPB 
shall promptly notify the submitter of that business information of the 
existence of the suit.
    (i) Notice to requester of business information. The CFPB shall 
notify a requester whenever it provides the submitter with notice and an 
opportunity to object to disclosure; whenever it notifies the submitter 
of its intent to disclose the requested information; and whenever a 
submitter files a lawsuit to prevent the disclosure of the information.



Sec. 1070.21  Administrative appeals.

    (a) Grounds for administrative appeals. A requester may appeal an 
initial determination of the CFPB, including for the following reasons:
    (1) To deny access to records in whole or in part (as provided in 
section 1070.18(b) of this subpart);
    (2) To assign a particular fee category to the requestor (as 
provided in section 1070.22(b) of this subpart);
    (3) To deny a request for a reduction or waiver of fees (as provided 
in section 1070.22(e) of this subpart);
    (4) That no records exist that are responsive to the request (as 
provided in section 1070.18(b) of this subpart); or
    (5) To deny a request for expedited processing (as provided in 
section 1070.17(e) of this subpart).
    (b) Time limits for filing administrative appeals. An appeal, other 
than an appeal of a denial of expedited processing, must be postmarked 
or submitted electronically on a date that is within forty-five (45) 
calendar days of the date of the initial determination or the date of 
the letter transmitting the last records released, whichever is later. 
An appeal of a denial of expedited processing must be made within ten 
(10) days of the date of the initial determination letter to deny 
expedited processing (see section 1070.17 of this subpart).
    (c) Form and content of administrative appeals. In order to ensure a 
timely response to an appeal, the appeal shall be made in writing or by 
electronic means as follows:
    (1) If appeal is made in writing, it shall be addressed to and 
submitted to the officer specified in paragraph (e) of this section at 
the address set forth in Sec. 1070.14(b) of this subpart. The appeal 
shall be labeled ``Freedom of Information Act Appeal.''
    (2) If an appeal is made by electronic means, it shall be addressed 
to the officer specified in paragraph (e) of this section and submitted 
as set forth on the CFPB's Web site, http://www.consumerfinance.gov. The 
appeal shall be labeled ``Freedom of Information Act Appeal.''
    (3) The appeal shall set forth contact information for the 
requester, including, to the extent available, a mailing address, 
telephone number, or email address at which the CFPB may contact the 
requester regarding the appeal; and
    (4) The appeal shall specify the applicable request tracking number, 
the date of the initial request, and the date of the letter of initial 
determination, and, where possible, enclose a copy of the initial 
request and the initial determination being appealed.

[[Page 1071]]

    (d) Processing of administrative appeals. Appeals will be stamped 
with the date of their receipt by the FOIA response office, and will be 
processed in the order of their receipt. The receipt of the appeal will 
be acknowledged by the CFPB and the requester will be advised of the 
date the appeal was received, the appeal tracking number, and the 
expected date of response.
    (e) Determinations to grant or deny administrative appeals. The 
General Counsel is authorized to and shall decide whether to affirm the 
initial determination (in whole or in part) or to reverse the initial 
determination (in whole or in part) and shall notify the requester of 
this decision in writing within twenty (20) business days after the date 
of receipt of the appeal, unless extended pursuant to section 1070.16(d) 
of this subpart.
    (1) If it is decided that the appeal is to be denied (in whole or in 
part) the requester shall be:
    (i) Notified in writing of the denial;
    (ii) Notified of the reasons for the denial, including which of the 
FOIA exemptions were relied upon;
    (iii) Notified of the name and title or position of the official 
responsible for the determination on appeal;
    (iv) Provided with a statement that judicial review of the denial is 
available in the United States District Court for the judicial district 
in which the requester resides or has a principal place of business, the 
judicial district in which the requested records are located, or the 
District of Columbia in accordance with 5 U.S.C. 552(a)(4)(B); and
    (v) Provided with notification that mediation services are available 
to the requester as a non-exclusive alternative to litigation through 
the Office of Government Information Services in accordance with 5 
U.S.C. 552(h)(3).
    (2) If the initial determination is reversed on appeal, the 
requester shall be so notified and the request shall be processed 
promptly in accordance with the decision on appeal.
    (f) Adjudication of administrative appeals of requests in 
litigation. An appeal ordinarily will not be adjudicated if the request 
becomes a matter of FOIA litigation.



Sec. 1070.22  Fees for processing requests for CFPB records.

    (a) In general. The CFPB shall determine whether and to what extent 
to charge a requester fees for processing a FOIA request, for the 
services and in the amounts set forth in this paragraph, by determining 
an appropriate fee category for the requester (as set forth in paragraph 
(b) of this section) and then by charging the requester those fees 
applicable to the assigned category (as set forth in paragraph (c) of 
this section), unless circumstances exist (as described in paragraph (d) 
of this section) that render fees inapplicable or inadvisable or unless 
the requester has requested and the CFPB has granted a reduction in or 
waiver of fees (as set forth in paragraph (e) of this section).
    (1) The CFPB shall charge a requester fees for the cost of copying 
records at rates set forth on the CFPB's Web site, http://
www.consumerfinance.gov.
    (2) The CFPB shall charge a requester for all time spent by its 
employees searching for records that are responsive to a request. The 
CFPB shall charge the requester fees for search time as follows:
    (i) The CFPB shall charge for search time at the salary rate(s) 
(basic pay plus sixteen (16) percent) of the employee(s) who conduct the 
search. However, where a single class of employee is used exclusively 
(e.g., all administrative/clerical, or all professional/executive), an 
average rate for the range of grades typically involved may be 
established. This charge shall include transportation of employees and 
records necessary to the search at actual cost. Fees may be charged for 
search time even if the search does not yield any responsive records, or 
if records are exempt from disclosure.
    (ii) The CFPB shall charge the requester for the actual direct cost 
of the search, including computer search time, runs, and the operator's 
salary. The fee for computer output will be the actual direct cost. For 
a requester in the ``all other'' category, when the cost of the search 
(including the operator time and the cost of operating the computer to 
process a request) equals the equivalent dollar amount of two hours

[[Page 1072]]

of the salary of the person performing the search (i.e., the operator), 
the charge for the computer search will begin.
    (3) The CFPB shall charge a requester for time spent by its 
employees examining responsive records to determine whether any portions 
of such record are exempt from disclosure, pursuant to the FOIA 
exemptions of 5 U.S.C. 552(b). The CFPB shall also charge a requester 
for time spent by its employees redacting any such exempt information 
from a record and preparing a record for release to the requester. The 
CFPB shall charge a requester for time spent reviewing records at the 
salary rate(s) (i.e., basic pay plus sixteen (16) percent) of the 
employees who conduct the review. However, when a single class of 
employee is used exclusively (e.g., all administrative/clerical, or all 
professional/executive), an average rate for the range of grades 
typically involved may be established. Fees shall be charged for review 
time even if records ultimately are not disclosed.
    (4) Fees for all services provided shall be charged whether or not 
copies are made available to the requester for inspection. However, no 
fee shall be charged for monitoring a requester's inspection of records.
    (5) Other services and materials requested which are not covered by 
this part nor required by the FOIA are chargeable at the actual cost to 
the CFPB. This includes, but is not limited to:
    (i) Certifying that records are true copies; or
    (ii) Sending records by special methods such as express mail, etc.
    (b) Categories of requesters. (1) For purposes of assessing fees as 
set forth in this section, each requester shall be assigned to one of 
the following categories:
    (i) Commercial user refers to one who seeks information for a use or 
purpose that furthers the commercial, trade, or profit interests of the 
requester or the person on whose behalf the request is made, which can 
include furthering those interests through litigation. The CFPB may 
determine from the use specified in the request that the requester is a 
commercial user.
    (ii) Educational institution refers to a preschool, a public or 
private elementary or secondary school, an institution of graduate 
higher education, an institution of undergraduate higher education, an 
institution of professional education, and an institution of vocational 
education, which operates a program or programs of scholarly research.
    (iii) Non-commercial scientific institution refers to an institution 
that is not operated on a ``commercial user'' basis as that term is 
defined in paragraph (b)(2)(i) of this section, and which is operated 
solely for the purpose of conducting scientific research, the results of 
which are not intended to promote any particular product or industry.
    (iv) Representative of the news media refers to any person or entity 
that gathers information of potential interest to a segment of the 
public, uses its editorial skills to turn the raw materials into a 
distinct work, and distributes that work to an audience. In this 
subparagraph, the term ``news'' means information that is about current 
events or that would be of current interest to the public. Examples of 
news-media entities are television or radio stations broadcasting to the 
public at large and publishers of periodicals (but only if such entities 
qualify as disseminators of ``news'') who make their products available 
for purchase by or subscription by or free distribution to the general 
public. Other examples of news media entities include online 
publications and Web sites that regularly deliver news content to the 
public. These examples are not all-inclusive. Moreover, as methods of 
news delivery evolve (for example, the adoption of the electronic 
dissemination of newspapers through telecommunications services), such 
alternative media shall be considered to be news-media entities. A 
freelance journalist shall be regarded as working for a news-media 
entity if the journalist can demonstrate a solid basis for expecting 
publication through that entity, whether or not the journalist is 
actually employed by the entity. A publication contract would present a 
solid basis for such an expectation; the CFPB may also consider the past 
publication record of the

[[Page 1073]]

requester in making such a determination.
    (v) Other requester refers to a requester who does not fall within 
any of the previously described categories.
    (2) Within twenty (20) calendar days of its receipt of a request, 
the CFPB shall make a determination as to the proper fee category to 
apply to a requester. The CFPB shall inform the requester of the 
determination in the request acknowledgment letter, or if no such letter 
is required, in writing. The CFPB shall base its determination upon a 
review of the requester's submission and the CFPB's own records. Where 
the CFPB has reasonable cause to doubt the use to which a requester will 
put the records sought, or where that use is not clear from the request 
itself, the CFPB should seek additional clarification before assigning 
the request to a specific category.
    (3) If the CFPB assigns to a requester a fee category, then the 
requester shall have the right to submit an appeal of the CFPB's 
determination in accordance with section 1070.21 of this subpart. The 
CFPB shall communicate this appeal right as part of its written 
notification to the requester of an adverse fee category determination. 
The requester shall label its appeal request ``Appeal of Fee Category 
Determination.''
    (c) Fees applicable to each category of requester. The following fee 
schedule applies uniformly throughout the CFPB to requests processed 
under the FOIA. Specific levels of fees are prescribed for each category 
of requester defined in paragraph (b) of this section.
    (1) Commercial users shall be charged the full direct costs of 
searching for, reviewing, and duplicating the records they request. 
Moreover, when a request is received for disclosure that is primarily in 
the commercial interest of the requester, the CFPB is not required to 
consider a request for a waiver or reduction of fees based upon the 
assertion that disclosure would be in the public interest. The CFPB may 
recover the cost of searching for and reviewing records even if there is 
ultimately no disclosure of records or no records are located.
    (2) Educational and non-commercial scientific institution requesters 
shall be charged only for the cost of duplicating the records they 
request, except that the CFPB shall provide the first one hundred (100) 
pages of duplication free of charge. To be eligible, requesters must 
show that the request is made under the auspices of a qualifying 
institution and that the records are not sought for a commercial use, 
but are sought in furtherance of scholarly (if the request is from an 
educational institution) or scientific (if the request is from a non-
commercial scientific institution) research. These categories do not 
include requesters who want records for use in meeting individual 
academic research or study requirements.
    (3) Representatives of the news media shall be charged only for the 
cost of duplicating the records they request, except that the CFPB shall 
provide them with the first one hundred (100) pages of duplication free 
of charge.
    (4) Other requesters who do not fit any of the categories described 
above shall be charged the full direct cost of searching for and 
duplicating records that are responsive to the request, except that the 
CFPB shall provide the first one hundred (100) pages of duplication and 
the first two hours of search time free of charge. The CFPB may recover 
the cost of searching for records even if there is ultimately no 
disclosure of records, or no records are located. Requests from persons 
for records about themselves filed in the CFPB's systems of records 
shall continue to be treated under the fee provisions of the Privacy Act 
of 1974, 5 U.S.C. 552a, which permit fees only for duplication, after 
the first one hundred (100) pages are furnished free of charge.
    (d) Other circumstances when fees are not charged. Notwithstanding 
paragraphs (b) and (c) of this section, the CFPB may not charge a 
requester a fee for processing a FOIA request if any of the following 
applies:
    (1) The cost of collecting a fee would be equal to or greater than 
the fee itself;
    (2) The fees were waived or reduced in accordance with paragraph (e) 
of this section;
    (3) If the CFPB fails to comply with any time limit under Sec. Sec. 
1070.16 or 1070.21

[[Page 1074]]

of this subpart, and no unusual circumstances (as that term is defined 
in Sec. 1070.16(d)) or exceptional circumstances apply to the 
processing of the request, then the CFPB shall not assess search fees, 
or if the requester is an educational or noncommercial scientific 
institution, then the CFPB shall not assess duplication fees. The term 
exceptional circumstances does not include a delay that results from a 
predictable CFPB workload of requests, unless the CFPB demonstrates 
reasonable progress in reducing its backlog of pending requests; or
    (4) If the CFPB determines, as a matter of administrative 
discretion, that waiving or reducing the fees would serve the interest 
of the United States Government.
    (e) Waiver or reduction of fees. (1) A requester shall be entitled 
to receive from the CFPB a waiver or reduction in the fees otherwise 
applicable to a FOIA request whenever the requester:
    (i) Requests such waiver or reduction of fees in writing or by 
electronic means as part of the FOIA request;
    (ii) Labels the request for waiver or reduction of fees ``Fee Waiver 
or Reduction Requested'' on the FOIA request; and
    (iii) Demonstrates that the fee reduction or waiver request that a 
waiver or reduction of the fees is in the public interest because:
    (A) Furnishing the information is likely to contribute significantly 
to public understanding of the operations or activities of the 
government; and
    (B) Furnishing the information is not primarily in the commercial 
interest of the requester.
    (2) To determine whether the requester has satisfied the 
requirements of paragraph (e)(1)(ii)(A), the CFPB shall consider the 
following factors:
    (i) The subject of the requested records must concern identifiable 
operations or activities of the federal government, with a connection 
that is direct and clear, and not remote or attenuated.
    (ii) The disclosable portions of the requested records must be 
meaningfully informative about government operations or activities in 
order to be ``likely to contribute'' to an increased public 
understanding of those operations or activities. The disclosure of 
information that already is in the public domain, in either a 
duplicative or a substantially similar form, is not as likely to 
contribute to the public's understanding.
    (iii) The disclosure must contribute to the understanding of a 
reasonably broad audience of persons interested in the subject, as 
opposed to the individual understanding of the requester. A requester's 
expertise in the subject area and ability and intention to effectively 
convey information to the public shall be considered. It shall be 
presumed that a representative of the news media will satisfy this 
consideration.
    (iv) The public's understanding of the subject in question, as 
compared to the level of public understanding existing prior to the 
disclosure, must be enhanced by the disclosure to a significant extent.
    (3) To determine whether the requester has satisfied the 
requirements of paragraph (e)(1)(ii)(B), the CFPB shall consider the 
following factors:
    (i) The CFPB shall consider any commercial interest of the requester 
(with reference to the definition of commercial user in (b)(1)(i) of 
this section), or of any person on whose behalf the requester may be 
acting, that would be furthered by the requested disclosure. Requesters 
shall be given an opportunity in the administrative process to provide 
explanatory information regarding this consideration.
    (ii) A fee waiver or reduction is justified where the public 
interest standard is satisfied and that public interest is greater in 
magnitude than that of any identified commercial interest in disclosure. 
The CFPB ordinarily shall presume that where a news media requester has 
satisfied the public interest standard, the public interest will be the 
interest primarily served by disclosure to that requester. Disclosure to 
data brokers or others who merely compile and market government 
information for direct economic return shall not be presumed to 
primarily serve the public interest.
    (4) Where only some of the records to be released satisfy the 
requirements for a waiver of fees, a waiver shall be granted for those 
records.

[[Page 1075]]

    (5) The CFPB shall decide whether to grant or deny a request to 
reduce or waive fees prior to processing a request. The CFPB shall 
notify the requester of the determination in writing.
    (6) If the CFPB denies a request to reduce or waive fees, then the 
CFPB shall advise the requester, in the denial notification letter, that 
the requester may incur fees if the CFPB proceeds to process the 
request. The notification letter shall also advise the requester that 
the CFPB will not proceed to process the request further unless the 
requester, in writing, directs the CFPB to do so and either agrees to 
pay any fees that may apply to processing the request or specifies an 
upper limit (of not less than $25) that the requester is willing to pay 
to process the request. If the CFPB does not receive this written 
direction and agreement/specification within thirty (30) calendar days 
of the date of the denial notification letter, then the CFPB shall deem 
the request to be withdrawn.
    (7) If the CFPB denies a request to reduce or waive fees, then the 
requester shall have the right to submit an appeal of the denial 
determination in accordance with section 1070.21 of this subpart. The 
CFPB shall communicate this appeal right as part of its written 
notification to the requester denying the fee reduction or waiver 
request. The requester should label its appeal request ``Appeal for Fee 
Reduction/Waiver.''
    (f) Advance notice and prepayment of fees. (1) When the CFPB 
estimates the fees for processing a request to exceed the limit set by 
the requester, and that amount is less than $250, or the requester did 
not specify a limit and the amount is less than $250, the requester 
shall be notified of the estimated fees, and provided a breakdown of the 
fees attributable to search, review, and duplication, respectively. The 
requester must provide an agreement to pay the estimated fees; however, 
the requester shall also be given an opportunity to reformulate the 
request in an attempt to reduce fees.
    (2) If the requester has failed to state a limit and the fees are 
estimated to exceed $250, the requester shall be notified of the 
estimated fees and provided a breakdown of the fees attributable to 
search, review, and duplication, respectively. The requester must pre-
pay such amount prior to the processing of the request, or provide 
satisfactory assurance of full payment if the requester has a history of 
prompt payment of FOIA fees. The requester shall also be given an 
opportunity to reformulate the request in such a way as to lower the 
applicable fees.
    (3) The CFPB reserves the right to request prepayment after a 
request is processed and before documents are released.
    (4) If a requester has previously failed to pay a fee within thirty 
(30) calendar days of the date of the billing, the requester shall be 
required to pay the full amount owed plus any applicable interest and to 
make an advance payment of the full amount of the estimated fee before 
the CFPB begins to process a new request or the pending request.
    (5) When the CFPB acts under paragraphs (f)(1) through (4) of this 
section, the statutory time limits of twenty (20) days (excluding 
Saturdays, Sundays, and legal public holidays) from receipt of initial 
requests or appeals, plus extensions of these time limits, shall begin 
only after fees have been paid, a written agreement to pay fees has been 
provided, or a request has been reformulated.
    (g) Form of payment. Payment may be tendered as set forth on the 
CFPB's Web site, http://www.consumerfinance.gov.
    (h) Charging interest. The CFPB may charge interest on any unpaid 
bill starting on the 31st day following the date of billing the 
requester. Interest charges will be assessed at the rate provided in 31 
U.S.C. 3717 and will accrue from the date of the billing until payment 
is received by the CFPB. The CFPB will follow the provisions of the Debt 
Collection Act of 1982 (Public Law 97-365, 96 Stat. 1749), as amended, 
and its administrative procedures, including the use of consumer 
reporting agencies, collection agencies, and offset.
    (i) Aggregating requests. Where the CFPB reasonably believes that a 
requester or a group of requesters acting together is attempting to 
divide a request into a series of requests for the

[[Page 1076]]

purpose of avoiding fees, the CFPB may aggregate those requests and 
charge accordingly. The CFPB may presume that multiple requests of this 
type made within a thirty (30) day period have been made in order to 
avoid fees. Where requests are separated by a longer period, the CFPB 
will aggregate them only where there exists a solid basis for 
determining that aggregation is warranted under all the circumstances 
involved. Multiple requests involving unrelated matters will not be 
aggregated.



Sec. 1070.23  Authority and responsibilities of the Chief FOIA Officer.

    (a) Chief FOIA Officer. The Director authorizes the Chief FOIA 
Officer to act upon all requests for agency records, with the exception 
of determining appeals from the initial determinations of the Chief FOIA 
Officer, which will be decided by the General Counsel. The Chief FOIA 
officer shall, subject to the authority of the Director:
    (1) Have agency-wide responsibility for efficient and appropriate 
compliance with the FOIA;
    (2) Monitor implementation of the FOIA throughout the CFPB and keep 
the Director and the General Counsel, and the Attorney General 
appropriately informed of the CFPB's performance in implementing the 
FOIA;
    (3) Recommend to the Director such adjustments to agency practices, 
policies, personnel and funding as may be necessary to improve the Chief 
FOIA Officer's implementation of the FOIA;
    (4) Review and report to the Attorney General, through the Director, 
at such times and in such formats as the Attorney General may direct, on 
the CFPB's performance in implementing the FOIA;
    (5) Facilitate public understanding of the purposes of the statutory 
exemptions of the FOIA by including concise descriptions of the 
exemptions in both the agency's handbook and the agency's annual report 
on the FOIA, and by providing an overview, where appropriate, of certain 
general categories of agency records to which those exemptions apply; 
and
    (6) Designate one or more FOIA Public Liaisons.
    (b) FOIA Public Liaisons. FOIA Public Liaisons shall report to the 
Chief FOIA Officer and shall serve as supervisory officials to whom a 
requester can raise concerns about the service the requester has 
received from the CFPB's FOIA office, following an initial response from 
the FOIA office staff. FOIA Public Liaisons shall be responsible for 
assisting in reducing delays, increasing transparency and understanding 
of the status of requests, and assisting in the resolution of disputes.



   Subpart C_Disclosure of CFPB Information in Connection With Legal 
                               Proceedings



Sec. 1070.30  Purpose and scope; definitions.

    (a) This subpart sets forth the procedures to be followed with 
respect to:
    (1) Service of summonses and complaints directed to the CFPB, the 
Director, or to any CFPB employee in connection with federal or state 
litigation arising out of or involving the performance of official 
activities of the CFPB; and
    (2) Subpoenas, court orders, or other requests or demands for any 
CFPB information, whether contained in the files of the CFPB or acquired 
by a CFPB employee as part of the performance of that employee's duties 
or by virtue of employee's official status.
    (b) This subpart does not apply to requests for official information 
made pursuant to subparts B, D, and E of this part.
    (c) This subpart does not apply to requests for information made in 
the course of adjudicating any claims against the CFPB by CFPB employees 
(present or former), or applicants for CFPB employment, for which 
jurisdiction resides with the U.S. Equal Employment Opportunity 
Commission, the U.S. Merit Systems Protection Board, the Office of 
Special Counsel, the Federal Labor Relations Authority, or their 
successor agencies, or a labor arbitrator operating under a collective 
bargaining agreement between the CFPB and a labor organization 
representing CFPB employees, or their successor agencies.

[[Page 1077]]

    (d) This subpart is intended only to inform the public about CFPB 
procedures concerning the service of process and responses to subpoenas, 
summons, or other demands or requests for official information or action 
and is not intended to and does not create, and may not be relied upon 
to create any right or benefit, substantive or procedural, enforceable 
at law by a party against the CFPB or the United States.
    (e) For purposes of this subpart, and except as the CFPB may 
otherwise determine in a particular case:
    (1) Demand means a subpoena or order for official information, 
whether contained in CFPB records or through testimony, related to or 
for possible use in a legal proceeding.
    (2) Legal proceeding encompasses all pre-trial, trial, and post-
trial stages of all judicial or administrative actions, hearings, 
investigations, or similar proceedings before courts, commissions, 
boards, grand juries, or other judicial or quasi-judicial bodies or 
tribunals, whether criminal, civil, or administrative in nature, and 
whether foreign or domestic. This phrase includes all stages of 
discovery as well as formal or informal requests by attorneys or others 
involved in legal proceedings.
    (3) Official Information means all information of any kind, however 
stored, that is in the custody and control of the CFPB or was acquired 
by CFPB employees, or former employees as part of their official duties 
or because of their official status while such individuals were employed 
by or served on behalf of the CFPB. Official information also includes 
any information acquired by CFPB employees or former employees while 
such individuals were engaged in matters related to consumer financial 
protection functions prior to the employees' transfer to the CFPB 
pursuant to Subtitle F of the Consumer Financial Protection Act of 2010.
    (4) Request means any request for official information in the form 
of testimony, affidavits, declarations, admissions, responses to 
interrogatories, document production, inspections, or formal or informal 
interviews, during the course of a legal proceeding, including pursuant 
to the Federal Rules of Civil Procedure, the Federal Rules of Criminal 
Procedure, or other applicable rules of procedure.
    (5) Testimony means a statement in any form, including personal 
appearances before a court or other legal tribunal, interviews, 
depositions, telephonic, televised, or videographed statements or any 
responses given during discovery or similar proceeding in the course of 
litigation.



Sec. 1070.31  Service of summonses and complaints.

    (a) Only the General Counsel is authorized to receive and accept 
summonses or complaints sought to be served upon the CFPB or CFPB 
employees sued in their official capacity. Such documents should be 
delivered to the Office of the General Counsel, Bureau of Consumer 
Financial Protection, 1801 L Street, NW., Washington, DC 20036. This 
authorization for receipt shall in no way affect the requirements of 
service elsewhere provided in applicable rules and regulations.
    (b) If, notwithstanding paragraph (a) of this section, any summons 
or complaint described in that paragraph is delivered to an employee of 
the CFPB, the employee shall decline to accept the proffered service and 
may notify the person attempting to make service of the regulations set 
forth herein. If, notwithstanding this instruction, an employee accepts 
service of a document described in paragraph (a), the employee shall 
immediately notify and deliver a copy of the summons and complaint to 
the General Counsel.
    (c) When a CFPB employee is sued in an individual capacity for an 
act or omission occurring in connection with duties performed on behalf 
of the CFPB (whether or not the officer or employee is also sued in an 
official capacity), the employee by law is to be served personally with 
process. See Fed. R. Civ. P. 4(i)(3). An employee sued in an individual 
capacity for an act or omission occurring in connection with duties 
performed on behalf of the CFPB shall immediately notify, and deliver a 
copy of the summons and complaint to, the General Counsel.
    (d) The CFPB will only accept service of process for an employee 
sued in his or her official capacity. Documents for which the General 
Counsel accepts

[[Page 1078]]

service in official capacity shall be stamped ``Service Accepted in 
Official Capacity Only.'' Acceptance of service shall not constitute an 
admission or waiver with respect to jurisdiction, propriety of service, 
improper venue, or any other defense in law or equity available under 
applicable laws or rules.



Sec. 1070.32  Service of subpoenas, court orders, and other demands 
for CFPB information or action.

    (a) Except in cases in which the CFPB is represented by legal 
counsel who have entered an appearance or otherwise given notice of 
their representation, only the General Counsel is authorized to receive 
and accept subpoenas or other demands or requests directed to the CFPB 
or its employees, whether civil or criminal in nature, for:
    (1) Records of the CFPB;
    (2) Official information including, but not limited to, testimony, 
affidavits, declarations, admissions, responses to interrogatories, or 
informal statements, relating to material contained in the files of the 
CFPB or which any CFPB employee acquired in the course and scope of the 
performance of his or her official duties;
    (3) Garnishment or attachment of compensation of current or former 
employees; or
    (4) The performance or non-performance of any official CFPB duty.
    (b) Documents described in paragraph (a) should be directed to the 
Office of the General Counsel, Bureau of Consumer Financial Protection, 
1801 L Street, NW., Washington, DC 20036. This authorization for receipt 
shall in no way affect the requirements of service elsewhere provided in 
applicable rules and regulations. Acceptance of such documents by the 
General Counsel does not constitute a waiver of any defense that might 
otherwise exist with respect to service under the Federal Rules of Civil 
or Criminal Procedure or other applicable laws or regulations.
    (c) In the event that any demand or request described in paragraph 
(a) is sought to be delivered to a CFPB employee other than in the 
manner prescribed in paragraph (b) of this section, such employee shall, 
after consultation with the General Counsel, decline service and direct 
the server of process to these regulations. If the demand or request is 
nonetheless delivered to the employee, the employee shall immediately 
notify, and deliver a copy of that document to, the General Counsel.
    (d) Except as otherwise provided in this subpart, the CFPB is not an 
agent for service, or otherwise authorized to accept on behalf of its 
employees, any subpoenas, orders, or other demands of federal or state 
courts, or requests from individuals or attorneys, which are not related 
to the employees' official duties except upon the express, written 
authorization of the individual CFPB employee to whom such demand or 
request is directed.
    (e) Copies of any subpoenas, show cause orders, or other demands of 
federal or state courts, or requests from private individuals or 
attorneys that are directed to former employees of the CFPB in 
connection with legal proceedings arising out of the performance of 
official duties shall also be served upon General Counsel. The CFPB 
shall not, however, serve as an agent for service for the former 
employee, nor is the CFPB otherwise authorized to accept service on 
behalf of its former employees. If the demand involves their official 
duties as CFPB employees, former employees who receive subpoenas, show 
cause orders, or similar compulsory process of federal or state courts 
should also notify, and deliver a copy of the document to, the General 
Counsel.



Sec. 1070.33  Testimony and production of documents prohibited unless 
approved by the General Counsel.

    (a) Unless authorized by the General Counsel, no employee or former 
employee of the CFPB shall, in response to a demand or a request provide 
oral or written testimony by deposition, declaration, affidavit, or 
otherwise concerning any official information.
    (b) Unless authorized by the General Counsel, no employee or former 
employee shall, in response to a demand or request, produce any document 
or any material acquired as part of the performance of that employee's 
duties

[[Page 1079]]

or by virtue of that employee's official status.



Sec. 1070.34  Procedure when testimony or production of documents is 
sought; general.

    (a) If, as part of a proceeding in which the United States or the 
CFPB is not a party, official information is sought through a demand for 
testimony, CFPB records, or other material, the party seeking such 
information must (except as otherwise required by federal law or 
authorized by the General Counsel) set forth in writing:
    (1) The title and forum of the proceeding, if applicable;
    (2) A detailed description of the nature and relevance of the 
official information sought;
    (3) A showing that other evidence reasonably suited to the 
requester's needs is not available from any other source; and
    (4) If testimony is requested, the intended use of the testimony, a 
general summary of the desired testimony, and a showing that no document 
could be provided and used in lieu of testimony.
    (b) To the extent he or she deems necessary or appropriate, the 
General Counsel may also require from the party seeking such information 
a plan of all reasonably foreseeable demands, including but not limited 
to the names of all employees and former employees from whom discovery 
will be sought, areas of inquiry, expected duration of proceedings 
requiring oral testimony, identification of potentially relevant 
documents, or any other information deemed necessary to make a 
determination. The purpose of this requirement is to assist the General 
Counsel in making an informed decision regarding whether testimony or 
the production of documents or material should be authorized.
    (c) The General Counsel may consult or negotiate with an attorney 
for a party, or the party if not represented by an attorney, to refine 
or limit a request or demand so that compliance is less burdensome.
    (d) The General Counsel will notify the CFPB employee and such other 
persons as circumstances may warrant of his or her decision regarding 
compliance with the request or demand.



Sec. 1070.35  Procedure when response to demand is required prior to
receiving instructions.

    (a) If a response to a demand described in section 1070.34 of this 
subpart is required before the General Counsel renders a decision, the 
CFPB will request that the appropriate CFPB attorney or an attorney of 
the Department of Justice, as appropriate, take steps to stay, postpone, 
or obtain relief from the demand pending decision. If necessary, the 
attorney will:
    (1) Appear with the employee upon whom the demand has been made;
    (2) Furnish the court or other authority with a copy of the 
regulations contained in this subpart;
    (3) Inform the court or other authority that the demand has been, or 
is being, as the case may be, referred for the prompt consideration of 
the appropriate CFPB official; and
    (4) Respectfully request the court or authority to stay the demand 
pending receipt of the requested instructions.
    (b) In the event that an immediate demand for production or 
disclosure is made in circumstances which would preclude the proper 
designation or appearance of an attorney of the CFPB or the Department 
of Justice on the employee's behalf, the employee, if necessary, shall 
respectfully request from the demanding court or authority a reasonable 
stay of proceedings for the purpose of obtaining instructions from the 
General Counsel.



Sec. 1070.36  Procedure in the event of an adverse ruling.

    If a stay or, or other relief from, the effect of a demand made 
pursuant to sections 1070.34 and 1070.35 of this subpart is declined or 
not obtained, or if the court or other judicial or quasi-judicial 
authority declines to stay the effect of the demand made pursuant to 
sections 1070.34 and 1070.35 of this subpart, or if the court or other 
authority rules that the demand must be complied with irrespective of 
the General Counsel's instructions not to produce the material or 
disclose the information sought, the employee upon whom the demand has 
been made shall respectfully decline to comply with the demand citing 
this subpart and United

[[Page 1080]]

States ex rel. Touhy v. Ragen, 340 U.S. 462 (1951).



Sec. 1070.37  Considerations in determining whether the CFPB will
comply with a demand or request.

    (a) In deciding whether to comply with a demand or request, CFPB 
officials and attorneys shall consider, among other pertinent 
considerations:
    (1) Whether such compliance would be unduly burdensome or otherwise 
inappropriate under the applicable rules of discovery or the rules of 
procedure governing the case or matter in which the demand arose;
    (2) Whether the number of similar requests would have a cumulative 
effect on the expenditure of CFPB resources;
    (3) Whether compliance is appropriate under the relevant substantive 
law concerning privilege or disclosure of information;
    (4) The public interest;
    (5) The need to conserve the time of CFPB employees for the conduct 
of official business;
    (6) The need to avoid spending time and money of the United States 
for private purposes;
    (7) The need to maintain impartiality between private litigants in 
cases where a substantial government interest is not implicated;
    (8) Whether compliance would have an adverse effect on performance 
by the CFPB of its mission and duties; and
    (9) The need to avoid involving the CFPB in controversial issues not 
related to its mission.
    (b) Among those demands and requests in response to which compliance 
will not ordinarily be authorized are those with respect to which any of 
the following factors, inter alia, exist:
    (1) Compliance would violate a statute or applicable rule of 
procedure;
    (2) Compliance would violate a specific regulation or Executive 
order;
    (3) Compliance would reveal information properly classified in the 
interest of national security;
    (4) Compliance would reveal confidential or privileged commercial or 
financial information or trade secrets without the owner's consent;
    (5) Compliance would compromise the integrity of the deliberative 
processes of the CFPB;
    (6) Compliance would not be appropriate or necessary under the 
relevant substantive law governing privilege;
    (7) Compliance would reveal confidential information; or
    (8) Compliance would interfere with ongoing investigations or 
enforcement proceedings, compromise constitutional rights, or reveal the 
identity of a confidential informant.
    (c) The CFPB may condition disclosure of official information 
pursuant to a request or demand on the entry of an appropriate 
protective order.



Sec. 1070.38  Prohibition on providing expert or opinion testimony.

    (a) Except as provided in this section, and subject to 5 CFR 
2635.805, CFPB employees or former employees shall not provide opinion 
or expert testimony based upon information which they acquired in the 
scope and performance of their official CFPB duties, except on behalf of 
the CFPB or the United States or a party represented by the CFPB, or the 
Department of Justice, as appropriate.
    (b) Any expert or opinion testimony by a former employee of the CFPB 
shall be excepted from paragraph (a) of this section where the testimony 
involves only general expertise gained while employed at the CFPB.
    (c) Upon a showing by the requestor of exceptional need or unique 
circumstances and that the anticipated testimony will not be adverse to 
the interests of the United States, the General Counsel may, consistent 
with 5 CFR 2635.805, exercise his or her discretion to grant special, 
written authorization for CFPB employees, or former employees, to appear 
and testify as expert witnesses at no expense to the United States.
    (d) If, despite the final determination of the General Counsel, a 
court of competent jurisdiction or other appropriate authority orders 
the appearance and expert or opinion testimony of a current or former 
CFPB employee, that person shall immediately inform the General Counsel 
of such order. If the General Counsel determines that no further legal 
review of or challenge to the court's order will be made, the CFPB 
employee, or former employee,

[[Page 1081]]

shall comply with the order. If so directed by the General Counsel, 
however, the employee, or former employee, shall respectfully decline to 
testify.



                   Subpart D_Confidential Information



Sec. 1070.40  Purpose and scope.

    This subpart does not apply to requests for official information 
made pursuant to subparts B, C, or E of this part.



Sec. 1070.41  Non-disclosure of confidential information.

    (a) Non-disclosure. Except as required by law or as provided in this 
part, no employee or former employee of the CFPB, or any other person in 
possession of confidential information, shall disclose such confidential 
information by any means (including written or oral communications) or 
in any format (including paper and electronic formats), to:
    (1) Any person who is not an employee of the CFPB; or
    (2) Any CFPB employee when the disclosure of such confidential 
information to that employee is not relevant to the performance of the 
employee's assigned duties.
    (b) Disclosures to contractors and consultants. Nothing in this 
subpart shall limit the discretion of the CFPB to provide confidential 
information to consultants or contractors retained by the CFPB, provided 
that such consultants or contractors agree in writing to treat such 
confidential information in accordance with these rules, federal laws 
and regulations that apply to federal agencies for the protection of the 
confidentiality of personally identifiable information and for data 
security and integrity, as well as any additional conditions or 
limitations that the CFPB may impose.
    (c) Disclosure of materials derived from confidential information. 
Nothing in this subpart shall limit the discretion of the CFPB to 
disclose materials that it derives from or creates using confidential 
information to the extent that such materials do not identify, either 
directly or indirectly, any particular person to whom the confidential 
information pertains.
    (d) Disclosability of confidential information provided to the CFPB 
by other agencies. Nothing in this subpart requires or authorizes the 
CFPB to disclose confidential information that another agency has 
provided to the CFPB to the extent that such disclosure contravenes 
applicable law or the terms of any agreement that exists between the 
CFPB and the agency to govern the CFPB's treatment of information that 
the agency provides to the CFPB.



Sec. 1070.42  Disclosure of confidential supervisory information to and
by supervised financial institutions.

    (a) Discretionary disclosure of confidential supervisory information 
to supervised financial institutions. The CFPB may in its discretion, 
and to the extent consistent with applicable law, disclose confidential 
supervisory information concerning a supervised financial institution to 
that institution.
    (b) Disclosure of confidential supervisory information by supervised 
financial institution. (1) Any supervised financial institution lawfully 
in possession of confidential supervisory information of the CFPB 
pursuant to this section may disclose such information, or portions 
thereof, to its directors, officers, and employees, and to its parent 
company, if any, and its parent company's directors, officers, and 
employees, to the extent that the disclosure of such confidential 
supervisory information is relevant to the performance of such 
individuals' assigned duties.
    (2) Any supervised financial institution lawfully in possession of 
confidential supervisory information of the CFPB pursuant to this 
section may disclose such information, or portions thereof, to any 
certified public accountant, legal counsel, or consultant employed by 
the supervised financial institution or its parent company, if any, 
provided that the supervised financial institution shall:
    (i) Take reasonable steps to ensure that such certified public 
accountant, legal counsel, or consultant does not utilize, make or 
retain copies of, or disclose confidential supervisory information for 
any purpose, without the prior written approval of the CFPB's General

[[Page 1082]]

Counsel, except as is necessary to provide advice to the supervised 
financial institution, its parent company, or the officers, directors, 
and employees of such supervised financial institution and parent 
company; and
    (ii) Maintain a written account of all disclosures of confidential 
supervisory information that the supervised financial institution makes 
to its certified public accountant, legal counsel, or consultant, as 
well as steps it has taken to comply with paragraph (b)(2)(i) of this 
section, and provide the CFPB with a copy of such written account upon 
request or demand of the CFPB.



Sec. 1070.43  Disclosure of confidential information to law enforcement
agencies and other government agencies.

    (a) Required disclosure of confidential information to government 
agencies. The CFPB shall:
    (1) Disclose a draft of a report of examination of a supervised 
financial institution prior to its finalization, in accordance with 12 
U.S.C. 5515(e)(1)(C), and disclose a final report of examination, 
including any and all revisions made to such a report, to a federal or 
state agency with jurisdiction over that supervised financial 
institution, provided that the CFPB receives from the agency reasonable 
assurances as to the confidentiality of the information disclosed; and
    (2) Disclose confidential consumer complaint information to a 
federal or state agency to facilitate preparation of reports to Congress 
required by 12 U.S.C. 5493(b)(3)(C) and to facilitate the CFPB's 
supervision and enforcement activities and its monitoring of the market 
for consumer financial products and services, provided that the agency 
shall first give written assurance to the CFPB that it will maintain 
such information in a manner that conforms to the standards that apply 
to federal agencies for the protection of the confidentiality of 
personally identifiable information and for data security and integrity.
    (b) Discretionary disclosure of confidential information to 
government agencies. (1) Upon receipt of a written request that contains 
the information required by paragraph (b)(2) of this paragraph, the CFPB 
may, in its sole discretion, disclose confidential information to a 
federal or state agency to the extent that disclosure of the information 
is relevant to the exercise of the agency's statutory or regulatory 
authority or, with respect to the disclosure of confidential supervisory 
information, to a federal or state agency having jurisdiction over a 
supervised financial institution.
    (2) To obtain access to confidential information pursuant to 
paragraph (b)(1) of this section, an authorized officer or employee of 
the agency shall submit a written request to the General Counsel, who 
shall act upon the request in consultation with the CFPB's Associate 
Director for Supervision and Enforcement or other appropriate CFPB 
personnel. The request shall include the following:
    (i) A description of the particular information, kinds of 
information, and where possible, the particular documents to which 
access is sought;
    (ii) A statement of the purpose for which the information will be 
used;
    (iii) A statement identifying the agency's legal authority for 
requesting the documents;
    (iv) A statement as to whether the requested disclosure is permitted 
or restricted in any way by applicable law or regulation; and
    (v) A commitment that the agency will maintain the requested 
confidential information in a manner that conforms to the standards that 
apply to federal agencies for the protection of the confidentiality of 
personally identifiable information and for data security and integrity, 
as well as any additional conditions or limitations that the CFPB may 
impose.
    (c) State requests for information other than confidential 
information. A request or demand by a state agency for information or 
records of the CFPB other than confidential information shall be made 
and considered in accordance with the rules set forth elsewhere in this 
part.

[[Page 1083]]

    (d) Negotiation of standing requests. The CFPB may negotiate terms 
governing the exchange of confidential information with federal or state 
agencies on a standing basis, as appropriate.



Sec. 1070.44  Disclosure of confidential consumer complaint information.

    Nothing in this part shall limit the discretion of the CFPB, to the 
extent permitted by law, to disclose confidential consumer complaint 
information as it deems necessary to investigate, resolve, or otherwise 
respond to consumer complaints or inquiries concerning financial 
institutions or consumer financial products and services.



Sec. 1070.45  Affirmative disclosure of confidential information.

    (a) The CFPB may disclose confidential investigative information and 
other confidential information, in accordance with applicable law, as 
follows:
    (1) To a CFPB employee, as that term is defined in Sec. 1070.2 of 
this part and in accordance with Sec. 1070.41 of this subpart;
    (2) To either House of the Congress or to an appropriate committee 
or subcommittee of the Congress, as provided by 12 U.S.C. 5562(d)(2);
    (3) In investigational hearings and witness interviews, as is 
reasonably necessary, at the discretion of the CFPB;
    (4) In an administrative or court proceeding to which the CFPB is a 
party. In the case of confidential investigatory material that contains 
any trade secret or privileged or confidential commercial or financial 
information, as claimed by designation by the submitter of such 
material, or confidential supervisory information, the submitter may 
seek an appropriate protective or in camera order prior to disclosure of 
such material in a proceeding;
    (5) To law enforcement and other government agencies in accordance 
with this subpart; or
    (6) As required under any other applicable law.
    (b) [Reserved]



Sec. 1070.46  Other disclosures of confidential information.

    (a) To the extent permitted by law and as authorized by the Director 
in writing, the CFPB may disclose confidential information other than as 
set forth in this subpart.
    (b) Prior to disclosing confidential information pursuant to 
paragraph (a) of this section, the CFPB may, as it deems appropriate 
under the circumstances, provide written notice to the person to whom 
the confidential information pertains that the CFPB intends to disclose 
its confidential information in accordance with this section.
    (c) The authority of the Director to disclosure confidential 
information pursuant to paragraph (a) shall not be delegated. However, a 
person authorized to perform the functions of the Director in accordance 
with law may exercise the authority of the Director as set forth in this 
section.



Sec. 1070.47  Other rules regarding the disclosure of confidential
information.

    (a) Further disclosure prohibited. (1) All confidential information 
made available under this subpart shall remain the property of the CFPB, 
unless the General Counsel provides otherwise in writing.
    (2) Except as set forth in this section, no supervised financial 
institution, federal or state agency, any officer, director, employee or 
agent thereof, or any other person to whom the confidential information 
is made available under this subpart, may further disclose such 
confidential information without the prior written permission of the 
General Counsel.
    (3) A supervised financial institution, federal or state agency, any 
officer, director, employee or agent thereof, or any other person to 
whom the CFPB's confidential information is made available under this 
subpart, that receives from a third party a legally enforceable demand 
or request for such confidential information (including but not limited 
to, a subpoena or discovery request or a request made pursuant to the 
Freedom of Information Act, 5 U.S.C. 552, the Privacy Act of 1974, 5 
U.S.C. 552a, or any state analogue to such statutes) should:

[[Page 1084]]

    (i) Inform the General Counsel of such request or demand in writing 
and provide the General Counsel with a copy of such request or demand as 
soon as practicable after receiving it;
    (ii) In the case of a request made pursuant to the Freedom of 
Information Act, 5 U.S.C. 552, the Privacy Act, 5 U.S.C. 552a, or any 
state analogue to such statutes, advise the requester that:
    (A) The confidential information sought may not be disclosed insofar 
as it is the property of the CFPB; and
    (B) Any request for the disclosure of such confidential information 
is properly directed to the CFPB pursuant to its regulations set forth 
in this part.
    (iii) In the case of all other types of requests or demands, consult 
with the General Counsel before complying with the request or demand, 
and to the extent applicable:
    (A) Give the CFPB a reasonable opportunity to respond to the demand 
or request;
    (B) Assert all reasonable and appropriate legal exemptions or 
privileges that the CFPB may request be asserted on its behalf; and
    (C) Consent to a motion by the CFPB to intervene in any action for 
the purpose of asserting and preserving any claims of confidentiality 
with respect to any confidential information.
    (4) Nothing in this section shall prevent a supervised financial 
institution, federal or state agency, any officer, director, employee or 
agent thereof, or any other person to whom the information is made 
available under this subpart from complying with a legally valid and 
enforceable United States federal court order compelling production of 
the CFPB's confidential information or, if compliance is deemed 
compulsory, with a request or demand from either House of the Congress 
or a duly authorized committee of the Congress. To the extent that 
compulsory disclosure of confidential information occurs as set forth in 
this paragraph, the producing party shall use its best efforts to ensure 
that the requestor secures an appropriate protective order or, if the 
requestor is a legislative body, use its best efforts to obtain the 
commitment or agreement of the legislative body that it will maintain 
the confidentiality of the confidential information.
    (5) No person obtaining access to confidential information pursuant 
to this subpart may make a personal copy of any such information, and no 
person may remove confidential information from the premises of the 
institution or agency in possession of such information except as 
permitted by specific language in this regulation or by the CFPB.
    (b) Additional conditions and limitations. The CFPB may impose any 
additional conditions or limitations on disclosure or use under this 
subpart that it determines are necessary.
    (c) Non-waiver. The provision by the CFPB of any confidential 
information pursuant to this subpart does not constitute a waiver, or 
otherwise affect, any privilege any agency or person may claim with 
respect to such information under federal law.



                        Subpart E_The Privacy Act



Sec. 1070.50  Purpose and scope; definitions.

    (a) This subpart implements the provisions of the Privacy Act of 
1974, 5 U.S.C. 552a (the ``Privacy Act''). The regulations apply to all 
records maintained by the CFPB and which are retrieved by an 
individual's name or personal identifier. The regulations set forth the 
procedures for requests for access to, or amendment of, records 
concerning individuals that are contained in systems of records 
maintained by the CFPB. These regulations should be read in conjunction 
with the Privacy Act, which provides additional information about this 
topic.
    (b) For purposes of this subpart, the following definitions apply:
    (1) The term Chief Privacy Officer means the Chief Information 
Officer of the CFPB or any CFPB employee to whom the Chief Information 
Officer has delegated authority to act under this part;
    (2) The term guardian means the parent of a minor, or the legal 
guardian of any individual who has been declared to be incompetent due 
to physical or mental incapacity or age by a court of competent 
jurisdiction;

[[Page 1085]]

    (3) Individual means a citizen of the United States or an alien 
lawfully admitted for permanent residence;
    (4) Maintain includes maintain, collect, use, or disseminate;
    (5) Record means any item, collection, or grouping of information 
about an individual that is maintained by an agency, including, but not 
limited to, his education, financial transactions, medical history, and 
criminal or employment history and that contains his name or the 
identifying number, symbol, or other identifying particular assigned to 
the individual, such as a finger or voiceprint or a photograph;
    (6) Routine use means the disclosure of a record that is compatible 
with the purpose for which it was collected;
    (7) System of records means a group of any records under the control 
of an agency from which information is retrieved by the name of the 
individual or by some identifying number, symbol, or other identifying 
particular assigned to the individual; and
    (8) Statistical record means a record in a system of records 
maintained for statistical research or reporting purposes only and not 
used in whole or in part in making any determination about an 
identifiable individual, except as provided by 13 U.S.C. 8.



Sec. 1070.51  Authority and responsibilities of the Chief Privacy Officer.

    The Chief Privacy Officer is authorized to:
    (a) Respond to requests for access to, accounting of, or amendment 
of records contained in a system of records maintained by the CFPB;
    (b) Approve the publication of new systems of records and amend 
existing systems of record; and
    (c) File any necessary reports related to the Privacy Act.



Sec. 1070.52  Fees.

    (a) Copies of records. The CFPB shall provide the requester with 
copies of records requested pursuant to section 1070.53 of this subpart 
at the same cost charged for duplication of records under Sec. 1070.22 
of this part.
    (b) No fee. The CFPB will not charge a fee if:
    (1) Total charges associated with a request are less than $5, or
    (2) The requester is a CFPB employee or former employee, or an 
applicant for employment with the CFPB, and request pertains to that 
employee, former employee, or applicant.



Sec. 1070.53  Request for access to records.

    (a) Procedures for making a request for access to records. An 
individual's requests for access to records that pertain to that 
individual (or to the individual for whom the requester serves as 
guardian) may be submitted to the CFPB in writing or by electronic 
means.
    (1) If submitted in writing, the request shall be labeled ``Privacy 
Act Request'' and shall be addressed to the Chief Privacy Officer, 
Bureau of Consumer Financial Protection, 1801 L Street, NW., Washington, 
DC 20036.
    (2) If submitted by electronic means, the request shall be labeled 
``Privacy Act Request'' and the request shall be submitted as set forth 
at the CFPB's Web site, http://www.consumerfinance.gov.
    (b) Content of a request for access to records. A request for access 
to records shall include:
    (1) A statement that the request is made pursuant to the Privacy 
Act;
    (2) The name of the system of records that the requester believes 
contains the record requested, or a description of the nature of the 
record sought in detail sufficient to enable CFPB personnel to locate 
the system of records containing the record with a reasonable amount of 
effort;
    (3) Whenever possible, a description of the nature of the record 
sought, the date of the record or the period in which the requester 
believes that the record was created, and any other information that 
might assist the CFPB in identifying the record sought (e.g., maiden 
name, dates of employment, account information, etc.).
    (4) Information necessary to verify the requester's identity 
pursuant to paragraph (c) of this section;
    (5) The mailing or email address where the CFPB's response or 
further correspondence should be sent.
    (c) Verification of identity. To obtain access to the CFPB's records 
pertaining to a requester, the requester

[[Page 1086]]

shall provide proof to the CFPB of the requester's identity as provided 
below.
    (1) In general, the following will be considered adequate proof of a 
requester's identity:
    (i) A photocopy of two forms of identification, including one form 
of identification that bears the requester's photograph, and one form of 
identification that bears the requester's signature;
    (ii) A photocopy of a single form of identification that bears both 
the requester's photograph and signature; or
    (iii) A statement swearing or affirming the requester's identity and 
to the fact that the requester understands the penalties provided in 5 
U.S.C. 552a(i)(3).
    (2) Notwithstanding paragraph (c)(1) of this section, a designated 
official may require additional proof of the requester's identity before 
action will be taken on any request, if such official determines that it 
is necessary to protect against unauthorized disclosure of information 
in a particular case. In addition, if a requester seeks records 
pertaining to an individual in the requester's capacity as that 
individual's guardian, the requester shall be required to provide 
adequate proof of the requester's legal relationship before action will 
be taken on any request.
    (d) Request for accounting of previous disclosures. An individual 
may request an accounting of previous disclosures of records pertaining 
to that individual in a system of records as provided in 5 U.S.C. 
552a(c). Such requests should conform to the procedures and form for 
requests for access to records set forth in subsection (a) and (b) of 
this section.



Sec. 1070.54  CFPB procedures for responding to a request for access.

    (a) Acknowledgment and response. The CFPB will provide written 
acknowledgement of the receipt of a request within twenty (20) business 
days from the receipt of the request and will, where practicable, 
respond to each request within that twenty (20) day period. When a full 
response is not practicable within the twenty (20) day period, the CFPB 
will respond as promptly as possible.
    (b) Disclosure. (1) When the CFPB discloses information in response 
to a request, the CFPB will make the information available for 
inspection and copying during regular business hours as provided in 
Sec. 1070.13 of this part, or the CFPB will mail it or email it the 
requester, if feasible, upon request.
    (2) The requester may bring with him or her anyone whom the 
requester chooses to see the requested material. All visitors to the 
CFPB's buildings must comply with the applicable security procedures.
    (c) Denial of a request. If the CFPB denies a request made pursuant 
to Sec. 1070.53 of this subpart, it will inform the requester in 
writing of the reason(s) for denial and the procedures for appealing the 
denial.



Sec. 1070.55  Special procedures for medical records.

    If an individual requests medical or psychological records pursuant 
to Sec. 1070.53 of this subpart, the CFPB will disclose them directly 
to the requester unless the CFPB determines that such disclosure could 
have an adverse effect on the requester. If the CFPB makes that 
determination, the CFPB will provide the information to a licensed 
physician or other appropriate representative that the requester 
designates, who may disclose those records to the requester in a manner 
he or she deems appropriate.



Sec. 1070.56  Request for amendment of records.

    (a) Procedures for making request. (1) If an individual wishes to 
amend a record that pertains to that individual in a system of records, 
that individual may submit a request in writing or by electronic means 
to the Chief Privacy Officer, as set forth in section 1070.53(a). The 
request shall be labeled ``Privacy Act Amendment Request.''
    (2) A request for amendment of a record must:
    (i) Identify the system of records containing the record for which 
amendment is requested;
    (ii) Specify the portion of that record requested to be amended; and
    (iii) Describe the nature and reasons for each requested amendment.
    (3) When making a request for amendment of a record, the CFPB will 
require a requester to verify his or her identity under the procedures 
set forth in Sec. 1070.53(c) of this subpart, unless the

[[Page 1087]]

requester has already done so in a related request for access or 
amendment.
    (b) Burden of proof. A request for amendment of a record must 
explain why the requester believes the record is not accurate, relevant, 
timely, or complete. The requester has the burden of proof for 
demonstrating the appropriateness of the requested amendment, and the 
requester must provide relevant and convincing evidence in support of 
the request.



Sec. 1070.57  CFPB review of a request for amendment of records.

    (a) Time limits. The CFPB will acknowledge a request for amendment 
of records within ten (10) business days after it receives the request. 
In the acknowledgment, the CFPB may request additional information 
necessary for a determination on the request for amendment. The CFPB 
will make a determination on a request to amend a record promptly.
    (b) Contents of response to a request for amendment. When the CFPB 
responds to a request for amendment, the CFPB will inform the requester 
in writing whether the request is granted or denied, in whole or in 
part. If the CFPB grants the request, it will take the necessary steps 
to amend the record and, when appropriate and possible, notify prior 
recipients of the record of its action. If the CFPB denies the request, 
in whole or in part, it will inform the requester in writing:
    (1) Why the request (or portion of the request) was denied;
    (2) That the requester has a right to appeal; and
    (3) How to file an appeal.



Sec. 1070.58  Appeal of adverse determination of request for access or
amendment.

    (a) Appeal. A requester may appeal a denial of a request made 
pursuant to Sec. Sec. 1070.53 or 1070.56 of this subpart within ten 
(10) business days after the CFPB notifies the requester that it has 
denied the request.
    (b) Content of Appeal. A requester may submit an appeal in writing 
or by electronic means as set forth in section 1070.53(a). The appeal 
shall be addressed to the General Counsel and labeled ``Privacy Act 
Appeal.'' The appeal must also:
    (1) Specify the background of the request; and
    (2) Provide reasons why the requester believes the denial is in 
error.
    (c) Determination. The General Counsel will make a determination as 
to whether to grant or deny an appeal within thirty (30) business days 
from the date it is received, unless the General Counsel extends the 
time for good cause.
    (1) If the General Counsel grants an appeal regarding a request for 
amendment, he or she will take the necessary steps to amend the record 
and, when appropriate and possible, notify prior recipients of the 
record of its action.
    (2) If the General Counsel denies an appeal, he or she will inform 
the requester of such determination in writing, including the reasons 
for the denial, and the requester's right to file a statement of 
disagreement and to have a court review its decision.
    (d) Statement of disagreement. (1) If the General Counsel denies an 
appeal regarding a request for amendment, a requester may file a concise 
statement of disagreement with the denial. The CFPB will maintain the 
requester's statement with the record that the requester sought to amend 
and any disclosure of the record will include a copy of the requester's 
statement of disagreement.
    (2) When practicable and appropriate, the CFPB will provide a copy 
of the statement of disagreement to any prior recipients of the record.



Sec. 1070.59  Restrictions on disclosure.

    The CFPB will not disclose any record about an individual contained 
in a system of records to any person or agency without the prior written 
consent of that individual unless the disclosure is authorized by 5 
U.S.C. 552a(b). Disclosures authorized by 5 U.S.C. 552a(b) include 
disclosures that are compatible with one or more routine uses that are 
contained within the CFPB's Systems of Records Notices, which are 
available on the CFPB's Web site, at http://www.consumerfinance.gov.

[[Page 1088]]



Sec. 1070.60  Exempt records.

    (a) Exempt systems of records. Pursuant to 5 U.S.C. 552a(k)(2), the 
CFPB exempts the systems of records listed below from 5 U.S.C. 
552a(c)(3), (d), (e)(1), (e)(4)(G)-(H), and (f), and Sec. Sec. 1070.53 
through 1070.59 of this subpart, to the extent that such systems of 
records contain investigatory materials compiled for law enforcement 
purposes, provided, however, that if any individual is denied any right, 
privilege, or benefit to which he or she would otherwise be entitled 
under federal law, or for which he or she would otherwise be eligible as 
a result of the maintenance of such material, such material shall be 
disclosed to such individual, except to the extent that the disclosure 
of such material would reveal the identity of a source who furnished 
information to the CFPB under an express promise that the identity of 
the source would be held in confidence:
    (1) CFPB.002 Depository Institution Supervision Database
    (2) CFPB.003 Non-Depository Institution Supervision Database
    (3) CFPB.004 Enforcement Database
    (b) Information compiled for civil actions or proceedings. This 
regulation does not permit an individual to have access to any 
information compiled in reasonable anticipation of a civil action or 
proceeding.



Sec. 1070.61  Training; rules of conduct; penalties for non-compliance.

    (a) Training. The Chief Privacy Officer shall institute a training 
program to instruct CFPB employees and employees of Government 
contractors covered by 5 U.S.C. 552a(m), who are involved in the design, 
development, operation or maintenance of any CFPB system of records, on 
a continuing basis with respect to the duties and responsibilities 
imposed on them and the rights conferred on individuals by the Privacy 
Act, the regulations in this part, and any other related regulations. 
Such training shall provide suitable emphasis on the civil and criminal 
penalties imposed on the CFPB and the individual employees by the 
Privacy Act for non-compliance with specified requirements of the Act as 
implemented by the regulations in this subpart.
    (b) Rules of conduct. The following rules of conduct are applicable 
to employees of the CFPB (including, to the extent required by the 
contract or 5 U.S.C. 552a(m), Government contractors and employees of 
such contractors), who are involved in the design, development, 
operation or maintenance of any system of records, or in maintain any 
records, for or on behalf of the CFPB.
    (1) The head of each office of the CFPB shall be responsible for 
assuring that employees subject to such official's supervision are 
advised of the provisions of the Privacy Act, including the criminal 
penalties and civil liabilities provided therein, and the regulations in 
this subpart, and that such employees are made aware of their individual 
and collective responsibilities to protect the security of personal 
information, to assure its accuracy, relevance, timeliness and 
completeness, to avoid unauthorized disclosure either orally or in 
writing, and to insure that no system of records is maintained without 
public notice.
    (2) Employees of the CFPB involved in the design, development, 
operation, or maintenance of any system of records, or in maintaining 
any record shall:
    (i) Collect no information of a personal nature from individuals 
unless authorized to collect it to achieve a function or carry out a 
responsibility of the CFPB;
    (ii) Collect information, to the extent practicable, directly from 
the individual to whom it relates;
    (iii) Inform each individual asked to supply information, on the 
form used to collect the information or on a separate form that can be 
retained by the individual--
    (A) The authority (whether granted by statute, or by executive order 
of the President) which authorizes the solicitation of the information 
and whether disclosure of such information is mandatory or voluntary;
    (B) The principal purpose or purposes for which the information is 
intended to be used;
    (C) The routine uses which may be made of the information, as 
published pursuant to 5 U.S.C. 552a(e)(4)(D); and

[[Page 1089]]

    (D) The effects on the individual, if any, of not providing all or 
any part of the requested information.
    (iv) Not collect, maintain, use or disseminate information 
concerning an individual's religious or political beliefs or activities 
or membership in associations or organizations, unless expressly 
authorized by statute or by the individual about whom the record is 
maintained or unless pertinent to and within the scope of an authorized 
law enforcement activity;
    (v) Advise their supervisors of the existence or contemplated 
development of any record system which is capable of retrieving 
information about individuals by individual identifier;
    (vi) Assure that no records maintained in a CFPB system of records 
are disseminated without the permission of the individual about whom the 
record pertains, except when authorized by 5 U.S.C. 552a(b);
    (vii) Maintain and process information concerning individuals with 
care in order to insure that no inadvertent disclosure of the 
information is made either within or without the CFPB;
    (viii) Prior to disseminating any record about an individual to any 
person other than an agency, unless the dissemination is made pursuant 
to 5 U.S.C. 552a(b)(2) of this section, make reasonable efforts to 
assure that such records are accurate, complete, timely, and relevant 
for agency purposes; and
    (ix) Assure that an accounting is kept in the prescribed form, of 
all dissemination of personal information outside the CFPB, whether made 
orally or in writing, unless disclosed under 5 U.S.C. 552 or subpart B 
of this part.
    (3) The head of each office of the CFPB shall, at least annually, 
review the record systems subject to their supervision to insure 
compliance with the provisions of the Privacy Act of 1974 and the 
regulations in this subpart.



Sec. 1070.62  Preservation of records.

    The CFPB will preserve all correspondence pertaining to the requests 
that it receives under this part, as well as copies of all requested 
records, until disposition or destruction is authorized by title 44 of 
the United States Code or the National Archives and Records 
Administration's General Records Schedule 14. Records will not be 
disposed of while they are the subject of a pending request, appeal, 
proceeding, or lawsuit.



Sec. 1070.63  Use and collection of Social Security numbers.

    The CFPB will ensure that employees authorized to collect 
information are aware:
    (a) That individuals may not be denied any right, benefit, or 
privilege as a result of refusing to provide their social security 
numbers, unless the collection is authorized either by a statute or by a 
regulation issued prior to 1975; and
    (b) That individuals requested to provide their social security 
numbers must be informed of:
    (1) Whether providing social security numbers is mandatory or 
voluntary;
    (2) Any statutory or regulatory authority that authorizes the 
collection of social security numbers; and
    (3) The uses that will be made of the numbers.



PART 1080_RULES RELATING TO INVESTIGATIONS--Table of Contents



Sec.
1080.1 Scope.
1080.2 Definitions.
1080.3 Policy as to private controversies.
1080.4 By whom conducted.
1080.5 Notification of purpose.
1080.6 Civil investigative demands.
1080.7 Investigational hearings.
1080.8 Withholding requested material.
1080.9 Rights of witnesses in investigations.
1080.10 Noncompliance with civil investigative demands.
1080.11 Disposition.
1080.12 Orders requiring witnesses to testify or provide other 
          information and granting immunity.
1080.13 Custodians.
1080.14 Confidential treatment of demand material and non-public nature 
          of investigations.

    Authority: Pub. L. 111-203, Title X.

    Source: 76 FR 45170, July 28, 2011, unless otherwise noted.



Sec. 1080.1  Scope.

    The rules of this part apply to Bureau investigations conducted 
pursuant to section 1052 of the Act, 12 U.S.C. 5562.

[[Page 1090]]



Sec. 1080.2  Definitions.

    For the purposes of this part, unless explicitly stated to the 
contrary:
    Act means the Consumer Financial Protection Act of 2010, as amended, 
Public Law 111-203 (July 21, 2010), Title X, 12 U.S.C. 5481 et seq.
    Assistant Director of the Division of Enforcement means the head of 
the Division of Enforcement or any Bureau employee to whom the Assistant 
Director of the Division of Enforcement has delegated authority to act 
under this part.
    Bureau means the Bureau of Consumer Financial Protection.
    Bureau investigation means any inquiry conducted by a Bureau 
investigator for the purpose of ascertaining whether any person is or 
has been engaged in any conduct that is a violation.
    Bureau investigator means any attorney or investigator employed by 
the Bureau who is charged with the duty of enforcing or carrying into 
effect any Federal consumer financial law.
    Custodian means the custodian or any deputy custodian designated by 
the Bureau for the purpose of maintaining custody of information 
produced pursuant to this part.
    Director means the Director of the Bureau or a person authorized to 
perform the functions of the Director in accordance with the law.
    Division of Enforcement means the division of the Bureau responsible 
for enforcement of Federal consumer financial law.
    Documentary material means the original or any copy of any book, 
document, record, report, memorandum, paper, communication, tabulation, 
chart, logs, electronic files, or other data or data compilations stored 
in any medium, including electronically-stored information.
    Electronically stored information (ESI) means any information stored 
in any electronic medium from which information can be obtained either 
directly or, if necessary, after translation by the responding party 
into a reasonably usable form.
    General Counsel means the General Counsel of the Bureau or any 
Bureau employee to whom the General Counsel has delegated authority to 
act under this part.
    Person means an individual, partnership, company, corporation, 
association (incorporated or unincorporated), trust, estate, cooperative 
organization, or other entity.
    Violation means any act or omission that, if proved, would 
constitute a violation of any provision of Federal consumer financial 
law.



Sec. 1080.3  Policy as to private controversies.

    The Bureau shall act only in the public interest and will not 
initiate an investigation or take other enforcement action when the 
alleged violation is merely a matter of private controversy and does not 
tend to affect adversely the public interest.



Sec. 1080.4  By whom conducted.

    Bureau investigations are conducted by Bureau investigators 
designated and duly authorized under section 1052 of the Act, 12 U.S.C. 
5562, to conduct such investigations.



Sec. 1080.5  Notification of purpose.

    Any person compelled to furnish documentary material, tangible 
things, written reports or answers to questions, oral testimony, or any 
combination of such material, answers, or testimony to the Bureau shall 
be advised of the nature of the conduct constituting the alleged 
violation that is under investigation and the provisions of law 
applicable to such violation.



Sec. 1080.6  Civil investigative demands.

    (a) In general. In accordance with section 1052(c) of the Act, the 
Assistant Director of the Division of Enforcement may issue a civil 
investigative demand in any Bureau investigation directing the person 
named therein to produce documentary material for inspection and copying 
or reproduction in the form or medium requested by the Bureau; to submit 
tangible things; to provide a written report or answers to questions; to 
appear before a designated representative at a designated time and place 
to testify about documentary material, tangible things, or other 
information; and to furnish any

[[Page 1091]]

combination of such material, things, answers, or testimony.
    (1) Documentary material. (i) Civil investigative demands for the 
production of documentary material shall describe each class of material 
to be produced with such definiteness and certainty as to permit such 
material to be fairly identified, prescribe a return date or dates that 
will provide a reasonable period of time within which the material so 
demanded may be assembled and made available for inspection and copying 
or reproduction, and identify the custodian to whom such material shall 
be made available. Documentary material for which a civil investigative 
demand has been issued shall be made available as prescribed in the 
civil investigative demand.
    (ii) Production of documentary material in response to a civil 
investigative demand shall be made under a sworn certificate, in such 
form as the demand designates, by the person to whom the demand is 
directed or, if not a natural person, by any person having knowledge of 
the facts and circumstances relating to such production, to the effect 
that all of the documentary material required by the demand and in the 
possession, custody, or control of the person to whom the demand is 
directed has been produced and made available to the custodian.
    (2) Tangible things. (i) Civil investigative demands for tangible 
things shall describe each class of tangible things to be produced with 
such definiteness and certainty as to permit such things to be fairly 
identified, prescribe a return date or dates which will provide a 
reasonable period of time within which the things so demanded may be 
assembled and submitted, and identify the custodian to whom such things 
shall be submitted.
    (ii) Submissions of tangible things in response to a civil 
investigative demand shall be made under a sworn certificate, in such 
form as the demand designates, by the person to whom the demand is 
directed or, if not a natural person, by any person having knowledge of 
the facts and circumstances relating to such production, to the effect 
that all of the tangible things required by the demand and in the 
possession, custody, or control of the person to whom the demand is 
directed have been submitted to the custodian.
    (3) Written reports or answers to questions. (i) Civil investigative 
demands for written reports or answers to questions shall propound with 
definiteness and certainty the reports to be produced or the questions 
to be answered, prescribe a date or dates at which time written reports 
or answers to questions shall be submitted, and identify the custodian 
to whom such reports or answers shall be submitted.
    (ii) Each reporting requirement or question in a civil investigative 
demand shall be answered separately and fully in writing under oath. 
Responses to a civil investigative demand for a written report or 
answers to questions shall be made under a sworn certificate, in such 
form as the demand designates, by the person to whom the demand is 
directed or, if not a natural person, by any person responsible for 
answering each reporting requirement or question, to the effect that all 
of the information required by the demand and in the possession, 
custody, control, or knowledge of the person to whom the demand is 
directed has been submitted to the custodian.
    (4) Oral testimony. (i) Civil investigative demands for the giving 
of oral testimony shall prescribe a date, time, and place at which oral 
testimony shall be commenced, and identify a Bureau investigator who 
shall conduct the investigation and the custodian to whom the transcript 
of such investigation shall be submitted. Oral testimony in response to 
a civil investigative demand shall be taken in accordance with the 
procedures for investigational hearings prescribed by Sec. Sec. 1080.7 
and 1080.9 of this part.
    (ii) Where a civil investigative demand requires oral testimony from 
an entity, the civil investigative demand shall describe with reasonable 
particularity the matters for examination and the entity must designate 
one or more officers, directors, or managing agents, or designate other 
persons who consent to testify on its behalf. Unless a single individual 
is designated by the entity, the entity must designate the matters on 
which each designee will testify.

[[Page 1092]]

The individuals designated must testify about information known or 
reasonably available to the entity and their testimony shall be binding 
on the entity.
    (b) Manner and form of production of ESI. When a civil investigative 
demand requires the production of ESI, it shall be produced in 
accordance with the instructions provided by the Bureau regarding the 
manner and form of production. Absent any instructions as to the form 
for producing ESI, ESI must be produced in the form in which it is 
ordinarily maintained or in a reasonably usable form.
    (c) Compliance. The Assistant Director of the Division of 
Enforcement is authorized to negotiate and approve the terms of 
satisfactory compliance with civil investigative demands and, for good 
cause shown, may extend the time prescribed for compliance.
    (d) Petition for order modifying or setting aside demand--in 
general. Any petition for an order modifying or setting aside a civil 
investigative demand shall be filed with the Executive Secretary of the 
Bureau with a copy to the Assistant Director of the Division of 
Enforcement within twenty (20) days after service of the civil 
investigative demand, or, if the return date is less than twenty (20) 
days after service, prior to the return date. Such petition shall set 
forth all assertions of privilege or other factual and legal objections 
to the civil investigative demand, including all appropriate arguments, 
affidavits, and other supporting documentation. The attorney who objects 
to a demand must sign any objections.
    (1) Statement. Each petition shall be accompanied by a signed 
statement representing that counsel for the petitioner has conferred 
with counsel for the Bureau in a good-faith effort to resolve by 
agreement the issues raised by the petition and has been unable to reach 
such an agreement. If some of the matters in controversy have been 
resolved by agreement, the statement shall specify the matters so 
resolved and the matters remaining unresolved. The statement shall 
recite the date, time, and place of each such conference between 
counsel, and the names of all parties participating in each such 
conference.
    (2) Extensions of time. The Assistant Director of the Division of 
Enforcement is authorized to rule upon requests for extensions of time 
within which to file such petitions. Requests for extension of time are 
disfavored.
    (3) Disposition. The Director has the authority to rule upon a 
petition for an order modifying or setting aside a civil investigative 
demand.
    (e) Stay of compliance period. The timely filing of a petition for 
an order modifying or setting aside a civil investigative demand shall 
stay the time permitted for compliance with the portion challenged. If 
the petition is denied in whole or in part, the ruling will specify a 
new return date.
    (f) Public disclosure. All such petitions and the responses thereto 
are part of the public records of the Bureau unless the Bureau 
determines otherwise for good cause shown.



Sec. 1080.7  Investigational hearings.

    (a) Investigational hearings, as distinguished from hearings in 
adjudicative proceedings, may be conducted pursuant to a civil 
investigative demand for the giving of oral testimony in the course of 
any Bureau investigation, including inquiries initiated for the purpose 
of determining whether or not a respondent is complying with an order of 
the Bureau.
    (b) Investigational hearings shall be conducted by any Bureau 
investigator for the purpose of hearing the testimony of witnesses and 
receiving documentary material, tangible things, or other information 
relating to any subject under investigation. Such hearings shall be 
under oath or affirmation and stenographically reported, and a 
transcript thereof shall be made a part of the record of the 
investigation. The Bureau investigator conducting the investigational 
hearing also may direct that the testimony be recorded by audio, 
audiovisual, or other means, in which case the recording shall be made a 
part of the record of the investigation as well.
    (c) In investigational hearings, the Bureau investigators shall 
exclude from the hearing room all persons except the person being 
examined, his or her counsel, the officer before whom

[[Page 1093]]

the testimony is to be taken, any investigator or representative of an 
agency with which the Bureau is engaged in a joint investigation, and 
any individual transcribing or recording such testimony. At the 
discretion of the Bureau investigator, and with the consent of the 
person being examined, persons other than those listed in this paragraph 
may be present in the hearing room. The Bureau investigator shall 
certify or direct the individual transcribing the testimony to certify 
on the transcript that the witness was duly sworn and that the 
transcript is a true record of the testimony given by the witness. A 
copy of the transcript shall be forwarded promptly by the Bureau 
investigator to the custodian designated in Sec. 1080.13.



Sec. 1080.8  Withholding requested material.

    (a) Any person withholding material responsive to a civil 
investigative demand or any other request for production of material 
shall assert a claim of privilege not later than the date set for the 
production of material. Such person shall, if so directed in the civil 
investigative demand or other request for production, submit, together 
with such claim, a schedule of the items withheld which states, as to 
each such item, the type, specific subject matter, and date of the item; 
the names, addresses, positions, and organizations of all authors and 
recipients of the item; and the specific grounds for claiming that the 
item is privileged. The person who submits the schedule and the attorney 
stating the grounds for a claim that any item is privileged must sign 
it.
    (b) A person withholding material solely for reasons described in 
this subsection shall comply with the requirements of this subsection in 
lieu of filing a petition for an order modifying or setting aside a 
civil investigative demand pursuant to Sec. 1080.6(d).
    (c) Disclosure of privileged or protected information or 
communications produced pursuant to a civil investigative demand shall 
be handled as follows:
    (1) The disclosure of privileged or protected information or 
communications shall not operate as a waiver if:
    (i) The disclosure was inadvertent;
    (ii) The holder of the privilege or protection took reasonable steps 
to prevent disclosure; and
    (iii) The holder promptly took reasonable steps to rectify the 
error, including notifying a Bureau investigator of the claim and the 
basis for it.
    (2) After being notified, the Bureau investigator must promptly 
return, sequester, or destroy the specified information and any copies; 
must not use or disclose the information until the claim is resolved; 
must take reasonable steps to retrieve the information if he or she 
disclosed it before being notified; and, if appropriate, may sequester 
such material until such time as a hearing officer or court rules on the 
merits of the claim of privilege or protection. The producing party must 
preserve the information until the claim is resolved.
    (3) The disclosure of privileged or protected information or 
communications shall waive the privilege or protection as to undisclosed 
information or communications only if:
    (i) The waiver is intentional;
    (ii) The disclosed and undisclosed information or communications 
concern the same subject matter; and
    (iii) They ought in fairness to be considered together.



Sec. 1080.9  Rights of witnesses in investigations.

    (a) Any person compelled to submit documentary material, tangible 
things, or written reports or answers to questions to the Bureau, or to 
testify in an investigational hearing, shall be entitled to retain a 
copy or, on payment of lawfully prescribed costs, request a copy of the 
materials, things, reports, or written answers submitted, or a 
transcript of his or her testimony. The Bureau, however, may for good 
cause deny such a request and limit the witness to inspection of the 
official transcript of the testimony. Upon completion of transcription 
of the testimony of the witness, the witness shall be offered an 
opportunity to read the transcript of his or her testimony. Any changes 
in form or substance that the witness desires to make shall be entered 
and identified upon the transcript by the Bureau investigator with a 
statement of the reasons given by the

[[Page 1094]]

witness for making such changes. The transcript shall then be signed by 
the witness unless the witness cannot be found, is ill, waives in 
writing his or her right to signature, or refuses to sign. If the 
transcript is not signed by the witness within thirty (30) days of being 
afforded a reasonable opportunity to review it, the Bureau investigator, 
or the individual transcribing the testimony acting at the Bureau 
investigator's direction, shall sign the transcript and state on the 
record the fact of the waiver, illness, absence of the witness, or the 
refusal to sign, together with any reasons given for the failure to 
sign.
    (b) Any witness compelled to appear in person at an investigational 
hearing may be accompanied, represented, and advised by counsel as 
follows:
    (1) Counsel for a witness may advise the witness, in confidence and 
upon the initiative of either counsel or the witness, with respect to 
any question asked of the witness for which an objection pursuant to 
paragraph (b) (2) of this section may properly be made. If the witness 
refuses to answer a question, counsel may briefly state on the record if 
he or she has advised the witness not to answer the question and the 
legal grounds for such refusal.
    (2) Where it is claimed that a witness is privileged to refuse to 
answer a question or to produce other evidence, the witness or counsel 
for the witness shall object on the record to the question or 
requirement and may state briefly and precisely the ground therefor. The 
witness and his or her counsel shall not otherwise object to or refuse 
to answer any question, and they shall not otherwise interrupt the oral 
examination.
    (3) Any objections made under the rules in this part will be treated 
as continuing objections and preserved throughout the further course of 
the hearing without the necessity for repeating them as to any similar 
line of inquiry. Cumulative objections are unnecessary. Repetition of 
the grounds for any objection will not be allowed.
    (4) Counsel for a witness may not, for any purpose or to any extent 
not allowed by paragraphs (b)(1) and (2) of this section, interrupt the 
examination of the witness by making any objections or statements on the 
record. Petitions challenging the Bureau's authority to conduct the 
investigation or the sufficiency or legality of the civil investigative 
demand shall be addressed to the Bureau in advance of the hearing. 
Copies of such petitions may be filed as part of the record of the 
investigation with the Bureau investigator conducting the 
investigational hearing, but no arguments in support thereof will be 
allowed at the hearing.
    (5) Following completion of the examination of a witness, counsel 
for the witness may, on the record, request that the Bureau investigator 
conducting the investigational hearing permit the witness to clarify any 
of his or her answers. The grant or denial of such request shall be 
within the sole discretion of the Bureau investigator conducting the 
hearing.
    (6) The Bureau investigator conducting the hearing shall take all 
necessary action to regulate the course of the hearing to avoid delay 
and to prevent or restrain disorderly, dilatory, obstructionist, or 
contumacious conduct, or contemptuous language. Such Bureau investigator 
shall, for reasons stated on the record, immediately report to the 
Bureau any instances where an attorney has allegedly refused to comply 
with his or her obligations under the rules in this part, or has 
allegedly engaged in disorderly, dilatory, obstructionist, or 
contumacious conduct, or contemptuous language in the course of the 
hearing. The Bureau will thereupon take such further action, if any, as 
the circumstances warrant, including suspension or disbarment of the 
attorney from further practice before the Bureau or exclusion from 
further participation in the particular investigation.



Sec. 1080.10  Noncompliance with civil investigative demands.

    (a) In cases of failure to comply in whole or in part with Bureau 
civil investigative demands, appropriate action may be initiated by the 
Bureau, including actions for enforcement.
    (b) The Assistant Director of the Division of Enforcement and the 
General Counsel are authorized to:
    (1) Institute, on behalf of the Bureau, an enforcement proceeding in 
the district court of the United States for any

[[Page 1095]]

judicial district in which a person resides, is found, or transacts 
business, in connection with the failure or refusal of such person to 
comply with, or to obey, a civil investigative demand in whole or in 
part if the return date or any extension thereof has passed; and
    (2) Seek civil contempt or other appropriate relief in cases where a 
court order enforcing a civil investigative demand has been violated.



Sec. 1080.11  Disposition.

    (a) When the facts disclosed by an investigation indicate that an 
enforcement action is warranted, further proceedings may be instituted 
in federal or state court or pursuant to the Bureau's administrative 
adjudicatory process. Where appropriate, the Bureau also may refer 
investigations to appropriate federal, state, or foreign governmental 
agencies.
    (b) When the facts disclosed by an investigation indicate that an 
enforcement action is not necessary or would not be in the public 
interest, the investigational file will be closed. The matter may be 
further investigated, at any time, if circumstances so warrant.
    (c) The Assistant Director of the Division of Enforcement is 
authorized to close Bureau investigations.



Sec. 1080.12  Orders requiring witnesses to testify or provide other
information and granting immunity.

    (a) The Assistant Director of the Division of Enforcement is hereby 
authorized to request approval from the Attorney General of the United 
States for the issuance of an order requiring a witness to testify or 
provide other information granting immunity under 18 U.S.C. 6004.
    (b) The Bureau retains the right to review the exercise of any of 
the functions delegated under paragraph (a) of this section. Appeals to 
the Bureau from an order requiring a witness to testify or provide other 
information will be entertained by the Bureau only upon a showing that a 
substantial question is involved, the determination of which is 
essential to serve the interests of justice. Such appeals shall be made 
on the record and shall be in the form of a brief not to exceed fifteen 
(15) pages in length and shall be filed within five (5) days after 
notice of the complained of action. The appeal shall not operate to 
suspend the hearing unless otherwise determined by the Bureau 
investigator conducting the hearing or ordered by the Bureau.



Sec. 1080.13  Custodians.

    (a) The Bureau shall designate a custodian and one or more deputy 
custodians for material to be delivered pursuant to a civil 
investigative demand in an investigation. The custodian shall have the 
powers and duties prescribed by section 1052 of the Act, 12 U.S.C. 5562. 
Deputy custodians may perform all of the duties assigned to custodians.
    (b) Material produced pursuant to a civil investigative demand, 
while in the custody of the custodian, shall be for the official use of 
the Bureau in accordance with the Act; but such material shall upon 
reasonable notice to the custodian be made available for examination by 
the person who produced such material, or his or her duly authorized 
representative, during regular office hours established for the Bureau.



Sec. 1080.14  Confidential treatment of demand material and non-public 
nature of investigations.

    (a) Documentary materials and tangible things the Bureau receives 
pursuant to a civil investigative demand are subject to the requirements 
and procedures relating to the disclosure of records and information set 
forth in part 1070 of this chapter.
    (b) Bureau investigations generally are non-public. Bureau 
investigators may disclose the existence of an investigation to 
potential witnesses or third parties to the extent necessary to advance 
the investigation.



PART 1081_RULES OF PRACTICE FOR ADJUDICATION PROCEEDINGS--Table of 
Contents



                         Subpart A_General Rules

Sec.
1081.100 Scope of the rules of practice.
1081.101 Expedition and fairness of proceedings.
1081.102 Rules of construction.
1081.103 Definitions.
1081.104 Authority of the hearing officer.

[[Page 1096]]

1081.105 Assignment, substitution, performance, disqualification of 
          hearing officer.
1081.106 Deadlines.
1081.107 Appearance and practice in adjudication proceedings.
1081.108 Good faith certification.
1081.109 Conflict of interest.
1081.110 Ex parte communication.
1081.111 Filing of papers.
1081.112 Formal requirements as to papers filed.
1081.113 Service of papers.
1081.114 Construction of time limits.
1081.115 Change of time limits.
1081.116 Witness fees and expenses.
1081.117 Bureau's right to conduct examination, collect information.
1081.118 Collateral attacks on adjudication proceedings.
1081.119 Confidential information; protective orders.
1081.120 Settlement.
1081.121 Cooperation with other agencies.

        Subpart B_Initiation of Proceedings and Prehearing Rules

1081.200 Commencement of proceeding and contents of notice of charges.
1081.201 Answer.
1081.202 Amended pleadings.
1081.203 Scheduling conference.
1081.204 Consolidation and severance of actions.
1081.205 Non-dispositive motions.
1081.206 Availability of documents for inspection and copying.
1081.207 Production of witness statements.
1081.208 Subpoenas.
1081.209 Deposition of witness unavailable for hearing.
1081.210 Expert discovery.
1081.211 Interlocutory review.
1081.212 Dispositive motions.
1081.213 Partial summary disposition.
1081.214 Prehearing conferences.
1081.215 Prehearing submissions.
1081.216 Amicus participation.

                           Subpart C_Hearings

1081.300 Public hearings.
1081.301 Failure to appear.
1081.302 Conduct of hearings.
1081.303 Evidence.
1081.304 Record of the hearing.
1081.305 Post-hearing filings.
1081.306 Record in proceedings before hearing officer; retention of 
          documents; copies.

                     Subpart D_Decision and Appeals

1081.400 Recommended decision of the hearing officer.
1081.401 Transmission of documents to Director; record index; 
          certification.
1081.402 Notice of appeal; review by the Director.
1081.403 Briefs filed with the Director.
1081.404 Oral argument before the Director.
1081.405 Decision of the Director.
1081.406 Reconsideration.
1081.407 Effective date; stays pending judicial review.

    Authority: Pub. L. 111-203, Title X.

    Source: 76 FR 45351, July 28, 2011, unless otherwise noted.



                         Subpart A_General Rules



Sec. 1081.100  Scope of the rules of practice.

    This part prescribes rules of practice and procedure applicable to 
adjudication proceedings authorized by section 1053 of the Consumer 
Financial Protection Act of 2010 (``Act'') to ensure or enforce 
compliance with the provisions of the Act, rules prescribed by the 
Bureau under the Act, and any other Federal law or regulation that the 
Bureau is authorized to enforce. These rules of practice do not govern 
the conduct of Bureau investigations, investigational hearings or other 
proceedings that do not arise from proceedings after a notice of 
charges.



Sec. 1081.101  Expedition and fairness of proceedings.

    To the extent practicable, consistent with requirements of law, the 
Bureau's policy is to conduct such adjudication proceedings fairly and 
expeditiously. In the conduct of such proceedings, the hearing officer 
and counsel for all parties shall make every effort at each stage of a 
proceeding to avoid delay. With the consent of the parties, the 
Director, at any time, or the hearing officer at any time prior to the 
filing of his or her recommended decision, may shorten any time limit 
prescribed by this part.



Sec. 1081.102  Rules of construction.

    For the purposes of this part:
    (a) Any term in the singular includes the plural, and the plural 
includes the singular, if such use would be appropriate;
    (b) Any use of a masculine, feminine, or neutral gender encompasses 
all three, if such use would be appropriate;

[[Page 1097]]

    (c) Unless context requires otherwise, a party's counsel of record, 
if any, may, on behalf of that party, take any action required to be 
taken by the party.
    (d) To the extent this part uses terms defined by the Act, such 
terms shall have the same meaning as set forth in the Act, unless 
defined differently by Sec. 1081.103.



Sec. 1081.103  Definitions.

    For the purposes of this part, unless explicitly stated to the 
contrary:
    Act means the Consumer Financial Protection Act of 2010, as amended, 
Public Law No. 111-203 (July 21, 2010), Title X, 12 U.S.C. 5481 et seq.
    Adjudication proceeding means a proceeding conducted pursuant to 
section 1053 of the Act and intended to lead to the formulation of a 
final order other than a temporary cease and desist order issued 
pursuant to section 1053(c) of the Act.
    Bureau means the Bureau of Consumer Financial Protection.
    Chief hearing officer means the hearing officer charged with 
assigning hearing officers to specific proceedings, in the event there 
is more than one hearing officer available to the Bureau.
    Counsel means any attorney representing a party or any other person 
representing a party pursuant to Sec. 1081.107.
    Decisional employee means any employee of the Bureau who has not 
engaged in an investigative or prosecutorial role in a proceeding and 
who may assist the Director or the hearing officer, respectively, in 
preparing orders, recommended decisions, decisions, and other documents 
under this part.
    Director means the Director of the Bureau or a person authorized to 
perform the functions of the Director in accordance with the law.
    Division of Enforcement means the division of the Bureau responsible 
for enforcement of Federal consumer financial law.
    Enforcement Counsel means any individual who files a notice of 
appearance as counsel on behalf of the Bureau in an adjudication 
proceeding.
    Executive Secretary means the Executive Secretary of the Bureau.
    Final order means an order issued by the Bureau with or without the 
consent of the respondent, which has become final, without regard to the 
pendency of any petition for reconsideration or review.
    General Counsel means the General Counsel of the Bureau or any 
Bureau employee to whom the General Counsel has delegated authority to 
act under this part.
    Hearing officer means an administrative law judge or any other 
person duly authorized to preside at a hearing.
    Notice of charges means the pleading that commences an adjudication 
proceeding, as described in Sec. 1081.200 of this part.
    Party means the Bureau and any person named as a party in any notice 
of charges issued pursuant to this part.
    Person means an individual, partnership, company, corporation, 
association (incorporated or unincorporated), trust, estate, cooperative 
organization, or other entity.
    Person employed by the Bureau means Bureau employees, contractors, 
agents, and others acting for or on behalf of the Bureau, or at its 
direction, including consulting experts.
    Respondent means any party other than the Bureau.
    State means any State, territory, or possession of the United 
States, the District of Columbia, the Commonwealth of Puerto Rico, the 
Commonwealth of the Northern Mariana Islands, Guam, American Samoa, or 
the United States Virgin Islands or any federally recognized Indian 
tribe, as defined by the Secretary of the Interior under section 104(a) 
of the Federally Recognized Indian Tribe List Act of 1994 (25 U.S.C. 
479a-1(a)).



Sec. 1081.104  Authority of the hearing officer.

    (a) General Rule. The hearing officer shall have all powers 
necessary to conduct a proceeding in a fair and impartial manner and to 
avoid unnecessary delay. No provision of this part shall be construed to 
limit the powers of the hearing officers provided by the Administrative 
Procedure Act, 5 U.S.C. 556, 557.

[[Page 1098]]

    (b) Powers. The powers of the hearing officer include but are not 
limited to the power:
    (1) To administer oaths and affirmations;
    (2) To issue subpoenas, subpoenas duces tecum, and protective 
orders, as authorized by this part, and to quash or modify any such 
subpoenas or orders;
    (3) To take depositions or cause depositions to be taken;
    (4) To receive relevant evidence and to rule upon the admission of 
evidence and offers of proof;
    (5) To regulate the course of a proceeding and the conduct of 
parties and their counsel;
    (6) To reject written submissions that fail to comply with the 
requirements of this part, and to deny confidential status to documents 
and testimony without prejudice until a party complies with all relevant 
rules;
    (7) To hold conferences for settlement, simplification of the 
issues, or any other proper purpose and require the attendance at any 
such conference of at least one representative of each party who has 
authority to negotiate concerning the resolution of issues in 
controversy;
    (8) To inform the parties as to the availability of one or more 
alternative means of dispute resolution, and to encourage the use of 
such methods;
    (9) To certify questions to the Director for his or her 
determination in accordance with the rules of this part;
    (10) To consider and rule upon, as justice may require, all 
procedural and other motions appropriate in adjudication proceedings;
    (11) To issue and file recommended decisions;
    (12) To recuse himself or herself by motion made by a party or on 
his or her own motion;
    (13) To issue such sanctions against parties or their counsel as may 
be necessary to deter repetition of sanctionable conduct or comparable 
conduct by others similarly situated, as provided for in this part or as 
otherwise necessary to the appropriate conduct of hearings and related 
proceedings, provided that no sanction shall be imposed before providing 
the sanctioned person an opportunity to show cause why no such sanction 
should issue; and
    (14) To do all other things necessary and appropriate to discharge 
the duties of a presiding officer.



Sec. 1081.105  Assignment, substitution, performance, disqualification
of hearing officer.

    (a) How assigned. In the event that more than one hearing officer is 
available to the Bureau for the conduct of proceedings under this part, 
the presiding hearing officer shall be designated by the chief hearing 
officer, who shall notify the parties of the hearing officer designated.
    (b) Interference. Hearing officers shall not be responsible or 
subject to the supervision or direction of any officer, employee, or 
agent engaged in the performance of investigative or prosecuting 
functions for the Bureau, and all direction by the Bureau to the hearing 
officer concerning any adjudication proceedings shall appear in and be 
made part of the record.
    (c) Disqualification of hearing officers. (1) When a hearing officer 
deems himself or herself disqualified to preside in a particular 
proceeding, he or she shall issue a notice stating that he or she is 
withdrawing from the matter and setting forth the reasons therefore.
    (2) Any party who has a reasonable, good faith basis to believe that 
a hearing officer has a personal bias, or is otherwise disqualified from 
hearing a case, may make a motion to the hearing officer that the 
hearing officer withdraw. The motion shall be accompanied by an 
affidavit setting forth the facts alleged to constitute grounds for 
disqualification. Such motion shall be filed at the earliest practicable 
time after the party learns, or could reasonably have learned, of the 
alleged grounds for disqualification. If the hearing officer does not 
disqualify himself or herself within 10 days, he or she shall certify 
the motion to the Director pursuant to Sec. 1081.211, together with any 
statement he or she may wish to have considered by the Director. The 
Director shall promptly determine the validity of the grounds alleged, 
either directly or on the report of another hearing officer appointed to 
conduct a

[[Page 1099]]

hearing for that purpose, and shall either direct the reassignment of 
the matter or confirm the hearing officer's continued role in the 
matter.
    (d) Unavailability of hearing officer. In the event that the hearing 
officer withdraws or is otherwise unable to perform the duties of the 
hearing officer, the chief hearing officer or the Director shall 
designate another hearing officer to serve.



Sec. 1081.106  Deadlines.

    The deadlines for action by the hearing officer established by 
Sec. Sec. 1081.203, 1081.205, 1081.211, 1081.212, and 1081.400, or 
elsewhere in this part, confer no substantive rights on respondents.



Sec. 1081.107  Appearance and practice in adjudication proceedings.

    (a) Appearance before the Bureau or a hearing officer. (1) By 
attorneys. Any member in good standing of the bar of the highest court 
of any state may represent others before the Bureau if such attorney is 
not currently suspended or debarred from practice before the Bureau.
    (2) By non-attorneys. So long as such individual is not currently 
suspended or debarred from practice before the Bureau:
    (i) An individual may appear on his or her own behalf;
    (ii) A member of a partnership may represent the partnership;
    (iii) A duly authorized officer of a corporation, trust or 
association may represent the corporation, trust or association; and
    (iv) A duly authorized officer or employee of any government unit, 
agency, or authority may represent that unit, agency, or authority.
    (3) Notice of appearance. Any individual acting as counsel on behalf 
of a party, including the Bureau, shall file a notice of appearance at 
or before the time that the individual submits papers or otherwise 
appears on behalf of a party in the adjudication proceeding. The notice 
of appearance must include a written declaration that the individual is 
currently qualified as provided in paragraph (a)(1) or (a)(2) of this 
section and is authorized to represent the particular party, and, if 
applicable, include the attorney's jurisdiction of admission or 
qualification, attorney identification number, and a statement by the 
appearing attorney attesting to his or her good standing within the 
legal profession. By filing a notice of appearance on behalf of a party 
in an adjudication proceeding, the counsel agrees and represents that he 
or she is authorized to accept service on behalf of the represented 
party and that, in the event of withdrawal from representation, he or 
she will, if required by the hearing officer, continue to accept service 
until a new counsel has filed a notice of appearance or until the 
represented party indicates that he or she will proceed on a pro se 
basis. The notice of appearance shall provide the representative's email 
address, telephone number and business address and, if different from 
the representative's addresses, electronic or U.S. mail addresses at 
which the represented party may be served.
    (b) Sanctions. Dilatory, obstructionist, egregious, contemptuous or 
contumacious conduct at any phase of any adjudication proceeding may be 
grounds for exclusion or suspension of counsel from the proceeding. An 
order imposing a sanction must describe the sanctioned conduct and 
explain the basis for the sanction.
    (c) Standards of conduct; disbarment. (1) All attorneys practicing 
before the Bureau shall conform to the standards of ethical conduct 
required by the bars of which the attorneys are members.
    (2) If for good cause shown, the Director believes that any attorney 
is not conforming to such standards, or that an attorney or counsel to a 
party has been otherwise engaged in conduct warranting disciplinary 
action, the Director may issue an order requiring such person to show 
cause why he should not be suspended or disbarred from practice before 
the Bureau. The alleged offender shall be granted due opportunity to be 
heard in his or her own defense and may be represented by counsel. 
Thereafter, if warranted by the facts, the Director may issue against 
the attorney or counsel an order of reprimand, suspension, or 
disbarment.

[[Page 1100]]



Sec. 1081.108  Good faith certification.

    (a) General requirement. Every filing or submission of record 
following the issuance of a notice of charges shall be signed by at 
least one counsel of record in his or her individual name and shall 
state counsel's address, email address, and telephone number. A party 
who acts as his or her own counsel shall sign his or her individual name 
and state his or her address, e-mail address, and telephone number on 
every filing or submission of record. Papers filed by electronic 
transmission may be signed with an ``/s/'' notation, which shall be 
deemed the signature of the party or representative whose name appears 
below the signature line.
    (b) Effect of signature. (1) The signature of counsel or a party 
shall constitute a certification that: the counsel or party has read the 
filing or submission of record; to the best of his or her knowledge, 
information, and belief formed after reasonable inquiry, the filing or 
submission of record is well-grounded in fact and is warranted by 
existing law or a good faith argument for the extension, modification, 
or reversal of existing law; and the filing or submission of record is 
not made for any improper purpose, such as to harass or to cause 
unnecessary delay or needless increase in the cost of litigation.
    (2) If a filing or submission of record is not signed, the hearing 
officer shall strike the filing or submission of record, unless it is 
signed promptly after the omission is called to the attention of the 
filer.
    (c) Effect of making oral motion or argument. The act of making any 
oral motion or oral argument by any counsel or party constitutes a 
certification that to the best of his or her knowledge, information, and 
belief formed after reasonable inquiry, his or her statements are well-
grounded in fact and are warranted by existing law or a good faith 
argument for the extension, modification, or reversal of existing law, 
and are not made for any improper purpose, such as to harass or to cause 
unnecessary delay or needless increase in the cost of litigation.
    (d) Sanctions. Counsel or a party that fails to abide by the 
requirements of this section may be subject to sanctions pursuant to 
Sec. 1081.104(b)(13) of this part.



Sec. 1081.109  Conflict of interest.

    (a) Conflict of interest in representation. No person shall appear 
as counsel for another person in an adjudication proceeding if it 
reasonably appears that such representation may be materially limited by 
that counsel's responsibilities to a third person or by the counsel's 
own interests. The hearing officer may take corrective measures at any 
stage of a proceeding to cure a conflict of interest in representation, 
including the issuance of an order limiting the scope of representation 
or disqualifying an individual from appearing in a representative 
capacity for the duration of the proceeding.
    (b) Certification and waiver. If any person appearing as counsel 
represents two or more parties to an adjudication proceeding or also 
represents a non-party on a matter relevant to an issue in the 
proceeding, counsel must certify in writing at the time of filing the 
notice of appearance required by Sec. 1081.107(a)(3):
    (1) That the counsel has personally and fully discussed the 
possibility of conflicts of interest with each such party and non-party; 
and
    (2) That each such party and/or non-party waives any right it might 
otherwise have had to assert any known conflicts of interest or to 
assert any conflicts of interest during the course of the proceeding.



Sec. 1081.110  Ex parte communication.

    (a) Definitions. (1) For purposes of this section, ex parte 
communication means any material oral or written communication relevant 
to the merits of an adjudication proceeding that was neither on the 
record nor on reasonable prior notice to all parties that takes place 
between:
    (i) An interested person not employed by the Bureau (including such 
person's counsel); and
    (ii) The hearing officer handling the proceeding, the Director, or a 
decisional employee.
    (2) Exception. A request for status of the proceeding does not 
constitute an ex parte communication.

[[Page 1101]]

    (3) Pendency of an adjudication proceeding means the time from when 
the Bureau issues a notice of charges, unless the person responsible for 
the communication has knowledge that a notice of charges will be or is 
likely to be issued, in which case the pendency of an adjudication shall 
commence at the time of his or her acquisition of such knowledge, or 
from when an order by a court of competent jurisdiction remanding a 
Bureau decision and order for further proceedings becomes effective, 
until the time the Director enters his or her final decision and order 
in the proceeding and the time permitted to seek reconsideration of that 
decision and order has elapsed. For purposes of this section, an order 
of remand by a court of competent jurisdiction shall be deemed to become 
effective when the Bureau determines not to file an appeal or a petition 
for a writ of certiorari, or when the time for filing such an appeal or 
petition has expired without an appeal or petition having been filed, or 
when such a petition has been denied. If a petition for reconsideration 
of a Bureau decision is filed pursuant to Sec. 1081.406, the matter 
shall be considered to be a pending adjudication proceeding until the 
time the Bureau enters an order disposing of the petition.
    (b) Prohibited ex parte communications. During the pendency of an 
adjudication proceeding, except to the extent required for the 
disposition of ex parte matters as authorized by law or as otherwise 
authorized by this part:
    (1) No interested person not employed by the Bureau shall make or 
knowingly cause to be made to the Director, or to the hearing officer, 
or to any decisional employee, an ex parte communication; and
    (2) The Director, the hearing officer, or any decisional employee 
shall not make or knowingly cause to be made to any interested person 
not employed by the Bureau any ex parte communication.
    (c) Procedure upon occurrence of ex parte communication. If an ex 
parte communication prohibited by paragraph (b) of this section is 
received by the hearing officer, the Director, or any decisional 
employee, that person shall cause all such written communications (or, 
if the communication is oral, a memorandum stating the substance of the 
communication) to be placed on the record of the proceeding and served 
on all parties. All other parties to the proceeding shall have an 
opportunity, within 10 days of receipt of service of the ex parte 
communication, to file responses thereto and to recommend any sanctions, 
in accordance with paragraph (d) of this section, that they believe to 
be appropriate under the circumstances.
    (d) Sanctions--(1) Adverse action on claim. Upon receipt of an ex 
parte communication knowingly made or knowingly caused to be made by a 
party and prohibited by paragraph (b) of this section, the Director or 
hearing officer, as appropriate, may, to the extent consistent with the 
interests of justice and the policy of the underlying statutes, require 
the party to show cause why his claim or interest in the proceeding 
should not be dismissed, denied, disregarded, or otherwise adversely 
affected on account of such violation.
    (2) Discipline of persons practicing before the Bureau. The Director 
may, to the extent not prohibited by law, censure, suspend, or revoke 
the privilege to practice before the Bureau of any person who makes, or 
solicits the making of, an unauthorized ex parte communication.
    (e) Separation of functions. Except to the extent required for the 
disposition of ex parte matters as authorized by law, the hearing 
officer may not consult a person or party on any matter relevant to the 
merits of the adjudication, unless on notice and opportunity for all 
parties to participate. An employee or agent engaged in the performance 
of investigative or prosecuting functions for the Bureau in a case, 
other than the Director, may not, in that or a factually related case, 
participate or advise in the decision, recommended decision, or agency 
review of the recommended decision, except as witness or counsel in 
public proceedings.



Sec. 1081.111  Filing of papers.

    (a) Filing. The following papers must be filed by parties in an 
adjudication proceeding: the notice of charges, notices of appearance, 
answer, motion,

[[Page 1102]]

brief, request for issuance or enforcement of a subpoena, response, 
opposition, reply, notice of appeal, or petition for reconsideration. 
The hearing officer shall file all written orders, rulings, notices, or 
requests. Any papers required to be filed shall be filed with the 
Executive Secretary, except as otherwise provided herein.
    (b) Manner of filing. Unless otherwise specified by the Director or 
the hearing officer, filing may be accomplished by:
    (1) Electronic transmission upon any conditions specified by the 
Director or the hearing officer, or
    (2) Any of the following methods if respondent demonstrates 
electronic filing is not practicable:
    (i) Personal delivery to the Bureau's headquarters;
    (ii) Delivery to a reliable commercial courier service or overnight 
delivery service; or
    (iii) Mailing the papers by first class, registered, certified, or 
Express mail.



Sec. 1081.112  Formal requirements as to papers filed.

    (a) Form. All papers filed by parties must:
    (1) Set forth the name, address, telephone number, and e-mail 
address of the counsel or party making the filing;
    (2) Be double-spaced (except for single-spaced footnotes and single-
spaced indented quotations) and printed or typewritten on 8\1/2\; x 11 
inch paper in 12-point or larger font;
    (3) Include at the head of the paper, or on a title page, a caption 
setting forth the title of the case, the docket number of the 
proceeding, and a brief descriptive title indicating the purpose of the 
paper;
    (4) Be paginated with margins at least 1 inch wide; and
    (5) If filed by other than electronic means, be stapled, clipped or 
otherwise fastened in a manner that lies flat when opened.
    (b) Signature. All papers must be dated and signed as provided in 
Sec. 1081.108.
    (c) Number of copies. Unless otherwise specified by the Director or 
the hearing officer, one copy of all documents and papers shall be filed 
if filing is by electronic transmission. If filing is accomplished by 
any other means, an original and one copy of all documents and papers 
shall be filed, except that only one copy of transcripts of testimony 
and exhibits must be filed.
    (d) Authority to reject document for filing. The Executive Secretary 
or the hearing officer may reject a document for filing that fails to 
comply with these rules.
    (e) Sensitive personal information. Sensitive personal information, 
including but not limited to an individual's Social Security number, 
taxpayer identification number, financial account number, credit card or 
debit card number, driver's license number, state-issued identification 
number, passport number, date of birth (other than year), and any 
sensitive health information identifiable by individual, such as an 
individual's medical records, shall not be included in, and must be 
redacted or omitted from, filings where the filing party determines that 
such information is not relevant or otherwise necessary for the conduct 
of the proceeding.
    (f) Confidential treatment of information in certain filings. A 
party seeking confidential treatment of information contained in a 
filing must contemporaneously file either a motion requesting such 
treatment in accordance with Sec. 1081.119 of this part or a copy of 
the order from the Director, hearing officer, or federal court 
authorizing such confidential treatment. The filing must be accompanied 
by:
    (1) A complete, sealed copy of the documents containing the 
materials as to which confidential treatment is sought, with the 
allegedly confidential material clearly marked as such, and with the 
first page of the document labeled ``Under Seal.'' If the movant seeks 
or has obtained a protective order against disclosure to other parties 
as well as the public, copies of the documents shall not be served on 
other parties; and
    (2) An expurgated copy of the materials as to which confidential 
treatment is sought, with the allegedly confidential materials redacted. 
The redacted version shall indicate any omissions with brackets or 
ellipses, and its pagination and depiction of text on each page shall be 
identical to that of the sealed version.

[[Page 1103]]

    (g) Certificate of service. Any papers filed in an adjudicative 
proceeding shall contain proof of service on all other parties or their 
counsel in the form of a statement of the date and manner of service and 
of the names of the persons served, certified by the person who made 
service. The certificate of service must be affixed to the papers filed 
and signed in accordance with Sec. 1081.108 of this part.



Sec. 1081.113  Service of papers.

    (a) When required. In every adjudication proceeding, each paper 
required to be filed by Sec. 1081.111 of this part shall be served upon 
each party in the proceeding in accordance with the provisions of this 
section; provided, however, that absent an order to the contrary, no 
service shall be required for motions which are to be heard ex parte.
    (b) Upon a person represented by counsel. Whenever service is 
required to be made upon a person represented by counsel who has filed a 
notice of appearance pursuant to Sec. 1081.107(a)(3) of this part, 
service shall be made pursuant to paragraph (c) of this section upon 
counsel, unless service upon the person represented is ordered by the 
Director or the hearing officer, as appropriate.
    (c) Method of service. Except as provided in paragraph (d) of this 
section, service shall be made by delivering a copy of the filing by one 
of the following methods:
    (1) Transmitting the papers by electronic transmission where the 
persons so serving each other have consented to service by specified 
electronic transmission and provided the Bureau and the parties with 
notice of the means for service by electronic transmission (e.g., email 
address or facsimile number);
    (2) Personal service. Handing a copy to the person required to be 
served; or leaving a copy at the person's office with a clerk or other 
person in charge thereof, or, if there is no one in charge, leaving it 
in a conspicuous place therein; or, if the office is closed or the 
person to be served has no office, leaving it at the person's dwelling 
or usual place of abode with some person of suitable age and discretion 
then residing therein;
    (3) Mailing the papers through the U.S. Postal Service by first 
class, registered, or certified mail or Express Mail delivery addressed 
to the person; or
    (4) Sending the papers through a commercial courier service or 
express delivery service.
    (d) Service of certain papers by the Bureau. Service of the notice 
of charges, recommended decisions and final orders of the Bureau shall 
be effected as follows:
    (1) Service of a notice of charges--(i) To individuals. Notice of a 
proceeding shall be made to an individual by delivering a copy of the 
notice of charges to the individual or to an agent authorized by 
appointment or by law to receive such notice. Delivery, for purposes of 
this paragraph, means handing a copy of the notice to the individual; or 
leaving a copy at the individual's office with a clerk or other person 
in charge thereof; or leaving a copy at the individual's dwelling house 
or usual place of abode with some person of suitable age and discretion 
then residing therein; or sending a copy of the notice addressed to the 
individual by U.S. Postal Service certified, registered or Express Mail, 
or by third-party commercial carrier, for overnight delivery and 
obtaining a confirmation of receipt.
    (ii) To corporations or entities. Notice of a proceeding shall be 
made to a person other than a natural person by delivering a copy of the 
notice of charges to an officer, managing or general agent, or any other 
agent authorized by appointment or law to receive such notice, by any 
method specified in paragraph (d)(1)(i) of this section.
    (iii) Upon persons registered with the Bureau. In addition to any 
other method of service specified in paragraph (d)(1) of this section, 
notice may be made to a person currently registered with the Bureau by 
sending a copy of the notice of charges addressed to the most recent 
business address shown on the person's registration form by U.S. Postal 
Service certified, registered or Express Mail and obtaining a 
confirmation of attempted delivery.
    (iv) Upon persons in a foreign country. Notice of a proceeding to a 
person in a foreign country may be made by any

[[Page 1104]]

method specified in paragraph (d)(1) of this section, or by any other 
method reasonably calculated to give notice, provided that the method of 
service used is not prohibited by the law of the foreign country.
    (v) Record of service. The Bureau shall maintain a record of service 
of the notice of charges on parties, identifying the party given notice, 
the method of service, the date of service, the address to which service 
was made, and the person who made service. If service is made in person, 
the certificate of service shall state, if available, the name of the 
individual to whom the notice of charges was given. If service is made 
by U.S. Postal Service certified or Express Mail, the Bureau shall 
maintain the confirmation of receipt or of attempted delivery. If 
service is made to an agent authorized by appointment to receive 
service, the certificate of service shall be accompanied by evidence of 
the appointment.
    (vi) Waiver of service. In lieu of service as set forth in paragraph 
(d)(1) of this section, the party may be provided a copy of the notice 
of charges by first class mail or other reliable means if a waiver of 
service is obtained from the party and placed in the record.
    (2) Service of recommended decisions and final orders. Recommended 
decisions issued by the hearing officer and final orders issued by the 
Bureau shall be served promptly on each party pursuant to any method of 
service authorized under paragraph (d)(1) of this section. Such 
decisions and orders may also be served by electronic transmission if 
the party to be served has agreed to accept such service in writing, 
signed by the party or its counsel, and has provided the Bureau with 
information concerning the manner of electronic transmission.



Sec. 1081.114  Construction of time limits.

    (a) General rule. In computing any period of time prescribed by this 
part, by order of the Director or a hearing officer, or by any 
applicable statute, the date of the act or event that commences the 
designated period of time is not included. The last day so computed is 
included unless it is a Saturday, Sunday, or Federal holiday as set 
forth in 5 U.S.C. 6103(a). When the last day is a Saturday, Sunday, or 
Federal holiday, the period runs until the end of the next day that is 
not a Saturday, Sunday, or Federal holiday. Intermediate Saturdays, 
Sundays, and Federal holidays are included in the computation of time, 
except when the time period within which an act is to be performed is 10 
days or less, not including any additional time allowed for in paragraph 
(c) of this section.
    (b) When papers are deemed to be filed or served. Filing and service 
are deemed to be effective:
    (1) In the case of personal service or same day commercial courier 
delivery, upon actual receipt by person served;
    (2) In the case of overnight commercial delivery service, U.S. 
Express Mail delivery, or first class, registered, or certified mail, 
upon deposit in or delivery to an appropriate point of collection;
    (3) In the case of electronic transmission, upon transmission.
    (c) Calculation of time for service and filing of responsive papers. 
Whenever a time limit is measured by a prescribed period from the 
service of any notice or paper, the applicable time limits are 
calculated as follows:
    (1) If service is made by first class, registered, or certified 
mail, add three calendar days to the prescribed period;
    (2) If service is made by express mail or overnight delivery 
service, add one calendar day to the prescribed period; or
    (3) If service is made by electronic transmission, add one calendar 
day to the prescribed period.



Sec. 1081.115  Change of time limits.

    (a) Except as otherwise provided by law, the hearing officer may, in 
any proceeding before him or her, for good cause shown, extend the time 
limits prescribed by this part or by any notice or order issued in the 
proceedings. After appeal to the Director pursuant to Sec. 1081.402, 
the Director may grant extensions of the time limits for good cause 
shown. Extensions may be granted at the motion of a party after notice 
and opportunity to respond is afforded all non-moving parties or on the 
Director's or the hearing officer's own motion, as appropriate.

[[Page 1105]]

    (b) Considerations in determining whether to extend time limits or 
grant postponements, adjournments and extensions. In considering all 
motions for extensions of time filed pursuant to paragraph (a) of this 
section, the Director or the hearing officer should adhere to a policy 
of strongly disfavoring granting such motions, except in circumstances 
where the moving party makes a strong showing that the denial of the 
motion would substantially prejudice its case. In determining whether to 
grant any motions, the Director or hearing officer, as appropriate, 
shall consider, in addition to any other relevant factors:
    (1) The length of the proceeding to date;
    (2) The number of postponements, adjournments or extensions already 
granted;
    (3) The stage of the proceedings at the time of the motion;
    (4) The impact of the motion on the hearing officer's ability to 
complete the proceeding in the time specified by Sec. 1081.400(a); and
    (5) Any other matters as justice may require.
    (c) Time limit. Postponements, adjournments, or extensions of time 
for filing papers shall not exceed 21 days unless the Director or the 
hearing officer, as appropriate, states on the record or sets forth in a 
written order the reasons why a longer period of time is necessary.
    (d) No effect on deadline for recommended decision. The granting of 
any extension of time pursuant to this section shall not affect any 
deadlines set pursuant to Sec. 1081.400(a).



Sec. 1081.116  Witness fees and expenses.

    Respondents shall pay to witnesses subpoenaed for testimony or 
depositions on their behalf the same fees for attendance and mileage as 
are paid in the United States district courts in proceedings in which 
the United States is a party, provided that, in the case of a deposition 
subpoena addressed to a party, no witness fees or mileage need be paid. 
Fees for witnesses shall be tendered in advance by any respondent 
requesting the issuance of a subpoena, except that fees and mileage need 
not be tendered in advance where the Bureau is the party requesting the 
subpoena. The Bureau shall pay to witnesses subpoenaed for testimony or 
depositions on behalf of the Division of Enforcement the same fees for 
attendance and mileage as are paid in the United States district courts 
in proceedings in which the United States is a party, but the Bureau 
need not tender such fees in advance.



Sec. 1081.117  Bureau's right to conduct examination, collect information.

    Nothing contained in this part limits in any manner the right of the 
Bureau to conduct any examination, inspection, or visitation of any 
person, to conduct or continue any form of investigation authorized by 
law, to collect information in order to monitor the market for risks to 
consumers in the offering or provision of consumer financial products or 
services, or to otherwise gather information in accordance with law.



Sec. 1081.118  Collateral attacks on adjudication proceedings.

    Unless a court of competent jurisdiction, or the Director for good 
cause, so directs, if an interlocutory appeal or collateral attack is 
brought in any court concerning all or any part of an adjudication 
proceeding, the challenged adjudication proceeding shall continue 
without regard to the pendency of that court proceeding. No default or 
other failure to act as directed in the adjudication proceeding within 
the times prescribed in this part shall be excused based on the pendency 
before any court of any interlocutory appeal or collateral attack.



Sec. 1081.119  Confidential information; protective orders.

    (a) Procedure. In any adjudication proceeding, a party; any person 
who is the owner, subject, or creator of a document subject to subpoena 
or which may be introduced as evidence; or any witness who testifies at 
a hearing or in a deposition pursuant to Sec. 1081.209 may file a 
motion requesting a protective order to limit from disclosure to other 
parties or to the public documents or testimony that contain 
confidential information. The motion should include a general summary or 
extract of the

[[Page 1106]]

documents or testimony without revealing confidential details. A motion 
for confidential treatment of documents should be filed in accordance 
with Sec. 1081.112(f).
    (b) Basis for issuance. Documents and testimony introduced in a 
public hearing are presumed to be public. A motion for a protective 
order shall be granted only upon a finding that public disclosure will 
likely result in a clearly defined, serious injury to the person 
requesting confidential treatment or after finding that the material 
constitutes sensitive personal information, as defined in Sec. 
1081.112(e).
    (c) Requests for additional information supporting confidentiality. 
The hearing officer may require a movant under paragraph (a) of this 
section to furnish in writing additional information with respect to the 
grounds for confidentiality. Failure to supply the information so 
requested within five days from the date of receipt by the movant of a 
notice of the information required shall be deemed a waiver of the 
objection to public disclosure of that portion of the documents to which 
the additional information relates, unless the hearing officer shall 
otherwise order for good cause shown at or before the expiration of such 
5-day period.
    (d) Confidentiality of documents pending decision. Pending a 
determination of a motion under this section, the documents as to which 
confidential treatment is sought and any other documents that would 
reveal the confidential information in those documents shall be 
maintained under seal and shall be disclosed only in accordance with 
orders of the hearing officer. Any order issued in connection with a 
motion under this section shall be public unless the order would 
disclose information as to which a protective order has been granted, in 
which case that portion of the order that would reveal the protected 
information shall be nonpublic.



Sec. 1081.120  Settlement.

    (a) Availability. Any person who is notified that a proceeding may 
or will be instituted against him or her, or any party to a proceeding 
already instituted, may, at any time, propose in writing an offer of 
settlement.
    (b) Procedure. An offer of settlement shall state that it is made 
pursuant to this section; shall recite or incorporate as a part of the 
offer the provisions of paragraphs (c)(3) and (4) of this section; shall 
be signed by the person making the offer, not by counsel; and shall be 
submitted to Enforcement Counsel.
    (c) Consideration of offers of settlement. (1) Offers of settlement 
shall be considered when time, the nature of the proceedings, and the 
public interest permit.
    (2) Any settlement offer shall be presented to the Director with a 
recommendation, except that, if the recommendation is unfavorable, the 
offer shall not be presented to the Director unless the person making 
the offer so requests.
    (3) By submitting an offer of settlement, the person making the 
offer waives, subject to acceptance of the offer:
    (i) All hearings pursuant to the statutory provisions under which 
the proceeding is to be or has been instituted;
    (ii) The filing of proposed findings of fact and conclusions of law;
    (iii) Proceedings before, and a recommended decision by, a hearing 
officer;
    (iv) All post-hearing procedures;
    (v) Judicial review by any court; and
    (vi) Any objection to the jurisdiction of the Bureau under section 
1053 of the Act.
    (4) By submitting an offer of settlement the person further waives:
    (i) Such provisions of this part or other requirements of law as may 
be construed to prevent any Bureau employee from participating in the 
preparation of, or advising the Director as to, any order, opinion, 
finding of fact, or conclusion of law to be entered pursuant to the 
offer; and
    (ii) Any right to claim bias or prejudgment by the Director based on 
the consideration of or discussions concerning settlement of all or any 
part of the proceeding.
    (5) If the Director rejects the offer of settlement, the person 
making the offer shall be notified of the Director's action and the 
offer of settlement shall be deemed withdrawn. The rejected offer shall 
not constitute a part of the record in any proceeding against the

[[Page 1107]]

person making the offer, provided, however, that rejection of an offer 
of settlement does not affect the continued validity of waivers pursuant 
to paragraph (c)(4) of this section with respect to any discussions 
concerning the rejected offer of settlement.



Sec. 1081.121  Cooperation with other agencies.

    It is the policy of the Bureau to cooperate with other governmental 
agencies to avoid unnecessary overlap or duplication of regulatory 
functions.



        Subpart B_Initiation of Proceedings and Prehearing Rules



Sec. 1081.200  Commencement of proceeding and contents of notice of 
charges.

    (a) Commencement of proceeding. A proceeding governed by this part 
is commenced by filing of a notice of charges by the Bureau in 
accordance with Sec. 1081.111 of this part. The notice of charges must 
be served by the Bureau upon the respondent in accordance with Sec. 
1081.113(d)(1) of this part.
    (b) Contents of a notice of charges. The notice of charges must set 
forth:
    (1) The legal authority for the proceeding and for the Bureau's 
jurisdiction over the proceeding;
    (2) A statement of the matters of fact and law showing that the 
Bureau is entitled to relief;
    (3) A proposed order or prayer for an order granting the requested 
relief;
    (4) The time and place of the hearing as required by law or 
regulation;
    (5) The time within which to file an answer as required by law or 
regulation;
    (6) That the answer shall be filed and served in accordance with 
subpart A of this part; and
    (7) The docket number for the adjudication proceeding.
    (c) Publication of notice of charges. Unless otherwise ordered by 
the Bureau, the notice of charges shall be given general circulation by 
release to the public, by publication on the Bureau's Web site and, 
where directed by the hearing officer or the Director, by publication in 
the Federal Register. The Bureau may publish any notice of charges after 
10 days from the date of service except if there is a pending motion for 
a protective order filed pursuant to Sec. 1081.119.
    (d) Voluntary dismissal--(1) Without an order. The Bureau may 
voluntarily dismiss an adjudication proceeding without an order entered 
by a hearing officer by filing either:
    (i) A notice of dismissal before the respondent(s) serves an answer; 
or
    (ii) A stipulation of dismissal signed by all parties who have 
appeared.
    (2) Effect. Unless the notice or stipulation states otherwise, the 
dismissal is without prejudice, and does not operate as an adjudication 
on the merits.



Sec. 1081.201  Answer.

    (a) When. Within 14 days of service of the notice of charges, 
respondent shall file an answer as designated in the notice of charges.
    (b) Content of answer. An answer must specifically respond to each 
paragraph or allegation of fact contained in the notice of charges and 
must admit, deny, or state that the party lacks sufficient information 
to admit or deny each allegation of fact. A statement of lack of 
information has the effect of a denial. Denials must fairly meet the 
substance of each allegation of fact denied; general denials are not 
permitted. When a respondent denies part of an allegation, that part 
must be denied and the remainder specifically admitted. Any allegation 
of fact in the notice of charges which is not denied in the answer must 
be deemed admitted for purposes of the proceeding. A respondent is not 
required to respond to the portion of a notice of charges that 
constitutes the prayer for relief or proposed order. The answer must set 
forth affirmative defenses, if any, asserted by the respondent.
    (c) If the allegations of the complaint are admitted. If the 
respondent elects not to contest the allegations of fact set forth in 
the notice of charges, the answer shall consist of a statement that the 
respondent admits all of the material allegations to be true. Such an 
answer shall constitute a waiver of hearings as to the facts alleged in 
the notice of charges, and together with the notice of charges will 
provide a record basis on which the hearing officer shall issue a 
recommended decision

[[Page 1108]]

containing appropriate findings and conclusions and a proposed order 
disposing of the proceeding. In such an answer, the respondent may, 
however, reserve the right to submit proposed findings of fact and 
conclusions of law under Sec. 1081.305.
    (d) Default. (1) Failure of a respondent to file an answer within 
the time provided shall be deemed to constitute a waiver of the 
respondent's right to appear and contest the allegations of the notice 
of charges and to authorize the hearing officer, without further notice 
to the respondent, to find the facts to be as alleged in the notice of 
charges and to enter a recommended decision containing appropriate 
findings and conclusions. In such cases, respondent shall have no right 
to appeal pursuant to Sec. 1081.402, but must instead proceed pursuant 
to paragraph (d)(2) of this section.
    (2) A motion to set aside a default shall be made within a 
reasonable time, state the reasons for the failure to appear or defend, 
and specify the nature of the proposed defense in the proceeding. In 
order to prevent injustice and on such conditions as may be appropriate, 
the hearing officer, at any time prior to the filing of the recommended 
decision, or the Director, at any time, may for good cause shown set 
aside a default.



Sec. 1081.202  Amended pleadings.

    (a) Amendments. The notice of charges or answer may be amended or 
supplemented at any stage of the proceeding. The respondent must answer 
an amended notice of charges within the time remaining for the 
respondent's answer to the original notice of charges, or within 10 days 
after service of the amended notice of charges, whichever period is 
longer, unless the hearing officer orders otherwise for good cause.
    (b) Amendments to conform to the evidence. When issues not raised in 
the notice of charges or answer are tried at the hearing by express or 
implied consent of the parties, they will be treated in all respects as 
if they had been raised in the notice of charges or answer, and no 
formal amendments are required. If evidence is objected to at the 
hearing on the ground that it is not within the issues raised by the 
notice of charges or answer, the hearing officer may admit the evidence 
when admission is likely to assist in adjudicating the merits of the 
action and the objecting party fails to satisfy the hearing officer that 
the admission of such evidence would unfairly prejudice that party's 
action or defense upon the merits. The hearing officer may grant a 
continuance to enable the objecting party to meet such evidence.



Sec. 1081.203  Scheduling conference.

    (a) Meeting of the parties before scheduling conference. As early as 
practicable before the scheduling conference described in paragraph (b) 
of this section, counsel for the parties shall meet to discuss the 
nature and basis of their claims and defenses and the possibilities for 
a prompt settlement or resolution of the case. The parties shall also 
discuss and agree, if possible, on the matters set forth in paragraph 
(b) of this section.
    (b) Scheduling conference. Within 20 days of service of the notice 
of charges or such other time as the parties and hearing officer may 
agree, the hearing officer shall direct counsel for all parties to meet 
with him or her in person at a specified time and place prior to the 
hearing or to confer by telephone for the purpose of scheduling the 
course and conduct of the proceeding. This meeting or telephone 
conference is called a scheduling conference. At the scheduling 
conference, counsel for the parties shall be prepared to address:
    (1) Determination of the dates and location of the hearing, 
including, in proceedings under section 1053(b) of the Act, whether the 
hearing should commence later than 60 days after service of the notice 
of charges;
    (2) Simplification and clarification of the issues;
    (3) Amendments to pleadings;
    (4) Settlement of any or all issues;
    (5) Production of documents as set forth in Sec. 1081.206 and of 
witness statements as set forth in Sec. 1081.207, and prehearing 
production of documents in response to subpoenas duces tecum as set 
forth in Sec. 1081.208;
    (6) Whether or not the parties intend to move for summary 
disposition of any or all issues;

[[Page 1109]]

    (7) Whether the parties intend to seek the deposition of witnesses 
pursuant to Sec. 1081.209;
    (8) A schedule for the exchange of expert reports and the taking of 
expert depositions, if any; and
    (9) Such other matters as may aid in the orderly disposition of the 
proceeding.
    (c) Transcript. The hearing officer, in his or her discretion, may 
require that a scheduling conference be recorded by a court reporter. A 
transcript of the conference and any materials filed, including orders, 
becomes part of the record of the proceeding. A party may obtain a copy 
of the transcript at his or her expense.
    (d) Scheduling order. At or within five days following the 
conclusion of the scheduling conference, the hearing officer shall serve 
on each party an order setting forth the date and location of the 
hearing and any agreements reached and any procedural determinations 
made.
    (e) Failure to appear; default. Any person who is named in a notice 
of charges as a person against whom findings may be made or sanctions 
imposed and who fails to appear, in person or through counsel, at a 
scheduling conference of which he or she has been duly notified may be 
deemed in default pursuant to Sec. 1081.201(d)(1). A party may make a 
motion to set aside a default pursuant to Sec. 1081.201(d)(2).
    (f) Public access. The scheduling conference shall be public unless 
the hearing officer determines, based on the standard set forth in Sec. 
1081.119(b) of this part, that the conference (or any part thereof) 
shall be closed to the public.



Sec. 1081.204  Consolidation and severance of actions.

    (a) Consolidation. (1) On the motion of any party, or on the hearing 
officer's own motion, the hearing officer may consolidate, for some or 
all purposes, any two or more proceedings, if each such proceeding 
involves or arises out of the same transaction, occurrence or series of 
transactions or occurrences, or involves at least one common respondent 
or a material common question of law or fact, unless such consolidation 
would cause unreasonable delay or injustice.
    (2) In the event of consolidation under paragraph (a)(1) of this 
section, appropriate adjustment to the prehearing schedule may be made 
to avoid unnecessary expense, inconvenience, or delay.
    (b) Severance. The hearing officer may, upon the motion of any 
party, sever the proceeding for separate resolution of the matter as to 
any respondent only if the hearing officer finds that:
    (1) Undue prejudice or injustice to the moving party would result 
from not severing the proceeding; and
    (2) Such undue prejudice or injustice would outweigh the interests 
of judicial economy and expedition in the complete and final resolution 
of the proceeding.



Sec. 1081.205  Non-dispositive motions.

    (a) Scope. This section applies to all motions except motions to 
dismiss and motions for summary disposition. Non-dispositive motions 
filed pursuant to other sections of this part shall comply with any 
specific requirements of that section and this section to the extent 
these requirements are not inconsistent.
    (b) In writing. (1) Unless made during a hearing or conference, an 
application or request for an order or ruling must be made by written 
motion.
    (2) All written motions must state with particularity the relief 
sought and must be accompanied by a proposed order.
    (3) No oral argument may be held on written motions except as 
otherwise directed by the hearing officer. Written memoranda, briefs, 
affidavits or other relevant material or documents may be filed in 
support of or in opposition to a motion.
    (c) Oral motions. The Director or the hearing officer, as 
appropriate, may order that an oral motion be submitted in writing.
    (d) Responses and replies. (1) Except as otherwise provided herein, 
within 10 days after service of any written motion, or within such other 
period of time as may be established by the hearing officer or the 
Director, as appropriate, any party may file a written

[[Page 1110]]

response to a motion. The hearing officer shall not rule on any oral or 
written motion before each party has had an opportunity to file a 
response.
    (2) Reply briefs, if any, may be filed within three days after 
service of the response.
    (3) The failure of a party to oppose a written motion or an oral 
motion made on the record is deemed consent by that party to the entry 
of an order substantially in the form of the order accompanying the 
motion.
    (e) Length limitations. No motion subject to this section (together 
with the brief in support of the motion) or brief in response to the 
motion shall exceed 15 pages in length, exclusive of pages containing 
the table of contents, table of authorities, and any addendum that 
consists solely of copies of applicable cases, pertinent legislative 
provisions or rules, and exhibits. No reply brief shall exceed six pages 
in length, exclusive of pages containing the table of contents, table of 
authorities, and any addendum that consists solely of copies of 
applicable cases, pertinent legislative provisions or rules, and 
exhibits. Motions for leave to file motions and briefs in excess of 
these limitations are disfavored.
    (f) Meet and confer requirements. Each motion filed under this 
section shall be accompanied by a signed statement representing that 
counsel for the moving party has conferred or made a good faith effort 
to confer with opposing counsel in a good faith effort to resolve by 
agreement the issues raised by the motion and has been unable to reach 
such an agreement. If some of the matters in controversy have been 
resolved by agreement, the statement shall specify the matters so 
resolved and the matters remaining unresolved.
    (g) Ruling on non-dispositive motions. Unless otherwise provided by 
a relevant rule, a hearing officer shall rule on non-dispositive 
motions. Such ruling shall be issued within 14 days after the expiration 
of the time period allowed for the filing of all motions papers 
authorized by this section. The Director, for good cause, may extend the 
time allowed for a ruling.
    (h) Proceedings not stayed. A motion under consideration by the 
Director or the hearing officer shall not stay proceedings before the 
hearing officer unless the Director or the hearing officer, as 
appropriate, so orders.
    (i) Dilatory motions. Frivolous, dilatory, or repetitive motions are 
prohibited. The filing of such motions may form the basis for sanctions.



Sec. 1081.206  Availability of documents for inspection and copying.

    For purposes of this section, the term documents shall include any 
book, document, record, report, memorandum, paper, communication, 
tabulation, chart, logs, electronic files, or other data or data 
compilations stored in any medium.
    (a) Documents to be available for inspection and copying. (1) Unless 
otherwise provided by this section, or by order of the hearing officer, 
the Division of Enforcement shall make available for inspection and 
copying by any party documents obtained by the Division of Enforcement 
prior to the institution of proceedings, from persons not employed by 
the Bureau, in connection with the investigation leading to the 
institution of proceedings. Such documents shall include:
    (i) Any documents turned over in response to civil investigative 
demands or other written requests to provide documents or to be 
interviewed issued by the Division of Enforcement;
    (ii) All transcripts and transcript exhibits; and
    (iii) Any other documents obtained from persons not employed by the 
Bureau.
    (2) In addition, the Division of Enforcement shall make available 
for inspection and copying by any party:
    (i) Each civil investigative demand or other written request to 
provide documents or to be interviewed issued by the Division of 
Enforcement in connection with the investigation leading to the 
institution of proceedings; and
    (ii) Any final examination or inspection reports prepared by any 
other Division of the Bureau if the Division of Enforcement either 
intends to introduce any such report into evidence or to use any such 
report to refresh the recollection of, or impeach, any witness.

[[Page 1111]]

    (3) Nothing in paragraph (a) of this section shall limit the right 
of the Division of Enforcement to make available any other document, or 
shall limit the right of a respondent to seek access to or production 
pursuant to subpoena of any other document, or shall limit the authority 
of the hearing officer to order the production of any document pursuant 
to subpoena.
    (4) Nothing in paragraph (a) of this section shall require the 
Division of Enforcement to produce a final examination or inspection 
report prepared by any other Division of the Bureau to a respondent who 
is not the subject of that report.
    (b) Documents that may be withheld. (1) The Division of Enforcement 
may withhold a document if:
    (i) The document is privileged;
    (ii) The document is an internal memorandum, note or writing 
prepared by a person employed by the Bureau or another government 
agency, other than an examination or supervision report as specified in 
paragraph (a)(2)(ii) of this section, or would otherwise be subject to 
the work product doctrine and will not be offered in evidence;
    (iii) The document would disclose the identity of a confidential 
source;
    (iv) Applicable law prohibits the disclosure of the document; or
    (v) The hearing officer grants leave to withhold a document or 
category of documents as not relevant to the subject matter of the 
proceeding or otherwise, for good cause shown.
    (2) Nothing in paragraph (b)(1) of this section authorizes the 
Division of Enforcement in connection with an adjudication proceeding to 
withhold material exculpatory evidence in the possession of the Division 
that would otherwise be required to be produced pursuant to paragraph 
(a) of this section.
    (c) Withheld document list. The hearing officer may require the 
Division of Enforcement to submit for review a list of documents or 
categories of documents withheld pursuant to paragraphs (b)(1)(i) 
through (b)(1)(iv) of this section or to submit any document withheld, 
and may determine whether any such document should be made available for 
inspection and copying. When similar documents are withheld pursuant to 
paragraphs (b)(1)(i) through (b)(1)(iv) of this section, those documents 
may be identified by category instead of by individual document. The 
hearing officer retains discretion to determine when an identification 
by category is insufficient.
    (d) Timing of inspection and copying. Unless otherwise ordered by 
the hearing officer, the Division of Enforcement shall commence making 
documents available to a respondent for inspection and copying pursuant 
to this section no later than seven days after service of the notice of 
charges.
    (e) Place of inspection and copying. Documents subject to inspection 
and copying pursuant to this section shall be made available to the 
respondent for inspection and copying at the Bureau office where they 
are ordinarily maintained, or at such other place as the parties, in 
writing, may agree. A respondent shall not be given custody of the 
documents or leave to remove the documents from the Bureau's offices 
pursuant to the requirements of this section other than by written 
agreement of the Division of Enforcement. Such agreement shall specify 
the documents subject to the agreement, the date they shall be returned 
and such other terms or conditions as are appropriate to provide for the 
safekeeping of the documents.
    (f) Copying costs and procedures. The respondent may obtain a 
photocopy of any documents made available for inspection or, at the 
discretion of the Division of Enforcement, electronic copies of such 
documents. The respondent shall be responsible for the cost of 
photocopying. Unless otherwise ordered, charges for copies made by the 
Division of Enforcement at the request of the respondent will be at the 
rate charged pursuant to part 1070. The respondent shall be given access 
to the documents at the Bureau's offices or such other place as the 
parties may agree during normal business hours for copying of documents 
at the respondent's expense.
    (g) Duty to supplement. If the Division of Enforcement acquires 
information that it intends to rely upon at a hearing after making its 
disclosures under part (a)(1) of this section, the Division of 
Enforcement shall supplement its

[[Page 1112]]

disclosures to include such information.
    (h) Failure to make documents available--harmless error. In the 
event that a document required to be made available to a respondent 
pursuant to this section is not made available by the Division of 
Enforcement, no rehearing or redecision of a proceeding already heard or 
decided shall be required unless the respondent establishes that the 
failure to make the document available was not harmless error.
    (i) Disclosure of privileged or protected information or 
communications; scope of waiver; obligations of receiving party. (1)(i) 
The disclosure of privileged or protected information or communications 
by any party during an adjudication proceeding shall not operate as a 
waiver if:
    (A) The disclosure was inadvertent;
    (B) The holder of the privilege or protection took reasonable steps 
to prevent disclosure; and
    (C) The holder promptly took reasonable steps to rectify the error, 
including notifying any party that received the information or 
communication of the claim and the basis for it.
    (ii) After being notified, the receiving party must promptly return, 
sequester, or destroy the specified information and any copies it has; 
must not use or disclose the information until the claim is resolved; 
must take reasonable steps to retrieve the information if the party 
disclosed it before being notified; and may promptly present the 
information to the hearing officer under seal for a determination of the 
claim. The producing party must preserve the information until the claim 
is resolved.
    (2) The disclosure of privileged or protected information or 
communications by any party during an adjudication proceeding shall 
waive the privilege or protection as to undisclosed information or 
communications only if:
    (i) The waiver is intentional;
    (ii) The disclosed and undisclosed information or communications 
concern the same subject matter; and
    (iii) They ought in fairness to be considered together.



Sec. 1081.207  Production of witness statements.

    (a) Availability. Any respondent may move that the Division of 
Enforcement produce for inspection and copying any statement of any 
person called or to be called as a witness by the Division of 
Enforcement that pertains, or is expected to pertain, to his or her 
direct testimony and that would be required to be produced pursuant to 
the Jencks Act, 18 U.S.C. 3500, if the adjudication proceeding were a 
criminal proceeding. For purposes of this section, the term 
``statement'' shall have the meaning set forth in 18 U.S.C. 3500(e). 
Such production shall be made at a time and place fixed by the hearing 
officer and shall be made available to any party, provided, however, 
that the production shall be made under conditions intended to preserve 
the items to be inspected or copied.
    (b) Failure to produce--harmless error. In the event that a 
statement required to be made available to a respondent pursuant to this 
section is not made available by the Division of Enforcement, no 
rehearing or redecision of a proceeding already heard or decided shall 
be required unless the respondent establishes that the failure to make 
the statement available was not harmless error.



Sec. 1081.208  Subpoenas.

    (a) Availability. In connection with any hearing ordered by the 
hearing officer, a party may request the issuance of one or more 
subpoenas requiring the attendance and testimony of witnesses at the 
designated time and place of the hearing, or the production of 
documentary or other tangible evidence returnable at any designated time 
or place.
    (b) Procedure. Unless made on the record at a hearing, requests for 
issuance of a subpoena shall be made in writing, and filed and served on 
each party pursuant to subpart A of this part. The request must contain 
a proposed subpoena and a brief statement showing the general relevance 
and reasonableness of the scope of testimony or documents sought.
    (c) Signing may be delegated. A hearing officer may authorize 
issuance of a subpoena, and may delegate the manual signing of the 
subpoena to any

[[Page 1113]]

other person authorized to issue subpoenas.
    (d) Standards for issuance. The hearing officer shall promptly issue 
any subpoena requested pursuant to this section. However, where it 
appears to the hearing officer that the subpoena sought may be 
unreasonable, oppressive, excessive in scope, or unduly burdensome, he 
or she may, in his or her discretion, as a condition precedent to the 
issuance of the subpoena, require the person seeking the subpoena to 
show further the general relevance and reasonable scope of the testimony 
or other evidence sought. If after consideration of all the 
circumstances, the hearing officer determines that the subpoena or any 
of its terms is unreasonable, oppressive, excessive in scope, or unduly 
burdensome, he or she may refuse to issue the subpoena, or issue it only 
upon such conditions as fairness requires. In making the foregoing 
determination, the hearing officer may inquire of the other participants 
whether they will stipulate to the facts sought to be proved.
    (e) Service. Upon issuance by the hearing officer, the party making 
the request shall serve the subpoena on the person named in the subpoena 
and on each party in accordance with Sec. 1081.113(c). Subpoenas may be 
served in any state, on any person or company doing business in any 
state, or as otherwise permitted by law.
    (f) Tender of fees required. When a subpoena compelling the 
attendance of a person at a hearing is issued at the request of anyone 
other than an officer or agency of the United States, service is valid 
only if the subpoena is accompanied by a tender to the subpoenaed person 
of the fees for one day's attendance and mileage specified by Sec. 
1081.116 of this part.
    (g) Motion to quash or modify--(1) Procedure. Any person to whom a 
subpoena is directed, or who is an owner, creator or the subject of the 
documents that are to be produced pursuant to a subpoena, or any party 
may, prior to the time specified therein for compliance, but in no event 
more than 10 days after the date of service of such subpoena, move that 
the subpoena be quashed or modified. Such motion shall be filed and 
served on all parties pursuant to subpart A of this part. 
Notwithstanding Sec. 1081.205, the party on whose behalf the subpoena 
was issued or Enforcement Counsel may, within five days of service of 
the motion, file a response to the motion. Reply briefs are not 
permitted unless requested by the hearing officer. Filing a motion to 
modify a subpoena does not stay the movant's obligation to comply with 
those portions of the subpoena that the person has not sought to modify.
    (2) Standards governing motion to quash or modify. If compliance 
with the subpoena would be unreasonable, oppressive, or unduly 
burdensome, the hearing officer shall quash or modify the subpoena, or 
may order return of the subpoena only upon specified conditions. These 
conditions may include but are not limited to a requirement that the 
party on whose behalf the subpoena was issued shall make reasonable 
compensation to the person to whom the subpoena was addressed for the 
cost of copying or transporting evidence to the place for return of the 
subpoena.
    (h) Enforcing subpoenas. If a subpoenaed person fails to comply with 
any subpoena issued pursuant to this section or any order of the hearing 
officer which directs compliance with all or any portion of a subpoena, 
the Bureau may, on its own motion or at the request of the party on 
whose behalf the subpoena was issued, apply to an appropriate United 
States district court, in the name of the Bureau but on relation of such 
party, for an order requiring compliance with so much of the subpoena as 
the hearing officer has not quashed or modified, unless, in the judgment 
of the General Counsel, the enforcement of such subpoena would be 
inconsistent with law and the policies of the Act. Failure to request 
the Bureau to seek enforcement of a subpoena constitutes a waiver of any 
claim of prejudice predicated upon the unavailability of the testimony 
or evidence sought.



Sec. 1081.209  Deposition of witness unavailable for hearing.

    (a) General rules. (1) If a witness will not be available for the 
hearing, a party desiring to preserve that witness' testimony for the 
record may request

[[Page 1114]]

in accordance with the procedures set forth in this section that the 
hearing officer issue a subpoena, including a subpoena duces tecum, 
requiring the attendance of the witness at a deposition. The hearing 
officer may issue a deposition subpoena under this section upon showing 
that:
    (i) The witness will be unable to attend or may be prevented from 
attending the hearing because of age, sickness, or infirmity, or will 
otherwise be unavailable;
    (ii) The witness' unavailability was not procured or caused by the 
subpoenaing party;
    (iii) The testimony is reasonably expected to be material; and
    (iv) Taking the deposition will not result in any undue burden to 
any other party and will not cause undue delay of the proceeding.
    (2) In addition to making a showing as required by paragraph (a)(1) 
of this section, the request for a deposition subpoena must contain a 
proposed deposition subpoena and a brief statement showing the general 
relevance and reasonableness of the scope of testimony and documents 
sought, and the time and place for taking the deposition. Any request to 
record the deposition by audio-visual means must be made in the request 
for a deposition subpoena.
    (3) Any requested deposition subpoena that sets forth a valid basis 
for its issuance must be promptly issued, unless the hearing officer on 
his or her own motion requires a written response or requires attendance 
at a conference concerning whether the requested subpoena should be 
issued. However, where it appears to the hearing officer that the 
deposition subpoena sought may be unreasonable, oppressive, excessive in 
scope, or unduly burdensome, he or she may, in his or her discretion, as 
a condition precedent to the issuance of the deposition subpoena, 
require the person seeking the deposition subpoena to show further the 
general relevance and reasonable scope of the testimony or other 
evidence sought. If after consideration of all the circumstances, the 
hearing officer determines that the deposition subpoena or any of its 
terms is unreasonable, oppressive, excessive in scope, or unduly 
burdensome, he or she may refuse to issue the deposition subpoena, or 
issue it only upon such conditions as fairness requires. In making the 
foregoing determination, the hearing officer may inquire of the other 
participants whether they will stipulate to the facts sought to be 
proved.
    (4) Unless the hearing officer orders otherwise, no deposition under 
this section shall be taken on fewer than 14 days' notice to the witness 
and all parties.
    (b) Procedure. Unless made on the record at a hearing, requests for 
issuance of a deposition subpoena shall be made in writing, and filed 
and served on each party pursuant to subpart A of this part.
    (c) Signing may be delegated. A hearing officer may authorize 
issuance of a deposition subpoena, and may delegate the manual signing 
of the deposition subpoena to any other person authorized to issue 
subpoenas.
    (d) Service. Upon issuance by the hearing officer, the party making 
the request shall serve the subpoena on the person named in the subpoena 
and on each party in accordance with Sec. 1081.113(c). Deposition 
subpoenas may be served in any state, territory, possession of the 
United States, or the District of Columbia, on any person or company 
doing business in any state, territory, possession of the United States, 
or the District of Columbia, or as otherwise permitted by law.
    (e) Tender of fees required. When a subpoena compelling the 
attendance of a person at a deposition is issued at the request of 
anyone other than an officer or agency of the United States, service is 
valid only if the subpoena is accompanied by a tender to the subpoenaed 
person of the fees for one day's attendance and mileage specified by 
Sec. 1081.116 of this part.
    (f) Motion to quash or modify--(1) Procedure. Any person to whom a 
deposition subpoena is directed, or who is an owner, creator or the 
subject of the documents that are to be produced pursuant to a 
deposition subpoena, or any party may, prior to the time specified 
therein for compliance, but in no event more than 10 days after the date 
of service of such subpoena, move that the deposition subpoena be 
quashed or modified. Such motion must include a

[[Page 1115]]

statement of the basis for the motion to quash or modify the deposition 
subpoena, and shall be filed and served on all parties pursuant to 
subpart A of this part. Notwithstanding Sec. 1081.205, the party on 
whose behalf the deposition subpoena was issued or Enforcement Counsel 
may, within five days of service of the motion, file a response to the 
motion. Reply briefs are not permitted unless requested by the hearing 
officer.
    (2) Standards governing motion to quash or modify. If compliance 
with the deposition subpoena would be unreasonable, oppressive or unduly 
burdensome, or the deposition subpoena does not meet the requirements 
set forth in paragraph (a)(1) of this section, the hearing officer shall 
quash or modify the deposition subpoena, or may order return of the 
deposition subpoena only upon specified conditions. These conditions may 
include but are not limited to a requirement that the party on whose 
behalf the deposition subpoena was issued shall make reasonable 
compensation to the person to whom the deposition subpoena was addressed 
for the cost of copying or transporting evidence to the place for return 
of the deposition subpoena.
    (g) Procedure upon deposition. (1) Depositions shall be taken before 
any person before whom a deposition may be taken pursuant to the Federal 
Rules of Civil Procedure (the ``deposition officer'').
    (2) The witness being deposed may have an attorney present during 
the deposition.
    (3) Each witness testifying pursuant to a deposition subpoena must 
be duly sworn, and each party shall have the right to examine the 
witness. Objections to questions or documents must be in short form, 
stating the grounds for the objection. Objections to questions of 
evidence shall be noted by the deposition officer upon the deposition, 
but a deposition officer other than the hearing officer shall not have 
the power to decide on the competency, materiality, or relevance of 
evidence. Failure to object to questions or documents is not deemed a 
waiver except where the ground for the objection might have been avoided 
if the objection had been timely presented. All questions, answers, and 
objections must be recorded.
    (4) The deposition must be subscribed by the witness, unless the 
parties and the witness, by stipulation, have waived the signing, or the 
witness is ill, cannot be found, or has refused to sign. If the 
deposition is not subscribed by the witness, the court reporter taking 
the deposition shall certify that the transcript is a true and complete 
transcript of the deposition.
    (5) The original deposition and exhibits shall be filed with the 
Executive Secretary. The cost of the transcript shall be paid by the 
party requesting the deposition. A copy of the deposition shall be 
available to the deponent and each party for purchase at prescribed 
rates.
    (h) Enforcing subpoenas. Any party may move before the hearing 
officer for an order compelling the witness to answer any questions the 
witness has refused to answer or submit any evidence the witness has 
refused to submit during the deposition. If a subpoenaed person fails to 
comply with any order of the hearing officer which directs compliance 
with all or any portion of a deposition subpoena under this section, the 
Bureau may, on its own motion or at the request of the party on whose 
behalf the subpoena was issued, apply to an appropriate United States 
district court, in the name of the Bureau but on relation of such party, 
for an order requiring compliance with so much of the subpoena as the 
hearing officer has not quashed or modified, unless, in the judgment of 
the General Counsel, the enforcement of such subpoena would be 
inconsistent with law and the policies of the Act. Failure to request 
the Bureau to seek enforcement of a subpoena constitutes a waiver of any 
claim of prejudice predicated upon the unavailability of the testimony 
or evidence sought.



Sec. 1081.210  Expert discovery.

    (a) At a date set by the hearing officer at the scheduling 
conference, each party shall serve the other with a report prepared by 
each of its expert witnesses. Each party shall serve the other parties 
with a list of any rebuttal expert witnesses and a rebuttal report 
prepared by each such witness not later

[[Page 1116]]

than 28 days after the deadline for service of expert reports, unless 
another date is set by the hearing officer. A rebuttal report shall be 
limited to rebuttal of matters set forth in the expert report for which 
it is offered in rebuttal. If material outside the scope of fair 
rebuttal is presented, a party may file a motion not later than five 
days after the deadline for service of rebuttal reports, seeking 
appropriate relief with the hearing officer, including striking all or 
part of the report, leave to submit a surrebuttal report by the party's 
own experts, or leave to call a surrebuttal witness and to submit a 
surrebuttal report by that witness.
    (b) No party may call an expert witness at the hearing unless he or 
she has been listed and has provided reports as required by this 
section, unless otherwise directed by the hearing officer at a 
scheduling conference. Each side will be limited to calling at the 
hearing five expert witnesses, including any rebuttal or surrebuttal 
expert witnesses. A party may file a motion seeking leave to call 
additional expert witnesses due to extraordinary circumstances.
    (c) Each report shall be signed by the expert and contain a complete 
statement of all opinions to be expressed and the basis and reasons 
therefore; the data, materials, or other information considered by the 
witness in forming the opinions; any exhibits to be used as a summary of 
or support for the opinions; the qualifications of the witness, 
including a list of all publications authored or co-authored by the 
witness within the preceding 10 years; the compensation to be paid for 
the study and testimony; and a listing of any other cases in which the 
witness has testified or sought to testify as an expert at trial or by 
deposition within the preceding four years. A rebuttal or surrebuttal 
report need not include any information already included in the initial 
report of the witness.
    (d) A party may depose any person who has been identified as an 
expert whose opinions may be presented at trial. Unless otherwise 
ordered by the hearing officer, a deposition of any expert witness shall 
be conducted after the disclosure of a report prepared by the witness in 
accordance with paragraph (a) of this section, and at least seven days 
prior to the deadline for submission of rebuttal expert reports. A 
deposition of an expert witness shall be completed no later than 14 days 
before the hearing unless otherwise ordered by the hearing officer. No 
expert deposition shall exceed 8 hours on the record, absent agreement 
of the parties or an order of the hearing officer for good cause shown. 
Expert depositions shall be conducted pursuant to the procedures set 
forth in Sec. 1081.209.
    (e) The hearing officer shall have the discretion to dispense with 
the requirement of expert discovery in appropriate cases.



Sec. 1081.211  Interlocutory review.

    (a) Availability. The Director may, at any time, direct that any 
matter be submitted to him or her for review. Subject to paragraph (c) 
of this section, the hearing officer may, on his or her own motion or on 
the motion of any party, certify any matter for interlocutory review by 
the Director. This section is the exclusive remedy for review of a 
hearing officer's ruling or order prior to the Director's consideration 
of the entire proceeding.
    (b) Procedure. Any party's motion for certification of a ruling or 
order for interlocutory review shall be filed with the hearing officer 
within five days of service of the ruling or order, shall specify the 
ruling or order or parts thereof for which interlocutory review is 
sought, shall attach any other portions of the record on which the 
moving party relies, and shall otherwise comply with Sec. 1081.205. 
Notwithstanding Sec. 1081.205, any response to such a motion must be 
filed within three days of service of the motion. The hearing officer 
shall issue a ruling on the motion within five days of the deadline for 
filing a response.
    (c) Certification process. Unless the Director directs otherwise, a 
ruling or order may not be submitted to the Director for interlocutory 
review unless the hearing officer, upon the hearing officer's motion or 
upon the motion of a party, certifies the ruling or order in writing. 
The hearing officer shall not certify a ruling or order unless:

[[Page 1117]]

    (1) The ruling or order would compel testimony of Bureau officers or 
employees, or those from another governmental agency, or the production 
of documentary evidence in the custody of the Bureau or another 
governmental agency;
    (2) The ruling or order involves a motion for disqualification of 
the hearing officer pursuant to Sec. 1081.105(c)(2) of this part;
    (3) The ruling or order suspended or barred an individual from 
appearing before the Bureau pursuant to Sec. 1081.107(c) of this part; 
or
    (4) Upon motion by a party, the hearing officer is of the opinion 
that:
    (i) The ruling or order involves a controlling question of law as to 
which there is substantial ground for difference of opinion; and
    (ii) An immediate review of the ruling or order is likely to 
materially advance the completion of the proceeding or subsequent review 
will be an inadequate remedy.
    (d) Interlocutory review. A party whose motion for certification has 
been denied by the hearing officer may petition the Director for 
interlocutory review.
    (e) Director review. The Director shall determine whether or not to 
review a ruling or order certified under this section or the subject of 
a petition for interlocutory review. Interlocutory review is disfavored, 
and the Director will grant a petition to review a hearing officer 
ruling or order prior to his or her consideration of a recommended 
decision only in extraordinary circumstances. The Director may decline 
to review a ruling or order certified by a hearing officer pursuant to 
paragraph (c) of this section or the petition of a party who has been 
denied certification if he or she determines that interlocutory review 
is not warranted or appropriate under the circumstances, in which case 
he or she may summarily deny the petition. If the Director determines to 
grant the review, he or she will review the matter and issue his or her 
ruling and order in an expeditious fashion, consistent with the Bureau's 
other responsibilities.
    (f) Proceedings not stayed. The filing of a motion requesting that 
the hearing officer certify any of his or her prior rulings or orders 
for interlocutory review or a petition for interlocutory review filed 
with the Director, and the grant of any such review, shall not stay 
proceedings before the hearing officer unless he or she, or the 
Director, shall so order. The Director will not consider a motion for a 
stay unless the motion shall have first been made to the hearing 
officer.



Sec. 1081.212  Dispositive motions.

    (a) Dispositive motions. This section governs the filing of motions 
to dismiss and motions for summary disposition. The filing of any such 
motion does not obviate a party's obligation to file an answer or take 
any other action required by this part or by an order of the hearing 
officer, unless expressly so provided by the hearing officer.
    (b) Motions to dismiss. A respondent may file a motion to dismiss 
asserting that, even assuming the truth of the facts alleged in the 
notice of charges, it is entitled to dismissal as a matter of law.
    (c) Motion for summary disposition. A party may make a motion for 
summary disposition asserting that the undisputed pleaded facts, 
admissions, affidavits, stipulations, documentary evidence, matters as 
to which official notice may be taken, and any other evidentiary 
materials properly submitted in connection with a motion for summary 
disposition show that:
    (1) There is no genuine issue as to any material fact; and
    (2) The moving party is entitled to a decision in its favor as a 
matter of law.
    (d) Filing of motions for summary disposition and responses. (1) 
After a respondent's answer has been filed and documents have been made 
available to the respondent for inspection and copying pursuant to Sec. 
1081.206, any party may move for summary disposition in its favor of all 
or any part of the proceeding.
    (2) A motion for summary disposition must be accompanied by a 
statement of the material facts as to which the moving party contends 
there is no genuine issue. Such motion must be supported by documentary 
evidence, which may

[[Page 1118]]

take the form of admissions in pleadings, stipulations, depositions, 
investigatory depositions, transcripts, affidavits and any other 
evidentiary materials that the moving party contends support his or her 
position. The motion must also be accompanied by a brief containing the 
points and authorities in support of the contention of the moving party. 
Any party opposing a motion for summary disposition must file a 
statement setting forth those material facts as to which he or she 
contends a genuine dispute exists. Such opposition must be supported by 
evidence of the same type as may be submitted in support of a motion for 
summary disposition and a brief containing the points and authorities in 
support of the contention that summary disposition would be 
inappropriate.
    (3) Any affidavit or declaration submitted in support of or in 
opposition to a motion for summary disposition shall set forth such 
facts as would be admissible in evidence, shall show affirmatively that 
the affiant is competent to testify to the matters stated therein, and 
must be signed under oath and penalty of perjury.
    (e) Page limitations for dispositive motions. A motion to dismiss or 
for summary disposition, together with any brief in support of the 
motion (exclusive of any declarations, affidavits, or attachments) shall 
not exceed 35 pages in length. Motions for extensions of this length 
limitation are disfavored.
    (f) Opposition and reply response time and page limitation. Any 
party, within 20 days after service of a dispositive motion, or within 
such time period as allowed by the hearing officer, may file a response 
to such motion. The length limitations set forth in paragraph (e) of 
this section shall also apply to such responses. Any reply brief filed 
in response to an opposition to a dispositive motion shall be filed 
within five days after service of the opposition. Reply briefs shall not 
exceed 10 pages.
    (g) Oral argument. At the request of any party or on his or her own 
motion, the hearing officer may hear oral argument on a dispositive 
motion.
    (h) Decision on motion. Within 30 days following the expiration of 
the time for filing all responses and replies to any dispositive motion, 
the hearing officer shall determine whether the motion shall be granted. 
If the hearing officer determines that dismissal or summary disposition 
is warranted, he or she shall issue a recommended decision granting the 
motion. If the hearing officer finds that no party is entitled to 
dismissal or summary disposition, he or she shall make a ruling denying 
the motion. If it appears that a party, for good cause shown, cannot 
present by affidavit prior to hearing facts essential to justify 
opposition to the motion, the hearing officer shall deny or defer the 
motion.



Sec. 1081.213  Partial summary disposition.

    If on a motion for summary disposition under Sec. 1081.212 a 
decision is not rendered upon the whole case or for all the relief asked 
and a hearing is necessary, the hearing officer shall issue an order 
specifying the facts that appear without substantial controversy and 
directing further proceedings in the action. The facts so specified 
shall be deemed established.



Sec. 1081.214  Prehearing conferences.

    (a) Prehearing conferences. The hearing officer may, in addition to 
the scheduling conference, on his or her own motion or at the request of 
any party, direct counsel for the parties to meet with him or her (in 
person or by telephone) at a prehearing conference for further 
discussion of the issues outlined in Sec. 1081.203, or for discussion 
of any additional matters that in the view of the hearing officer will 
aid in an orderly disposition of the proceeding, including but not 
limited to:
    (1) Identification of potential witnesses and limitation on the 
number of witnesses;
    (2) The exchange of any prehearing materials including witness 
lists, statements of issues, stipulations, exhibits, and any other 
materials;
    (3) Stipulations, admissions of fact, and the contents, 
authenticity, and admissibility into evidence of documents;
    (4) Matters of which official notice may be taken; and
    (5) Whether the parties intend to introduce prior sworn statements 
of witnesses as set forth in Sec. 1081.303(h).

[[Page 1119]]

    (b) Transcript. The hearing officer, in his or her discretion, may 
require that a prehearing conference be recorded by a court reporter. A 
transcript of the conference and any materials filed, including orders, 
becomes part of the record of the proceeding. A party may obtain a copy 
of the transcript at his or her expense.
    (c) Public access. Any prehearing conferences shall be public unless 
the hearing officer determines, based on the standard set forth in Sec. 
1081.119(b) of this part, that the conference (or any part thereof) 
shall be closed to the public.



Sec. 1081.215  Prehearing submissions.

    (a) Within the time set by the hearing officer, but in no case later 
than 10 days before the start of the hearing, each party shall serve on 
every other party:
    (1) A prehearing statement, which shall include an outline or 
narrative summary of its case or defense, and the legal theories upon 
which it will rely;
    (2) A final list of witnesses to be called to testify at the 
hearing, including name and address of each witness and a short summary 
of the expected testimony of each witness;
    (3) Any prior sworn statements that a party intends to admit into 
evidence pursuant to Sec. 1081.303(h);
    (4) A list of the exhibits to be introduced at the hearing along 
with a copy of each exhibit; and
    (5) Any stipulations of fact or liability.
    (b) Expert witnesses. Each party who intends to call an expert 
witness shall also serve, in addition to the information required by 
paragraph (a)(2) of this section, a statement of the expert's 
qualifications, a listing of other proceedings in which the expert has 
given or sought to give expert testimony at trial or by deposition 
within the preceding four years, and a list of publications authored or 
co-authored by the expert within the preceding 10 years, to the extent 
such information has not already been provided pursuant to Sec. 
1081.210.
    (c) Effect of failure to comply. No witness may testify and no 
exhibits may be introduced at the hearing if such witness or exhibit is 
not listed in the prehearing submissions pursuant to paragraph (a) of 
this section, except for good cause shown.



Sec. 1081.216  Amicus participation.

    (a) Availability. An amicus brief may be filed only if:
    (1) A motion for leave to file the brief has been granted;
    (2) The brief is accompanied by written consent of all parties;
    (3) The brief is filed at the request of the Director or the hearing 
officer, as appropriate; or
    (4) The brief is presented by the United States or an officer or 
agency thereof, or by a state or a political subdivision thereof.
    (b) Procedure. An amicus brief may be filed conditionally with the 
motion for leave. The motion for leave shall identify the interest of 
the movant and shall state the reasons why a brief of an amicus curiae 
is desirable. Except as all parties otherwise consent, any amicus curiae 
shall file its brief within the time allowed the party whose position 
the amicus will support, unless the Director or hearing officer, as 
appropriate, for good cause shown, grants leave for a later filing. In 
the event that a later filing is allowed, the order granting leave to 
file shall specify when an opposing party may reply to the brief.
    (c) Motions. A motion for leave to file an amicus brief shall be 
subject to Sec. 1081.205.
    (d) Oral argument. An amicus curiae may move to present oral 
argument at any hearing before the hearing officer, but such motions 
will be granted only for extraordinary reasons.



                           Subpart C_Hearings



Sec. 1081.300  Public hearings.

    All hearings in adjudication proceedings shall be public unless a 
confidentiality order is entered by the hearing officer pursuant to 
Sec. 1081.119 or unless otherwise ordered by the Director on the 
grounds that holding an open hearing would be contrary to the public 
interest.



Sec. 1081.301  Failure to appear.

    Failure of a respondent to appear in person or by a duly authorized 
counsel

[[Page 1120]]

at the hearing constitutes a waiver of respondent's right to a hearing 
and may be deemed an admission of the facts as alleged and consent to 
the relief sought in the notice of charges. Without further proceedings 
or notice to the respondent, the hearing officer shall file a 
recommended decision containing findings of fact and addressing the 
relief sought in the notice of charges.



Sec. 1081.302  Conduct of hearings.

    All hearings shall be conducted in a fair, impartial, expeditious, 
and orderly manner. Enforcement Counsel shall present its case-in-chief 
first, unless otherwise ordered by the hearing officer, or unless 
otherwise expressly specified by law or regulation. Enforcement Counsel 
shall be the first party to present an opening statement and a closing 
statement, and may make a rebuttal statement after the respondent's 
closing statement. If there are multiple respondents, respondents may 
agree among themselves as to their order of presentation of their cases, 
but if they do not agree, the hearing officer shall fix the order.



Sec. 1081.303  Evidence.

    (a) Burden of proof. Enforcement Counsel shall have the burden of 
proof of the ultimate issue(s) of the Bureau's claims at the hearing.
    (b) Admissibility. (1) Except as is otherwise set forth in this 
section, relevant, material, and reliable evidence that is not unduly 
repetitive is admissible to the fullest extent authorized by the 
Administrative Procedure Act and other applicable law. Irrelevant, 
immaterial, and unreliable evidence shall be excluded.
    (2) Evidence, even if relevant, may be excluded if its probative 
value is substantially outweighed by the danger of unfair prejudice or 
confusion of the issues; if the evidence would be misleading; or based 
on considerations of undue delay, waste of time, or needless 
presentation of cumulative evidence.
    (3) Evidence that constitutes hearsay may be admitted if it is 
relevant, material, and bears satisfactory indicia of reliability so 
that its use is fair. Hearsay is a statement, other than one made by the 
declarant while testifying at the hearing, offered in evidence to prove 
the truth of the matter asserted. If otherwise meeting the standards for 
admissibility described in this section, transcripts of depositions, 
investigational hearings, prior testimony in Bureau or other 
proceedings, and any other form of hearsay shall be admissible and shall 
not be excluded solely on the ground that they are or contain hearsay.
    (4) Evidence that would be admissible under the Federal Rules of 
Evidence is admissible in a proceeding conducted pursuant to this part. 
Evidence that would be inadmissible under the Federal Rules of Evidence 
may not be deemed or ruled to be inadmissible in a proceeding conducted 
pursuant to this part solely on that basis.
    (c) Official notice. Official notice may be taken of any material 
fact that is not subject to reasonable dispute in that it is either 
generally known or capable of accurate and ready determination by resort 
to sources whose accuracy cannot reasonably be questioned. If official 
notice is requested or is taken of a material fact not appearing in the 
evidence in the record, the parties, upon timely request, shall be 
afforded an opportunity to disprove such noticed fact.
    (d) Documents. (1) A duplicate copy of a document is admissible to 
the same extent as the original, unless a genuine issue is raised as to 
whether the copy is in some material respect not a true and legible copy 
of the original.
    (2) Subject to the requirements of paragraph (b) of this section, 
any document, including a report of examination, supervisory activity, 
inspection or visitation, prepared by a prudential regulator, as that 
term is defined in section 1002(24) of the Act, or by a state regulatory 
agency, is presumptively admissible either with or without a sponsoring 
witness.
    (3) Witnesses may use existing or newly created charts, exhibits, 
calendars, calculations, outlines or other graphic material to 
summarize, illustrate, or simplify the presentation of testimony. Such 
materials may, subject to the hearing officer's discretion, be used with 
or without being admitted into evidence.

[[Page 1121]]

    (4) As respondents are in the best position to determine the nature 
of documents generated by such respondents and which come from their own 
files, the burden of proof is on the respondent to introduce evidence to 
rebut a presumption that such documents are authentic and kept in the 
regular course of business.
    (e) Objections. (1) Objections to the admissibility of evidence must 
be timely made and rulings on all objections must appear on the record.
    (2) Whenever evidence is excluded from the record, the party 
offering such evidence may make an offer of proof, which shall be 
included in the record. Rejected exhibits, adequately marked for 
identification, shall be retained pursuant to Sec. 1081.306(b) so as to 
be available for consideration by any reviewing authority.
    (3) Failure to object to admission of evidence or to any ruling 
constitutes a waiver of the objection.
    (f) Stipulations. (1) The parties may, at any stage of the 
proceeding, stipulate as to any relevant matters of fact or the 
authentication of any relevant documents. Such stipulations must be 
received in evidence at a hearing and are binding on the parties with 
respect to the matters therein stipulated.
    (2) Unless the hearing officer directs otherwise, all stipulations 
of fact and law previously agreed upon by the parties, and all 
documents, the admissibility of which have been previously stipulated, 
will be admitted into evidence upon commencement of the hearing.
    (g) Presentation of evidence. (1) A witness at a hearing for the 
purpose of taking evidence shall testify under oath or affirmation.
    (2) A party is entitled to present its case or defense by sworn oral 
testimony and documentary evidence, to submit rebuttal evidence, and to 
conduct such cross-examination as, in the discretion of the hearing 
officer, may be required for a full and true disclosure of the facts.
    (3) An adverse party, or an officer, agent, or employee thereof, and 
any witness who appears to be hostile, unwilling, or evasive, may be 
interrogated by leading questions and may also be contradicted and 
impeached by the party calling him or her.
    (4) The hearing officer shall exercise reasonable control over the 
mode and order of interrogating witnesses and presenting evidence so as 
to:
    (i) Make the interrogation and presentation effective for the 
ascertainment of the truth;
    (ii) Avoid needless consumption of time; and
    (iii) Protect witnesses from harassment or undue embarrassment.
    (5) The hearing officer may permit a witness to appear at a hearing 
via video conference or telephone for good cause shown.
    (h) Introducing prior sworn statements of witnesses into the record. 
At a hearing, any party wishing to introduce a prior, sworn statement of 
a witness, not a party, otherwise admissible in the proceeding, may make 
a motion setting forth the reasons therefore. If only part of a 
statement is offered in evidence, the hearing officer may require that 
all relevant portions of the statement be introduced. If all of a 
statement is offered in evidence, the hearing officer may require that 
portions not relevant to the proceeding be excluded. A motion to 
introduce a prior sworn statement may be granted if:
    (1) The witness is dead;
    (2) The witness is out of the United States, unless it appears that 
the absence of the witness was procured by the party offering the prior 
sworn statement;
    (3) The witness is unable to attend or testify because of age, 
sickness, infirmity, imprisonment or other disability;
    (4) The party offering the prior sworn statement has been unable to 
procure the attendance of the witness by subpoena; or
    (5) In the discretion of the hearing officer, it would be desirable, 
in the interests of justice, to allow the prior sworn statement to be 
used. In making this determination, due regard shall be given to the 
presumption that witnesses will testify orally in an open hearing. If 
the parties have stipulated to accept a prior sworn statement in lieu of 
live testimony, consideration shall also be given to the convenience

[[Page 1122]]

of the parties in avoiding unnecessary expense.



Sec. 1081.304  Record of the hearing.

    (a) Reporting and transcription. Hearings shall be stenographically 
reported and transcribed under the supervision of the hearing officer, 
and the original transcript shall be a part of the record and the sole 
official transcript. The live oral testimony of each witness may be 
video recorded digitally, in which case the video recording and the 
written transcript of the testimony shall be made part of the record. 
Copies of transcripts shall be available from the reporter at prescribed 
rates.
    (b) Corrections. Corrections of the official transcript may be made 
only when they involve errors affecting substance and then only in the 
manner herein provided. Corrections ordered by the hearing officer or 
agreed to in a written stipulation signed by all counsel and parties not 
represented by counsel, and approved by the hearing officer, shall be 
included in the record, and such stipulations, except to the extent they 
are capricious or without substance, shall be approved by the hearing 
officer. Corrections shall not be ordered by the hearing officer except 
upon notice and opportunity for the hearing of objections. Such 
corrections shall be made by the official reporter by furnishing 
substitute type pages, under the usual certificate of the reporter, for 
insertion in the official record. The original uncorrected pages shall 
be retained in the files of the Bureau.
    (c) Closing of the hearing record. Upon completion of the hearing, 
the hearing officer shall issue an order closing the hearing record 
after giving the parties three days to determine if the record is 
complete or needs to be supplemented. The hearing officer shall retain 
the discretion to permit or order correction of the record as provided 
in paragraph (b) of this section.



Sec. 1081.305  Post-hearing filings.

    (a) Proposed findings and conclusions and supporting briefs. (1) 
Using the same method of service for each party, the hearing officer 
shall serve notice upon each party that the certified transcript, 
together with all hearing exhibits and exhibits introduced but not 
admitted into evidence at the hearing, has been filed promptly after 
that filing. Any party may file with the hearing officer proposed 
findings of fact, proposed conclusions of law, and a proposed order 
within 30 days following service of this notice by the hearing officer 
or within such longer period as may be ordered by the hearing officer.
    (2) Proposed findings and conclusions must be supported by citation 
to any relevant authorities and by page references to any relevant 
portions of the record. A post-hearing brief may be filed in support of 
proposed findings and conclusions, either as part of the same document 
or in a separate document.
    (b) Responsive briefs. Responsive briefs may be filed within 15 days 
after the date on which the parties' proposed findings, conclusions, and 
order are due. Responsive briefs must be strictly limited to responding 
to matters, issues, or arguments raised in another party's papers. A 
party who has not filed proposed findings of fact and conclusions of law 
or a post-hearing brief may not file a responsive brief. Unless directed 
by the hearing officer, reply briefs are not permitted.
    (c) Order of filing. The hearing officer shall not order the filing 
by any party of any post-hearing brief or responsive brief in advance of 
the other party's filing of its post-hearing brief or responsive brief.



Sec. 1081.306  Record in proceedings before hearing officer; retention
of documents; copies.

    (a) Contents of the record. The record of the proceeding shall 
consist of:
    (1) The notice of charges, the answer, and any amendments thereto;
    (2) Each motion, submission, or other paper filed in the 
proceedings, and any amendments and exceptions to or regarding them;
    (3) Each stipulation, transcript of testimony, and any document or 
other item admitted into evidence;
    (4) Any transcript of a conference or hearing before the hearing 
officer;
    (5) Any amicus briefs filed pursuant to Sec. 1081.216;
    (6) With respect to a request to disqualify a hearing officer or to 
allow the

[[Page 1123]]

hearing officer's withdrawal under Sec. 1081.105(c), each affidavit or 
transcript of testimony taken and the decision made in connection with 
the request;
    (7) All motions, briefs, and other papers filed on interlocutory 
appeal;
    (8) All proposed findings and conclusions;
    (9) Each written order issued by the hearing officer or Director; 
and
    (10) Any other document or item accepted into the record by the 
hearing officer.
    (b) Retention of documents not admitted. Any document offered into 
evidence but excluded shall not be considered part of the record. The 
Executive Secretary shall retain any such document until the later of 
the date upon which an order by the Director ending the proceeding 
becomes final and not appealable, or upon the conclusion of any judicial 
review of the Director's order.
    (c) Substitution of copies. A true copy of a document may be 
substituted for any document in the record or any document retained 
pursuant to paragraph (b) of this section.



                     Subpart D_Decision and Appeals



Sec. 1081.400  Recommended decision of the hearing officer.

    (a) Time period for filing recommended decision. Subject to 
paragraph (b) of this section, the hearing officer shall file a 
recommended decision no later than 90 days after the deadline for filing 
post-hearing responsive briefs pursuant to Sec. 1081.305(b) and in no 
event later than 300 days after filing of the notice of charges.
    (b) Extension of deadlines. In the event the hearing officer 
presiding over the proceeding determines that it will not be possible to 
issue the recommended decision within the time periods specified in 
paragraph (a) of this section, the hearing officer shall submit a 
written request to the Director for an extension of the time period for 
filing the recommended decision. This request must be filed no later 
than 30 days prior to the expiration of the time for issuance of a 
recommended decision. The request will be served on all parties in the 
proceeding, who may file with the Director briefs in support of or in 
opposition to the request. Any such briefs must be filed within three 
days of service of the hearing officer's request and shall not exceed 
five pages. If the Director determines that additional time is necessary 
or appropriate in the public interest, the Director shall issue an order 
extending the time period for filing the recommended decision.
    (c) Content. (1) A recommended decision shall be based on a 
consideration of the whole record relevant to the issues decided, and 
shall be supported by reliable, probative, and substantial evidence. The 
recommended decision shall include a statement of findings of fact (with 
specific page references to principal supporting items of evidence in 
the record) and conclusions of law, as well as the reasons or basis 
therefore, as to all the material issues of fact, law, or discretion 
presented on the record and the appropriate order, sanction, relief or 
denial thereof. The recommended decision shall also state that a notice 
of appeal may be filed within 10 days after service of the recommended 
decision and include a statement that, unless a party timely files and 
perfects a notice of appeal of the recommended decision, the Director 
may adopt the recommended decision as the final decision and order of 
the Bureau without further opportunity for briefing or argument.
    (2) Consistent with paragraph (a) of this section, when more than 
one claim for relief is presented in an adjudication proceeding, or when 
multiple parties are involved, the hearing officer may direct the entry 
of a recommended decision as to one or more but fewer than all of the 
claims or parties only upon an express determination that there is no 
just reason for delay and upon an express direction for the entry of a 
recommended decision.
    (d) By whom made. The recommended decision shall be made and filed 
by the hearing officer who presided over the hearings, except when he or 
she shall have become unavailable to the Bureau.
    (e) Reopening of proceeding by hearing officer; termination of 
jurisdiction. (1) At any time from the close of the hearing record 
pursuant to Sec. 1081.304(c) until the filing of his or her recommended

[[Page 1124]]

decision, a hearing officer may reopen the proceeding for the receipt of 
further evidence for good cause shown.
    (2) Except for the correction of clerical errors or pursuant to an 
order of remand from the Director, the jurisdiction of the hearing 
officer is terminated upon the filing of his or her recommended decision 
with respect to those issues decided pursuant to paragraph (c) of this 
section.
    (f) Filing, service, and publication. The hearing officer shall file 
the recommended decision with the Executive Secretary. The Executive 
Secretary shall promptly serve the recommended decision upon the 
parties.



Sec. 1081.401  Transmission of documents to Director; record index; certification.

    (a) Filing of index. At the same time the hearing officer files the 
recommended decision, the hearing officer shall furnish to the Director 
a certified index of the entire record of the proceeding. The certified 
index shall include, at a minimum, an entry for each paper, document or 
motion filed in the proceeding, the date of the filing, and the identity 
of the filer. The certified index shall also include an exhibit index 
containing, at a minimum, an entry consisting of exhibit number and 
title or description for each exhibit introduced and admitted into 
evidence and each exhibit introduced but not admitted into evidence.
    (b) Final transmittal of record items to the Executive Secretary. 
After the close of the hearing, the hearing officer shall transmit to 
the Executive Secretary originals of any motions, exhibits or any other 
documents filed with, or accepted into evidence by, the hearing officer, 
or any other portions of the record that have not already been 
transmitted to the Executive Secretary.



Sec. 1081.402  Notice of appeal; review by the Director.

    (a) Notice of appeal--(1) Filing. Any party may file exceptions to 
the recommended decision of the hearing officer by filing a notice of 
appeal with the Executive Secretary within 10 days after service of the 
recommended decision. The notice shall specify the party or parties 
against whom the appeal is taken and shall designate the recommended 
decision or part thereof appealed from. If a timely notice of appeal is 
filed by a party, any other party may thereafter file a notice of appeal 
within five days after service of the first notice, or within 10 days 
after service of the recommended decision, whichever period expires 
last.
    (2) Perfecting a notice of appeal. Any party filing a notice of 
appeal must perfect its appeal by filing its opening appeal brief within 
30 days of service of the recommended decision. Any party may respond to 
the opening appeal brief by filing an answering brief within 30 days of 
service of the opening brief. Any party may file a reply to an answering 
brief within seven days of service of the answering brief. These briefs 
must conform to the requirements of Sec. 1081.403.
    (b) Director review other than pursuant to an appeal. In the event 
no party appeals the recommended decision, the Director shall, within 40 
days after the date of service of the recommended decision, either issue 
a final decision and order adopting the recommended decision, or order 
further briefing regarding any portion of the recommended decision. The 
Director's order for further briefing shall set forth the scope of 
review and the issues that will be considered and will make provision 
for the filing of briefs in accordance with the timelines set forth in 
paragraph (a)(2) of this section (except that that opening briefs shall 
be due within 30 days of service of the order of review) if deemed 
appropriate by the Director.
    (c) Exhaustion of administrative remedies. Pursuant to 5 U.S.C. 704, 
a perfected appeal to the Director of a recommended decision pursuant to 
paragraph (a) of this section is a prerequisite to the seeking of 
judicial review of a final decision and order, or portion of the final 
decision and order, adopting the recommended decision..



Sec. 1081.403  Briefs filed with the Director.

    (a) Contents of briefs. Briefs shall be confined to the particular 
matters at issue. Each exception to the findings or conclusions being 
reviewed shall be stated succinctly. Exceptions shall be

[[Page 1125]]

supported by citation to the relevant portions of the record, including 
references to the specific pages relied upon, and by concise argument 
including citation of such statutes, decisions, and other authorities as 
may be relevant. If the exception relates to the admission or exclusion 
of evidence, the substance of the evidence admitted or excluded shall be 
set forth in the brief, in an appendix thereto, or by citation to the 
record. Reply briefs shall be confined to matters in answering briefs of 
other parties.
    (b) Length limitation. Except with leave of the Director, opening 
and answering briefs shall not exceed 30 pages, and reply briefs shall 
not exceed 15 pages, exclusive of pages containing the table of 
contents, table of authorities, and any addendum that consists solely of 
copies of applicable cases, pertinent legislative provisions or rules, 
and exhibits. Motions to file briefs in excess of these limitations are 
disfavored.



Sec. 1081.404  Oral argument before the Director.

    (a) Availability. The Director will consider appeals, motions, and 
other matters properly before him or her on the basis of the papers 
filed by the parties without oral argument unless the Director 
determines that the presentation of facts and legal arguments in the 
briefs and record and decisional process would be significantly aided by 
oral argument, in which case the Director shall issue an order setting 
the date on which argument shall be held. A party seeking oral argument 
shall so indicate on the first page of its opening or answering brief.
    (b) Public arguments; transcription. All oral arguments shall be 
public unless otherwise ordered by the Director. Oral arguments before 
the Director shall be reported stenographically, unless otherwise 
ordered by the Director. Motions to correct the transcript of oral 
argument shall be made according to the same procedure provided in Sec. 
1081.304(b).



Sec. 1081.405  Decision of the Director.

    (a) Upon appeal from or upon further review of a recommended 
decision, the Director will consider such parts of the record as are 
cited or as may be necessary to resolve the issues presented and, in 
addition, will, to the extent necessary or desirable, exercise all 
powers which he or she could have exercised if he or she had made the 
recommended decision. In proceedings before the Director, the record 
shall consist of all items part of the record below in accordance with 
Sec. 1081.306; any notices of appeal or order directing review; all 
briefs, motions, submissions, and other papers filed on appeal or 
review; and the transcript of any oral argument held. Review by the 
Director of a recommended decision may be limited to the issues 
specified in the notice(s) of appeal or the issues, if any, specified in 
the order directing further briefing. On notice to all parties, however, 
the Director may, at any time prior to issuance of his or her decision, 
raise and determine any other matters that he or she deems material, 
with opportunity for oral or written argument thereon by the parties.
    (b) Decisional employees may advise and assist the Director in the 
consideration and disposition of the case.
    (c) In rendering his or her decision, the Director will affirm, 
adopt, reverse, modify, set aside, or remand for further proceedings the 
recommended decision and will include in the decision a statement of the 
reasons or basis for his or her actions and the findings of fact upon 
which the decision is predicated.
    (d) At the expiration of the time permitted for the filing of reply 
briefs with the Director, the Executive Secretary will notify the 
parties that the case has been submitted for final Bureau decision. The 
Director will issue and the Executive Secretary will serve the 
Director's final decision and order within 90 days after such notice, 
unless the Director orders that the adjudication proceeding or any 
aspect thereof be remanded to the hearing officer for further 
proceedings.
    (e) Copies of the final decision and order of the Director shall be 
served upon each party to the proceeding, upon other persons required by 
statute, and, if directed by the Director or required by statute, upon 
any appropriate state or Federal supervisory authority. The final 
decision and order will also be published on the Bureau's

[[Page 1126]]

Web site or as otherwise deemed appropriate by the Bureau.



Sec. 1081.406  Reconsideration.

    Within 14 days after service of the Director's final decision and 
order, any party may file with the Director a petition for 
reconsideration, briefly and specifically setting forth the relief 
desired and the grounds in support thereof. Any petition filed under 
this section must be confined to new questions raised by the final 
decision or final order and upon which the petitioner had no opportunity 
to argue, in writing or orally, before the Director. No response to a 
petition for reconsideration shall be filed unless requested by the 
Director, who will request such response before granting any petition 
for reconsideration. The filing of a petition for reconsideration shall 
not operate to stay the effective date of the final decision or order or 
to toll the running of any statutory period affecting such decision or 
order unless specifically so ordered by the Director.



Sec. 1081.407  Effective date; stays pending judicial review.

    (a) Other than consent orders, which shall become effective at the 
time specified therein, an order to cease and desist or for other 
affirmative action under section 1053(b) of the Act becomes effective at 
the expiration of 30 days after the date of service pursuant to Sec. 
1081.113(d)(2), unless the Director agrees to stay the effectiveness of 
the Order pursuant to this section.
    (b) Any party subject to a final decision and order, other than a 
consent order, may apply to the Director for a stay of all or part of 
that order pending judicial review.
    (c) A motion for stay shall state the reasons a stay is warranted 
and the facts relied upon, and shall include supporting affidavits or 
other sworn statements, and a copy of the relevant portions of the 
record. The motion shall address the likelihood of the movant's success 
on appeal, whether the movant will suffer irreparable harm if a stay is 
not granted, the degree of injury to other parties if a stay is granted, 
and why the stay is in the public interest.
    (d) A motion for stay shall be filed within 30 days of service of 
the order on the party. Any party opposing the motion may file a 
response within five days after receipt of the motion. The movant may 
file a reply brief, limited to new matters raised by the response, 
within three days after receipt of the response.
    (e) The commencement of proceedings for judicial review of a final 
decision and order of the Director does not, unless specifically ordered 
by the Director or a reviewing court, operate as a stay of any order 
issued by the Director. The Director may, in his or her discretion, and 
on such terms as he or she finds just, stay the effectiveness of all or 
any part of an order pending a final decision on a petition for judicial 
review of that order.



PART 1082_STATE OFFICIAL NOTIFICATION RULES--Table of Contents



    Authority: Pub. L. 111-203, Title X.

    Source: 76 FR 45175, July 28, 2011, unless otherwise noted.



Sec. 1082.1  Procedures for notifying the Bureau of Consumer Financial Protection when a state official takes an action to enforce the Consumer Financial 
          Protection Act of 2010.

    (a) Notice requirement. (1) Pursuant to 12 U.S.C. 5552(b) and except 
as discussed in paragraph (b) of this section, every State attorney 
general and State regulator (collectively ``State Official'') shall 
provide the notice described in paragraph (c) of this section to the 
Division of Enforcement of the Bureau of Consumer Financial Protection 
(``Bureau''), the division of the Bureau responsible for enforcement of 
Federal consumer financial law pursuant to the Consumer Financial 
Protection Act of 2010, as amended, Public Law 111-203 (July 21, 2010), 
Title X, 12 U.S.C. 5481 et seq. (``Act''), and the Office of the 
Executive Secretary of the Bureau at least 10 days prior to initiating 
any action or proceeding in any court or other administrative or 
regulatory proceeding against any covered person to enforce any 
provision of the Act or any regulation prescribed thereunder, including 
but not limited to the filing of a complaint, motion for relief, or 
other document which initiates an action or proceeding.

[[Page 1127]]

    (2) Notice shall be provided to the Division of Enforcement and the 
Office of the Executive Secretary, or their successor offices, via 
electronic mail to [email protected] and [email protected]. In the 
event of technical problems preventing the delivery of notice, the 
Division of Enforcement or its successor entity should be contacted.
    (3) On the same date that notice is provided to the Division of 
Enforcement and the Office of the Executive Secretary pursuant to 
paragraph (a)(1) of this section, a copy of the notice shall be sent to 
the relevant prudential regulator, if any, or the designee thereof, by 
mail or electronic mail.
    (4) Notice shall be deemed to have been provided as of the date of 
mailing the materials described in paragraph (c) of this section.
    (5) The Division of Enforcement, or its successor entity, in 
consultation with a State Official, may provide, for good cause shown, 
an alternative deadline for the notice described in paragraph (a)(1) of 
this section.
    (b) Emergency actions. (1) Pursuant to 12 U.S.C. 5552(b), in the 
event that a State Official initiates or intends to initiate an action 
or proceeding and, in order to protect the public interest or prevent 
irreparable and imminent harm, is unable to provide timely notice as 
described in paragraph (a) of this section, the State Official shall 
provide the notice described in paragraph (c) of this section as soon as 
is practicable and not later than 48 hours after initiation of the 
action or proceeding.
    (2) Notice shall be provided in accordance with the procedures set 
forth in paragraphs (a)(2) through (a)(4) of this section.
    (3) The Division of Enforcement, or its successor entity, in 
consultation with a State Official, may provide, for good cause shown, 
an alternative deadline for the notice described in paragraph (b)(1) of 
this section.
    (c) Contents of notice. (1) Pursuant to 12 U.S.C. 5552(b), the 
notice required under paragraphs (a) and (b) of this section shall 
include a written description of the anticipated action or proceeding, 
including:
    (i) The court or body in which the action or proceeding is to be 
initiated;
    (ii) The identity of the parties to the action or proceeding;
    (iii) The nature of the action or proceeding to be initiated;
    (iv) The anticipated date of initiating the action or proceeding;
    (v) The alleged facts underlying the action or proceeding;
    (vi) A contact name, electronic mail address, and phone number of an 
individual involved with the matter in the office of the State Official 
with whom the Bureau may consult; and
    (vii) A determination as to whether there may be a need to 
coordinate the prosecution of the action or proceeding so as not to 
interfere with any action, including any rulemaking, undertaken by the 
Bureau, a prudential regulator, or another Federal agency.
    (2) The notice required under paragraphs (a) and (b) of this section 
shall further include a complete and unredacted copy of any complaint, 
motion for relief, or similar document that is the subject of the 
notice, in its form as of the date the notice is provided. To the extent 
the complaint, motion for relief, or similar document contains the 
information described in paragraph (c)(1) of this section, provision of 
the complaint, motion for relief, or similar document shall be deemed 
sufficient notice of that information.
    (3) In the event that notice is provided after the initiation of an 
action or proceeding, the written description shall also include the 
following, in addition to the information described in paragraph (c)(1) 
of this section:
    (i) A brief description of any proceeding that occurred as a result 
of the initiation of the action or proceeding, including any orders 
issued by a court or other body;
    (ii) Any case number, matter number, or designation assigned to the 
action or proceeding; and
    (iii) Information on scheduled court or other administrative or 
regulatory proceedings.
    (4) In the event that notice is provided after the initiation of an 
action or proceeding, in addition to the requirements set forth in 
paragraph (c)(3) of this section, the notice shall further

[[Page 1128]]

include a complete, unredacted copy of any document filed by any party 
in relation to the action or proceeding and any orders issued by the 
court or other body.
    (5) If the State Official, after providing the notice described in 
paragraphs (c)(1) and (c)(2) of this section, intends to file a 
complaint, motion for relief, or similar document that is materially 
different from the document included with the notice, the State Official 
shall provide a copy of that document prior to filing, in accordance 
with the method described in paragraph (a)(2) of this section.
    (d) Bureau response. In any action or proceeding described in 
paragraphs (a) and (b) of this section, the Bureau may:
    (1) Intervene in the action or proceeding as a party;
    (2) Upon intervening,
    (i) Remove the action to the appropriate United States district 
court, if the action or proceeding was not originally brought there; and
    (ii) Be heard on all matters arising in the action;
    (3) Appeal any order or judgment, to the same extent as any other 
party in the proceeding may; and
    (4) Otherwise participate in the action as appropriate.
    (e) Confidentiality and privilege. (1) Unless and until such 
information becomes publically available, the substance and fact of the 
notice described in paragraph (c) of this section, including the 
complaint, motion for relief, or other document, shall not be disclosed 
by the Bureau or any relevant prudential regulator who received the 
notice except as permitted by paragraphs (e)(3) and (e)(4) of this 
section or as required by law.
    (2) Provision of notice by a State Official and disclosure of notice 
pursuant to paragraphs (e)(3) and (e)(4) of this section shall not be 
deemed a waiver of any applicable privilege.
    (3) Notwithstanding paragraph (e)(1) of this section, the Bureau and 
any relevant prudential regulator who received the notice described in 
paragraph (c) of this section may share the substance or fact of the 
notice with another entity pursuant to the consent of the State Official 
who provided the notice.
    (4) Notwithstanding paragraphs (e)(1) and (e)(3) of this section, 
the Bureau may share the substance and fact of the notice described in 
paragraph (c) of this section with another state or federal government 
entity when necessary to protect the public interest, after consultation 
with the State Official who provided the notice.
    (f) No private right of action or defense. The requirements set 
forth in this section are not intended to, do not, and may not be relied 
upon to create any right, benefit, or defense, substantive or 
procedural, enforceable at law by a party against the United States or 
any State enforcing the provisions of the Act or any regulation 
prescribed thereunder.

[[Page 1129]]



                              FINDING AIDS




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

  A list of CFR titles, subtitles, chapters, subchapters and parts and 
an alphabetical list of agencies publishing in the CFR are included in 
the CFR Index and Finding Aids volume to the Code of Federal Regulations 
which is published separately and revised annually.

  Table of CFR Titles and Chapters
  Alphabetical List of Agencies Appearing in the CFR
  List of CFR Sections Affected

[[Page 1131]]



                    Table of CFR Titles and Chapters




                     (Revised as of January 1, 2012)

                      Title 1--General Provisions

         I  Administrative Committee of the Federal Register 
                (Parts 1--49)
        II  Office of the Federal Register (Parts 50--299)
       III  Administrative Conference of the United States (Parts 
                300--399)
        IV  Miscellaneous Agencies (Parts 400--500)

                    Title 2--Grants and Agreements

            Subtitle A--Office of Management and Budget Guidance 
                for Grants and Agreements
         I  Office of Management and Budget Governmentwide 
                Guidance for Grants and Agreements (Parts 2--199)
        II  Office of Management and Budget Circulars and Guidance 
                (200--299)
            Subtitle B--Federal Agency Regulations for Grants and 
                Agreements
       III  Department of Health and Human Services (Parts 300-- 
                399)
        IV  Department of Agriculture (Parts 400--499)
        VI  Department of State (Parts 600--699)
       VII  Agency for International Development (Parts 700--799)
      VIII  Department of Veterans Affairs (Parts 800--899)
        IX  Department of Energy (Parts 900--999)
        XI  Department of Defense (Parts 1100--1199)
       XII  Department of Transportation (Parts 1200--1299)
      XIII  Department of Commerce (Parts 1300--1399)
       XIV  Department of the Interior (Parts 1400--1499)
        XV  Environmental Protection Agency (Parts 1500--1599)
     XVIII  National Aeronautics and Space Administration (Parts 
                1800--1899)
        XX  United States Nuclear Regulatory Commission (Parts 
                2000--2099)
      XXII  Corporation for National and Community Service (Parts 
                2200--2299)
     XXIII  Social Security Administration (Parts 2300--2399)
      XXIV  Housing and Urban Development (Parts 2400--2499)
       XXV  National Science Foundation (Parts 2500--2599)
      XXVI  National Archives and Records Administration (Parts 
                2600--2699)
     XXVII  Small Business Administration (Parts 2700--2799)
    XXVIII  Department of Justice (Parts 2800--2899)

[[Page 1132]]

       XXX  Department of Homeland Security (Parts 3000--3099)
      XXXI  Institute of Museum and Library Services (Parts 3100--
                3199)
     XXXII  National Endowment for the Arts (Parts 3200--3299)
    XXXIII  National Endowment for the Humanities (Parts 3300--
                3399)
      XXXV  Export-Import Bank of the United States (Parts 3500--
                3599)
    XXXVII  Peace Corps (Parts 3700--3799)
     LVIII  Election Assistance Commission (Parts 5800--5899)

                        Title 3--The President

         I  Executive Office of the President (Parts 100--199)

                           Title 4--Accounts

         I  Government Accountability Office (Parts 1--99)
        II  Recovery Accountability and Transparency Board (Parts 
                200--299)

                   Title 5--Administrative Personnel

         I  Office of Personnel Management (Parts 1--1199)
        II  Merit Systems Protection Board (Parts 1200--1299)
       III  Office of Management and Budget (Parts 1300--1399)
         V  The International Organizations Employees Loyalty 
                Board (Parts 1500--1599)
        VI  Federal Retirement Thrift Investment Board (Parts 
                1600--1699)
      VIII  Office of Special Counsel (Parts 1800--1899)
        IX  Appalachian Regional Commission (Parts 1900--1999)
        XI  Armed Forces Retirement Home (Parts 2100--2199)
       XIV  Federal Labor Relations Authority, General Counsel of 
                the Federal Labor Relations Authority and Federal 
                Service Impasses Panel (Parts 2400--2499)
        XV  Office of Administration, Executive Office of the 
                President (Parts 2500--2599)
       XVI  Office of Government Ethics (Parts 2600--2699)
       XXI  Department of the Treasury (Parts 3100--3199)
      XXII  Federal Deposit Insurance Corporation (Parts 3200--
                3299)
     XXIII  Department of Energy (Parts 3300--3399)
      XXIV  Federal Energy Regulatory Commission (Parts 3400--
                3499)
       XXV  Department of the Interior (Parts 3500--3599)
      XXVI  Department of Defense (Parts 3600-- 3699)
    XXVIII  Department of Justice (Parts 3800--3899)
      XXIX  Federal Communications Commission (Parts 3900--3999)
       XXX  Farm Credit System Insurance Corporation (Parts 4000--
                4099)
      XXXI  Farm Credit Administration (Parts 4100--4199)
    XXXIII  Overseas Private Investment Corporation (Parts 4300--
                4399)

[[Page 1133]]

     XXXIV  Securities and Exchange Commission (Parts 4400--4499)
      XXXV  Office of Personnel Management (Parts 4500--4599)
    XXXVII  Federal Election Commission (Parts 4700--4799)
        XL  Interstate Commerce Commission (Parts 5000--5099)
       XLI  Commodity Futures Trading Commission (Parts 5100--
                5199)
      XLII  Department of Labor (Parts 5200--5299)
     XLIII  National Science Foundation (Parts 5300--5399)
       XLV  Department of Health and Human Services (Parts 5500--
                5599)
      XLVI  Postal Rate Commission (Parts 5600--5699)
     XLVII  Federal Trade Commission (Parts 5700--5799)
    XLVIII  Nuclear Regulatory Commission (Parts 5800--5899)
      XLIX  Federal Labor Relations Authority (Parts 5900--5999)
         L  Department of Transportation (Parts 6000--6099)
       LII  Export-Import Bank of the United States (Parts 6200--
                6299)
      LIII  Department of Education (Parts 6300--6399)
       LIV  Environmental Protection Agency (Parts 6400--6499)
        LV  National Endowment for the Arts (Parts 6500--6599)
       LVI  National Endowment for the Humanities (Parts 6600--
                6699)
      LVII  General Services Administration (Parts 6700--6799)
     LVIII  Board of Governors of the Federal Reserve System 
                (Parts 6800--6899)
       LIX  National Aeronautics and Space Administration (Parts 
                6900--6999)
        LX  United States Postal Service (Parts 7000--7099)
       LXI  National Labor Relations Board (Parts 7100--7199)
      LXII  Equal Employment Opportunity Commission (Parts 7200--
                7299)
     LXIII  Inter-American Foundation (Parts 7300--7399)
      LXIV  Merit Systems Protection Board (Parts 7400--7499)
       LXV  Department of Housing and Urban Development (Parts 
                7500--7599)
      LXVI  National Archives and Records Administration (Parts 
                7600--7699)
     LXVII  Institute of Museum and Library Services (Parts 7700--
                7799)
    LXVIII  Commission on Civil Rights (Parts 7800--7899)
      LXIX  Tennessee Valley Authority (Parts 7900--7999)
       LXX  Court Services and Offender Supervision Agency for the 
                District of Columbia (Parts 8000--8099)
      LXXI  Consumer Product Safety Commission (Parts 8100--8199)
    LXXIII  Department of Agriculture (Parts 8300--8399)
     LXXIV  Federal Mine Safety and Health Review Commission 
                (Parts 8400--8499)
     LXXVI  Federal Retirement Thrift Investment Board (Parts 
                8600--8699)
    LXXVII  Office of Management and Budget (Parts 8700--8799)
      LXXX  Federal Housing Finance Agency (Parts 9000--9099)
    LXXXII  Special Inspector General for Iraq Reconstruction 
                (Parts 9200--9299)

[[Page 1134]]

     XCVII  Department of Homeland Security Human Resources 
                Management System (Department of Homeland 
                Security--Office of Personnel Management) (Parts 
                9700--9799)

                      Title 6--Domestic Security

         I  Department of Homeland Security, Office of the 
                Secretary (Parts 1--99)

                         Title 7--Agriculture

            Subtitle A--Office of the Secretary of Agriculture 
                (Parts 0--26)
            Subtitle B--Regulations of the Department of 
                Agriculture
         I  Agricultural Marketing Service (Standards, 
                Inspections, Marketing Practices), Department of 
                Agriculture (Parts 27--209)
        II  Food and Nutrition Service, Department of Agriculture 
                (Parts 210--299)
       III  Animal and Plant Health Inspection Service, Department 
                of Agriculture (Parts 300--399)
        IV  Federal Crop Insurance Corporation, Department of 
                Agriculture (Parts 400--499)
         V  Agricultural Research Service, Department of 
                Agriculture (Parts 500--599)
        VI  Natural Resources Conservation Service, Department of 
                Agriculture (Parts 600--699)
       VII  Farm Service Agency, Department of Agriculture (Parts 
                700--799)
      VIII  Grain Inspection, Packers and Stockyards 
                Administration (Federal Grain Inspection Service), 
                Department of Agriculture (Parts 800--899)
        IX  Agricultural Marketing Service (Marketing Agreements 
                and Orders; Fruits, Vegetables, Nuts), Department 
                of Agriculture (Parts 900--999)
         X  Agricultural Marketing Service (Marketing Agreements 
                and Orders; Milk), Department of Agriculture 
                (Parts 1000--1199)
        XI  Agricultural Marketing Service (Marketing Agreements 
                and Orders; Miscellaneous Commodities), Department 
                of Agriculture (Parts 1200--1299)
       XIV  Commodity Credit Corporation, Department of 
                Agriculture (Parts 1400--1499)
        XV  Foreign Agricultural Service, Department of 
                Agriculture (Parts 1500--1599)
       XVI  Rural Telephone Bank, Department of Agriculture (Parts 
                1600--1699)
      XVII  Rural Utilities Service, Department of Agriculture 
                (Parts 1700--1799)
     XVIII  Rural Housing Service, Rural Business-Cooperative 
                Service, Rural Utilities Service, and Farm Service 
                Agency, Department of Agriculture (Parts 1800--
                2099)
        XX  Local Television Loan Guarantee Board (Parts 2200--
                2299)

[[Page 1135]]

       XXV  Office of Advocacy and Outreach, Department of 
                Agriculture (Parts 2500--2599)
      XXVI  Office of Inspector General, Department of Agriculture 
                (Parts 2600--2699)
     XXVII  Office of Information Resources Management, Department 
                of Agriculture (Parts 2700--2799)
    XXVIII  Office of Operations, Department of Agriculture (Parts 
                2800--2899)
      XXIX  Office of Energy Policy and New Uses, Department of 
                Agriculture (Parts 2900--2999)
       XXX  Office of the Chief Financial Officer, Department of 
                Agriculture (Parts 3000--3099)
      XXXI  Office of Environmental Quality, Department of 
                Agriculture (Parts 3100--3199)
     XXXII  Office of Procurement and Property Management, 
                Department of Agriculture (Parts 3200--3299)
    XXXIII  Office of Transportation, Department of Agriculture 
                (Parts 3300--3399)
     XXXIV  National Institute of Food and Agriculture (Parts 
                3400--3499)
      XXXV  Rural Housing Service, Department of Agriculture 
                (Parts 3500--3599)
     XXXVI  National Agricultural Statistics Service, Department 
                of Agriculture (Parts 3600--3699)
    XXXVII  Economic Research Service, Department of Agriculture 
                (Parts 3700--3799)
   XXXVIII  World Agricultural Outlook Board, Department of 
                Agriculture (Parts 3800--3899)
       XLI  [Reserved]
      XLII  Rural Business-Cooperative Service and Rural Utilities 
                Service, Department of Agriculture (Parts 4200--
                4299)

                    Title 8--Aliens and Nationality

         I  Department of Homeland Security (Immigration and 
                Naturalization) (Parts 1--499)
         V  Executive Office for Immigration Review, Department of 
                Justice (Parts 1000--1399)

                 Title 9--Animals and Animal Products

         I  Animal and Plant Health Inspection Service, Department 
                of Agriculture (Parts 1--199)
        II  Grain Inspection, Packers and Stockyards 
                Administration (Packers and Stockyards Programs), 
                Department of Agriculture (Parts 200--299)
       III  Food Safety and Inspection Service, Department of 
                Agriculture (Parts 300--599)

[[Page 1136]]

                           Title 10--Energy

         I  Nuclear Regulatory Commission (Parts 0--199)
        II  Department of Energy (Parts 200--699)
       III  Department of Energy (Parts 700--999)
         X  Department of Energy (General Provisions) (Parts 
                1000--1099)
      XIII  Nuclear Waste Technical Review Board (Parts 1300--
                1399)
      XVII  Defense Nuclear Facilities Safety Board (Parts 1700--
                1799)
     XVIII  Northeast Interstate Low-Level Radioactive Waste 
                Commission (Parts 1800--1899)

                      Title 11--Federal Elections

         I  Federal Election Commission (Parts 1--9099)
        II  Election Assistance Commission (Parts 9400--9499)

                      Title 12--Banks and Banking

         I  Comptroller of the Currency, Department of the 
                Treasury (Parts 1--199)
        II  Federal Reserve System (Parts 200--299)
       III  Federal Deposit Insurance Corporation (Parts 300--399)
        IV  Export-Import Bank of the United States (Parts 400--
                499)
         V  Office of Thrift Supervision, Department of the 
                Treasury (Parts 500--599)
        VI  Farm Credit Administration (Parts 600--699)
       VII  National Credit Union Administration (Parts 700--799)
      VIII  Federal Financing Bank (Parts 800--899)
        IX  Federal Housing Finance Board (Parts 900--999)
         X  Bureau of Consumer Financial Protection (Parts 1000--
                1099)
        XI  Federal Financial Institutions Examination Council 
                (Parts 1100--1199)
       XII  Federal Housing Finance Agency (Parts 1200--1299)
      XIII  Financial Stability Oversight Council (Parts 1300--
                1399)
       XIV  Farm Credit System Insurance Corporation (Parts 1400--
                1499)
        XV  Department of the Treasury (Parts 1500--1599)
       XVI  Office of Financial Research (Parts 1600--1699)
      XVII  Office of Federal Housing Enterprise Oversight, 
                Department of Housing and Urban Development (Parts 
                1700--1799)
     XVIII  Community Development Financial Institutions Fund, 
                Department of the Treasury (Parts 1800--1899)

               Title 13--Business Credit and Assistance

         I  Small Business Administration (Parts 1--199)
       III  Economic Development Administration, Department of 
                Commerce (Parts 300--399)
        IV  Emergency Steel Guarantee Loan Board (Parts 400--499)
         V  Emergency Oil and Gas Guaranteed Loan Board (Parts 
                500--599)

[[Page 1137]]

                    Title 14--Aeronautics and Space

         I  Federal Aviation Administration, Department of 
                Transportation (Parts 1--199)
        II  Office of the Secretary, Department of Transportation 
                (Aviation Proceedings) (Parts 200--399)
       III  Commercial Space Transportation, Federal Aviation 
                Administration, Department of Transportation 
                (Parts 400--1199)
         V  National Aeronautics and Space Administration (Parts 
                1200--1299)
        VI  Air Transportation System Stabilization (Parts 1300--
                1399)

                 Title 15--Commerce and Foreign Trade

            Subtitle A--Office of the Secretary of Commerce (Parts 
                0--29)
            Subtitle B--Regulations Relating to Commerce and 
                Foreign Trade
         I  Bureau of the Census, Department of Commerce (Parts 
                30--199)
        II  National Institute of Standards and Technology, 
                Department of Commerce (Parts 200--299)
       III  International Trade Administration, Department of 
                Commerce (Parts 300--399)
        IV  Foreign-Trade Zones Board, Department of Commerce 
                (Parts 400--499)
       VII  Bureau of Industry and Security, Department of 
                Commerce (Parts 700--799)
      VIII  Bureau of Economic Analysis, Department of Commerce 
                (Parts 800--899)
        IX  National Oceanic and Atmospheric Administration, 
                Department of Commerce (Parts 900--999)
        XI  Technology Administration, Department of Commerce 
                (Parts 1100--1199)
      XIII  East-West Foreign Trade Board (Parts 1300--1399)
       XIV  Minority Business Development Agency (Parts 1400--
                1499)
            Subtitle C--Regulations Relating to Foreign Trade 
                Agreements
        XX  Office of the United States Trade Representative 
                (Parts 2000--2099)
            Subtitle D--Regulations Relating to Telecommunications 
                and Information
     XXIII  National Telecommunications and Information 
                Administration, Department of Commerce (Parts 
                2300--2399)

                    Title 16--Commercial Practices

         I  Federal Trade Commission (Parts 0--999)
        II  Consumer Product Safety Commission (Parts 1000--1799)

[[Page 1138]]

             Title 17--Commodity and Securities Exchanges

         I  Commodity Futures Trading Commission (Parts 1--199)
        II  Securities and Exchange Commission (Parts 200--399)
        IV  Department of the Treasury (Parts 400--499)

          Title 18--Conservation of Power and Water Resources

         I  Federal Energy Regulatory Commission, Department of 
                Energy (Parts 1--399)
       III  Delaware River Basin Commission (Parts 400--499)
        VI  Water Resources Council (Parts 700--799)
      VIII  Susquehanna River Basin Commission (Parts 800--899)
      XIII  Tennessee Valley Authority (Parts 1300--1399)

                       Title 19--Customs Duties

         I  U.S. Customs and Border Protection, Department of 
                Homeland Security; Department of the Treasury 
                (Parts 0--199)
        II  United States International Trade Commission (Parts 
                200--299)
       III  International Trade Administration, Department of 
                Commerce (Parts 300--399)
        IV  U.S. Immigration and Customs Enforcement, Department 
                of Homeland Security (Parts 400--599)

                     Title 20--Employees' Benefits

         I  Office of Workers' Compensation Programs, Department 
                of Labor (Parts 1--199)
        II  Railroad Retirement Board (Parts 200--399)
       III  Social Security Administration (Parts 400--499)
        IV  Employees' Compensation Appeals Board, Department of 
                Labor (Parts 500--599)
         V  Employment and Training Administration, Department of 
                Labor (Parts 600--699)
        VI  Office of Workers' Compensation Programs, Department 
                of Labor (Parts 700--799)
       VII  Benefits Review Board, Department of Labor (Parts 
                800--899)
      VIII  Joint Board for the Enrollment of Actuaries (Parts 
                900--999)
        IX  Office of the Assistant Secretary for Veterans' 
                Employment and Training Service, Department of 
                Labor (Parts 1000--1099)

                       Title 21--Food and Drugs

         I  Food and Drug Administration, Department of Health and 
                Human Services (Parts 1--1299)
        II  Drug Enforcement Administration, Department of Justice 
                (Parts 1300--1399)
       III  Office of National Drug Control Policy (Parts 1400--
                1499)

[[Page 1139]]

                      Title 22--Foreign Relations

         I  Department of State (Parts 1--199)
        II  Agency for International Development (Parts 200--299)
       III  Peace Corps (Parts 300--399)
        IV  International Joint Commission, United States and 
                Canada (Parts 400--499)
         V  Broadcasting Board of Governors (Parts 500--599)
       VII  Overseas Private Investment Corporation (Parts 700--
                799)
        IX  Foreign Service Grievance Board (Parts 900--999)
         X  Inter-American Foundation (Parts 1000--1099)
        XI  International Boundary and Water Commission, United 
                States and Mexico, United States Section (Parts 
                1100--1199)
       XII  United States International Development Cooperation 
                Agency (Parts 1200--1299)
      XIII  Millennium Challenge Corporation (Parts 1300--1399)
       XIV  Foreign Service Labor Relations Board; Federal Labor 
                Relations Authority; General Counsel of the 
                Federal Labor Relations Authority; and the Foreign 
                Service Impasse Disputes Panel (Parts 1400--1499)
        XV  African Development Foundation (Parts 1500--1599)
       XVI  Japan-United States Friendship Commission (Parts 
                1600--1699)
      XVII  United States Institute of Peace (Parts 1700--1799)

                          Title 23--Highways

         I  Federal Highway Administration, Department of 
                Transportation (Parts 1--999)
        II  National Highway Traffic Safety Administration and 
                Federal Highway Administration, Department of 
                Transportation (Parts 1200--1299)
       III  National Highway Traffic Safety Administration, 
                Department of Transportation (Parts 1300--1399)

                Title 24--Housing and Urban Development

            Subtitle A--Office of the Secretary, Department of 
                Housing and Urban Development (Parts 0--99)
            Subtitle B--Regulations Relating to Housing and Urban 
                Development
         I  Office of Assistant Secretary for Equal Opportunity, 
                Department of Housing and Urban Development (Parts 
                100--199)
        II  Office of Assistant Secretary for Housing-Federal 
                Housing Commissioner, Department of Housing and 
                Urban Development (Parts 200--299)
       III  Government National Mortgage Association, Department 
                of Housing and Urban Development (Parts 300--399)
        IV  Office of Housing and Office of Multifamily Housing 
                Assistance Restructuring, Department of Housing 
                and Urban Development (Parts 400--499)

[[Page 1140]]

         V  Office of Assistant Secretary for Community Planning 
                and Development, Department of Housing and Urban 
                Development (Parts 500--599)
        VI  Office of Assistant Secretary for Community Planning 
                and Development, Department of Housing and Urban 
                Development (Parts 600--699) [Reserved]
       VII  Office of the Secretary, Department of Housing and 
                Urban Development (Housing Assistance Programs and 
                Public and Indian Housing Programs) (Parts 700--
                799)
      VIII  Office of the Assistant Secretary for Housing--Federal 
                Housing Commissioner, Department of Housing and 
                Urban Development (Section 8 Housing Assistance 
                Programs, Section 202 Direct Loan Program, Section 
                202 Supportive Housing for the Elderly Program and 
                Section 811 Supportive Housing for Persons With 
                Disabilities Program) (Parts 800--899)
        IX  Office of Assistant Secretary for Public and Indian 
                Housing, Department of Housing and Urban 
                Development (Parts 900--1699)
         X  Office of Assistant Secretary for Housing--Federal 
                Housing Commissioner, Department of Housing and 
                Urban Development (Interstate Land Sales 
                Registration Program) (Parts 1700--1799)
       XII  Office of Inspector General, Department of Housing and 
                Urban Development (Parts 2000--2099)
        XV  Emergency Mortgage Insurance and Loan Programs, 
                Department of Housing and Urban Development (Parts 
                2700--2799)
        XX  Office of Assistant Secretary for Housing--Federal 
                Housing Commissioner, Department of Housing and 
                Urban Development (Parts 3200--3899)
      XXIV  Board of Directors of the HOPE for Homeowners Program 
                (Parts 4000--4099)
       XXV  Neighborhood Reinvestment Corporation (Parts 4100--
                4199)

                           Title 25--Indians

         I  Bureau of Indian Affairs, Department of the Interior 
                (Parts 1--299)
        II  Indian Arts and Crafts Board, Department of the 
                Interior (Parts 300--399)
       III  National Indian Gaming Commission, Department of the 
                Interior (Parts 500--599)
        IV  Office of Navajo and Hopi Indian Relocation (Parts 
                700--799)
         V  Bureau of Indian Affairs, Department of the Interior, 
                and Indian Health Service, Department of Health 
                and Human Services (Part 900)
        VI  Office of the Assistant Secretary-Indian Affairs, 
                Department of the Interior (Parts 1000--1199)
       VII  Office of the Special Trustee for American Indians, 
                Department of the Interior (Parts 1200--1299)

[[Page 1141]]

                      Title 26--Internal Revenue

         I  Internal Revenue Service, Department of the Treasury 
                (Parts 1--End)

           Title 27--Alcohol, Tobacco Products and Firearms

         I  Alcohol and Tobacco Tax and Trade Bureau, Department 
                of the Treasury (Parts 1--399)
        II  Bureau of Alcohol, Tobacco, Firearms, and Explosives, 
                Department of Justice (Parts 400--699)

                   Title 28--Judicial Administration

         I  Department of Justice (Parts 0--299)
       III  Federal Prison Industries, Inc., Department of Justice 
                (Parts 300--399)
         V  Bureau of Prisons, Department of Justice (Parts 500--
                599)
        VI  Offices of Independent Counsel, Department of Justice 
                (Parts 600--699)
       VII  Office of Independent Counsel (Parts 700--799)
      VIII  Court Services and Offender Supervision Agency for the 
                District of Columbia (Parts 800--899)
        IX  National Crime Prevention and Privacy Compact Council 
                (Parts 900--999)
        XI  Department of Justice and Department of State (Parts 
                1100--1199)

                            Title 29--Labor

            Subtitle A--Office of the Secretary of Labor (Parts 
                0--99)
            Subtitle B--Regulations Relating to Labor
         I  National Labor Relations Board (Parts 100--199)
        II  Office of Labor-Management Standards, Department of 
                Labor (Parts 200--299)
       III  National Railroad Adjustment Board (Parts 300--399)
        IV  Office of Labor-Management Standards, Department of 
                Labor (Parts 400--499)
         V  Wage and Hour Division, Department of Labor (Parts 
                500--899)
        IX  Construction Industry Collective Bargaining Commission 
                (Parts 900--999)
         X  National Mediation Board (Parts 1200--1299)
       XII  Federal Mediation and Conciliation Service (Parts 
                1400--1499)
       XIV  Equal Employment Opportunity Commission (Parts 1600--
                1699)
      XVII  Occupational Safety and Health Administration, 
                Department of Labor (Parts 1900--1999)
        XX  Occupational Safety and Health Review Commission 
                (Parts 2200--2499)
       XXV  Employee Benefits Security Administration, Department 
                of Labor (Parts 2500--2599)

[[Page 1142]]

     XXVII  Federal Mine Safety and Health Review Commission 
                (Parts 2700--2799)
        XL  Pension Benefit Guaranty Corporation (Parts 4000--
                4999)

                      Title 30--Mineral Resources

         I  Mine Safety and Health Administration, Department of 
                Labor (Parts 1--199)
        II  Bureau of Safety and Environmental Enforcement, 
                Department of the Interior (Parts 200--299)
        IV  Geological Survey, Department of the Interior (Parts 
                400--499)
         V  Bureau of Ocean Energy Management, Department of the 
                Interior (Parts 500--599)
       VII  Office of Surface Mining Reclamation and Enforcement, 
                Department of the Interior (Parts 700--999)
       XII  Office of Natural Resources Revenue, Department of the 
                Interior (Parts 1200--1299)

                 Title 31--Money and Finance: Treasury

            Subtitle A--Office of the Secretary of the Treasury 
                (Parts 0--50)
            Subtitle B--Regulations Relating to Money and Finance
         I  Monetary Offices, Department of the Treasury (Parts 
                51--199)
        II  Fiscal Service, Department of the Treasury (Parts 
                200--399)
        IV  Secret Service, Department of the Treasury (Parts 
                400--499)
         V  Office of Foreign Assets Control, Department of the 
                Treasury (Parts 500--599)
        VI  Bureau of Engraving and Printing, Department of the 
                Treasury (Parts 600--699)
       VII  Federal Law Enforcement Training Center, Department of 
                the Treasury (Parts 700--799)
      VIII  Office of International Investment, Department of the 
                Treasury (Parts 800--899)
        IX  Federal Claims Collection Standards (Department of the 
                Treasury--Department of Justice) (Parts 900--999)
         X  Financial Crimes Enforcement Network, Department of 
                the Treasury (Parts 1000--1099)

                      Title 32--National Defense

            Subtitle A--Department of Defense
         I  Office of the Secretary of Defense (Parts 1--399)
         V  Department of the Army (Parts 400--699)
        VI  Department of the Navy (Parts 700--799)
       VII  Department of the Air Force (Parts 800--1099)
            Subtitle B--Other Regulations Relating to National 
                Defense

[[Page 1143]]

       XII  Defense Logistics Agency (Parts 1200--1299)
       XVI  Selective Service System (Parts 1600--1699)
      XVII  Office of the Director of National Intelligence (Parts 
                1700--1799)
     XVIII  National Counterintelligence Center (Parts 1800--1899)
       XIX  Central Intelligence Agency (Parts 1900--1999)
        XX  Information Security Oversight Office, National 
                Archives and Records Administration (Parts 2000--
                2099)
       XXI  National Security Council (Parts 2100--2199)
      XXIV  Office of Science and Technology Policy (Parts 2400--
                2499)
     XXVII  Office for Micronesian Status Negotiations (Parts 
                2700--2799)
    XXVIII  Office of the Vice President of the United States 
                (Parts 2800--2899)

               Title 33--Navigation and Navigable Waters

         I  Coast Guard, Department of Homeland Security (Parts 
                1--199)
        II  Corps of Engineers, Department of the Army (Parts 
                200--399)
        IV  Saint Lawrence Seaway Development Corporation, 
                Department of Transportation (Parts 400--499)

                          Title 34--Education

            Subtitle A--Office of the Secretary, Department of 
                Education (Parts 1--99)
            Subtitle B--Regulations of the Offices of the 
                Department of Education
         I  Office for Civil Rights, Department of Education 
                (Parts 100--199)
        II  Office of Elementary and Secondary Education, 
                Department of Education (Parts 200--299)
       III  Office of Special Education and Rehabilitative 
                Services, Department of Education (Parts 300--399)
        IV  Office of Vocational and Adult Education, Department 
                of Education (Parts 400--499)
         V  Office of Bilingual Education and Minority Languages 
                Affairs, Department of Education (Parts 500--599)
        VI  Office of Postsecondary Education, Department of 
                Education (Parts 600--699)
       VII  Office of Educational Research and Improvement, 
                Department of Education [Reserved]
        XI  National Institute for Literacy (Parts 1100--1199)
            Subtitle C--Regulations Relating to Education
       XII  National Council on Disability (Parts 1200--1299)

                          Title 35 [Reserved]

             Title 36--Parks, Forests, and Public Property

         I  National Park Service, Department of the Interior 
                (Parts 1--199)

[[Page 1144]]

        II  Forest Service, Department of Agriculture (Parts 200--
                299)
       III  Corps of Engineers, Department of the Army (Parts 
                300--399)
        IV  American Battle Monuments Commission (Parts 400--499)
         V  Smithsonian Institution (Parts 500--599)
        VI  [Reserved]
       VII  Library of Congress (Parts 700--799)
      VIII  Advisory Council on Historic Preservation (Parts 800--
                899)
        IX  Pennsylvania Avenue Development Corporation (Parts 
                900--999)
         X  Presidio Trust (Parts 1000--1099)
        XI  Architectural and Transportation Barriers Compliance 
                Board (Parts 1100--1199)
       XII  National Archives and Records Administration (Parts 
                1200--1299)
        XV  Oklahoma City National Memorial Trust (Parts 1500--
                1599)
       XVI  Morris K. Udall Scholarship and Excellence in National 
                Environmental Policy Foundation (Parts 1600--1699)

             Title 37--Patents, Trademarks, and Copyrights

         I  United States Patent and Trademark Office, Department 
                of Commerce (Parts 1--199)
        II  Copyright Office, Library of Congress (Parts 200--299)
       III  Copyright Royalty Board, Library of Congress (Parts 
                300--399)
        IV  Assistant Secretary for Technology Policy, Department 
                of Commerce (Parts 400--499)
         V  Under Secretary for Technology, Department of Commerce 
                (Parts 500--599)

           Title 38--Pensions, Bonuses, and Veterans' Relief

         I  Department of Veterans Affairs (Parts 0--99)
        II  Armed Forces Retirement Home (Parts 200--299)

                       Title 39--Postal Service

         I  United States Postal Service (Parts 1--999)
       III  Postal Regulatory Commission (Parts 3000--3099)

                  Title 40--Protection of Environment

         I  Environmental Protection Agency (Parts 1--1099)
        IV  Environmental Protection Agency and Department of 
                Justice (Parts 1400--1499)
         V  Council on Environmental Quality (Parts 1500--1599)
        VI  Chemical Safety and Hazard Investigation Board (Parts 
                1600--1699)
       VII  Environmental Protection Agency and Department of 
                Defense; Uniform National Discharge Standards for 
                Vessels of the Armed Forces (Parts 1700--1799)

[[Page 1145]]

          Title 41--Public Contracts and Property Management

            Subtitle A--Federal Procurement Regulations System 
                [Note]
            Subtitle B--Other Provisions Relating to Public 
                Contracts
        50  Public Contracts, Department of Labor (Parts 50-1--50-
                999)
        51  Committee for Purchase From People Who Are Blind or 
                Severely Disabled (Parts 51-1--51-99)
        60  Office of Federal Contract Compliance Programs, Equal 
                Employment Opportunity, Department of Labor (Parts 
                60-1--60-999)
        61  Office of the Assistant Secretary for Veterans' 
                Employment and Training Service, Department of 
                Labor (Parts 61-1--61-999)
   62--100  [Reserved]
            Subtitle C--Federal Property Management Regulations 
                System
       101  Federal Property Management Regulations (Parts 101-1--
                101-99)
       102  Federal Management Regulation (Parts 102-1--102-299)
  103--104  [Reserved]
       105  General Services Administration (Parts 105-1--105-999)
       109  Department of Energy Property Management Regulations 
                (Parts 109-1--109-99)
       114  Department of the Interior (Parts 114-1--114-99)
       115  Environmental Protection Agency (Parts 115-1--115-99)
       128  Department of Justice (Parts 128-1--128-99)
  129--200  [Reserved]
            Subtitle D--Other Provisions Relating to Property 
                Management [Reserved]
            Subtitle E--Federal Information Resources Management 
                Regulations System [Reserved]
            Subtitle F--Federal Travel Regulation System
       300  General (Parts 300-1--300-99)
       301  Temporary Duty (TDY) Travel Allowances (Parts 301-1--
                301-99)
       302  Relocation Allowances (Parts 302-1--302-99)
       303  Payment of Expenses Connected with the Death of 
                Certain Employees (Part 303-1--303-99)
       304  Payment of Travel Expenses from a Non-Federal Source 
                (Parts 304-1--304-99)

                        Title 42--Public Health

         I  Public Health Service, Department of Health and Human 
                Services (Parts 1--199)
        IV  Centers for Medicare & Medicaid Services, Department 
                of Health and Human Services (Parts 400--599)
         V  Office of Inspector General-Health Care, Department of 
                Health and Human Services (Parts 1000--1999)

[[Page 1146]]

                   Title 43--Public Lands: Interior

            Subtitle A--Office of the Secretary of the Interior 
                (Parts 1--199)
            Subtitle B--Regulations Relating to Public Lands
         I  Bureau of Reclamation, Department of the Interior 
                (Parts 200--599)
        II  Bureau of Land Management, Department of the Interior 
                (Parts 1000--9999)
       III  Utah Reclamation Mitigation and Conservation 
                Commission (Parts 10000--10099)

             Title 44--Emergency Management and Assistance

         I  Federal Emergency Management Agency, Department of 
                Homeland Security (Parts 0--399)
        IV  Department of Commerce and Department of 
                Transportation (Parts 400--499)

                       Title 45--Public Welfare

            Subtitle A--Department of Health and Human Services 
                (Parts 1--199)
            Subtitle B--Regulations Relating to Public Welfare
        II  Office of Family Assistance (Assistance Programs), 
                Administration for Children and Families, 
                Department of Health and Human Services (Parts 
                200--299)
       III  Office of Child Support Enforcement (Child Support 
                Enforcement Program), Administration for Children 
                and Families, Department of Health and Human 
                Services (Parts 300--399)
        IV  Office of Refugee Resettlement, Administration for 
                Children and Families, Department of Health and 
                Human Services (Parts 400--499)
         V  Foreign Claims Settlement Commission of the United 
                States, Department of Justice (Parts 500--599)
        VI  National Science Foundation (Parts 600--699)
       VII  Commission on Civil Rights (Parts 700--799)
      VIII  Office of Personnel Management (Parts 800--899) 
                [Reserved]
         X  Office of Community Services, Administration for 
                Children and Families, Department of Health and 
                Human Services (Parts 1000--1099)
        XI  National Foundation on the Arts and the Humanities 
                (Parts 1100--1199)
       XII  Corporation for National and Community Service (Parts 
                1200--1299)
      XIII  Office of Human Development Services, Department of 
                Health and Human Services (Parts 1300--1399)
       XVI  Legal Services Corporation (Parts 1600--1699)
      XVII  National Commission on Libraries and Information 
                Science (Parts 1700--1799)
     XVIII  Harry S. Truman Scholarship Foundation (Parts 1800--
                1899)
       XXI  Commission on Fine Arts (Parts 2100--2199)

[[Page 1147]]

     XXIII  Arctic Research Commission (Part 2301)
      XXIV  James Madison Memorial Fellowship Foundation (Parts 
                2400--2499)
       XXV  Corporation for National and Community Service (Parts 
                2500--2599)

                          Title 46--Shipping

         I  Coast Guard, Department of Homeland Security (Parts 
                1--199)
        II  Maritime Administration, Department of Transportation 
                (Parts 200--399)
       III  Coast Guard (Great Lakes Pilotage), Department of 
                Homeland Security (Parts 400--499)
        IV  Federal Maritime Commission (Parts 500--599)

                      Title 47--Telecommunication

         I  Federal Communications Commission (Parts 0--199)
        II  Office of Science and Technology Policy and National 
                Security Council (Parts 200--299)
       III  National Telecommunications and Information 
                Administration, Department of Commerce (Parts 
                300--399)
        IV  National Telecommunications and Information 
                Administration, Department of Commerce, and 
                National Highway Traffic Safety Administration, 
                Department of Transportation (Parts 400--499)

           Title 48--Federal Acquisition Regulations System

         1  Federal Acquisition Regulation (Parts 1--99)
         2  Defense Acquisition Regulations System, Department of 
                Defense (Parts 200--299)
         3  Health and Human Services (Parts 300--399)
         4  Department of Agriculture (Parts 400--499)
         5  General Services Administration (Parts 500--599)
         6  Department of State (Parts 600--699)
         7  Agency for International Development (Parts 700--799)
         8  Department of Veterans Affairs (Parts 800--899)
         9  Department of Energy (Parts 900--999)
        10  Department of the Treasury (Parts 1000--1099)
        12  Department of Transportation (Parts 1200--1299)
        13  Department of Commerce (Parts 1300--1399)
        14  Department of the Interior (Parts 1400--1499)
        15  Environmental Protection Agency (Parts 1500--1599)
        16  Office of Personnel Management, Federal Employees 
                Health Benefits Acquisition Regulation (Parts 
                1600--1699)
        17  Office of Personnel Management (Parts 1700--1799)

[[Page 1148]]

        18  National Aeronautics and Space Administration (Parts 
                1800--1899)
        19  Broadcasting Board of Governors (Parts 1900--1999)
        20  Nuclear Regulatory Commission (Parts 2000--2099)
        21  Office of Personnel Management, Federal Employees 
                Group Life Insurance Federal Acquisition 
                Regulation (Parts 2100--2199)
        23  Social Security Administration (Parts 2300--2399)
        24  Department of Housing and Urban Development (Parts 
                2400--2499)
        25  National Science Foundation (Parts 2500--2599)
        28  Department of Justice (Parts 2800--2899)
        29  Department of Labor (Parts 2900--2999)
        30  Department of Homeland Security, Homeland Security 
                Acquisition Regulation (HSAR) (Parts 3000--3099)
        34  Department of Education Acquisition Regulation (Parts 
                3400--3499)
        51  Department of the Army Acquisition Regulations (Parts 
                5100--5199)
        52  Department of the Navy Acquisition Regulations (Parts 
                5200--5299)
        53  Department of the Air Force Federal Acquisition 
                Regulation Supplement [Reserved]
        54  Defense Logistics Agency, Department of Defense (Parts 
                5400--5499)
        57  African Development Foundation (Parts 5700--5799)
        61  Civilian Board of Contract Appeals, General Services 
                Administration (Parts 6100--6199)
        63  Department of Transportation Board of Contract Appeals 
                (Parts 6300--6399)
        99  Cost Accounting Standards Board, Office of Federal 
                Procurement Policy, Office of Management and 
                Budget (Parts 9900--9999)

                       Title 49--Transportation

            Subtitle A--Office of the Secretary of Transportation 
                (Parts 1--99)
            Subtitle B--Other Regulations Relating to 
                Transportation
         I  Pipeline and Hazardous Materials Safety 
                Administration, Department of Transportation 
                (Parts 100--199)
        II  Federal Railroad Administration, Department of 
                Transportation (Parts 200--299)
       III  Federal Motor Carrier Safety Administration, 
                Department of Transportation (Parts 300--399)
        IV  Coast Guard, Department of Homeland Security (Parts 
                400--499)
         V  National Highway Traffic Safety Administration, 
                Department of Transportation (Parts 500--599)
        VI  Federal Transit Administration, Department of 
                Transportation (Parts 600--699)

[[Page 1149]]

       VII  National Railroad Passenger Corporation (AMTRAK) 
                (Parts 700--799)
      VIII  National Transportation Safety Board (Parts 800--999)
         X  Surface Transportation Board, Department of 
                Transportation (Parts 1000--1399)
        XI  Research and Innovative Technology Administration, 
                Department of Transportation [Reserved]
       XII  Transportation Security Administration, Department of 
                Homeland Security (Parts 1500--1699)

                   Title 50--Wildlife and Fisheries

         I  United States Fish and Wildlife Service, Department of 
                the Interior (Parts 1--199)
        II  National Marine Fisheries Service, National Oceanic 
                and Atmospheric Administration, Department of 
                Commerce (Parts 200--299)
       III  International Fishing and Related Activities (Parts 
                300--399)
        IV  Joint Regulations (United States Fish and Wildlife 
                Service, Department of the Interior and National 
                Marine Fisheries Service, National Oceanic and 
                Atmospheric Administration, Department of 
                Commerce); Endangered Species Committee 
                Regulations (Parts 400--499)
         V  Marine Mammal Commission (Parts 500--599)
        VI  Fishery Conservation and Management, National Oceanic 
                and Atmospheric Administration, Department of 
                Commerce (Parts 600--699)

                      CFR Index and Finding Aids

            Subject/Agency Index
            List of Agency Prepared Indexes
            Parallel Tables of Statutory Authorities and Rules
            List of CFR Titles, Chapters, Subchapters, and Parts
            Alphabetical List of Agencies Appearing in the CFR

[[Page 1151]]





           Alphabetical List of Agencies Appearing in the CFR




                     (Revised as of January 1, 2012)

                                                  CFR Title, Subtitle or 
                     Agency                               Chapter

Administrative Committee of the Federal Register  1, I
Administrative Conference of the United States    1, III
Advisory Council on Historic Preservation         36, VIII
Advocacy and Outreach, Office of                  7, XXV
African Development Foundation                    22, XV
  Federal Acquisition Regulation                  48, 57
Agency for International Development              2, VII; 22, II
  Federal Acquisition Regulation                  48, 7
Agricultural Marketing Service                    7, I, IX, X, XI
Agricultural Research Service                     7, V
Agriculture Department                            2, IV; 5, LXXIII
  Advocacy and Outreach, Office of                7, XXV
  Agricultural Marketing Service                  7, I, IX, X, XI
  Agricultural Research Service                   7, V
  Animal and Plant Health Inspection Service      7, III; 9, I
  Chief Financial Officer, Office of              7, XXX
  Commodity Credit Corporation                    7, XIV
  Economic Research Service                       7, XXXVII
  Energy Policy and New Uses, Office of           2, IX; 7, XXIX
  Environmental Quality, Office of                7, XXXI
  Farm Service Agency                             7, VII, XVIII
  Federal Acquisition Regulation                  48, 4
  Federal Crop Insurance Corporation              7, IV
  Food and Nutrition Service                      7, II
  Food Safety and Inspection Service              9, III
  Foreign Agricultural Service                    7, XV
  Forest Service                                  36, II
  Grain Inspection, Packers and Stockyards        7, VIII; 9, II
       Administration
  Information Resources Management, Office of     7, XXVII
  Inspector General, Office of                    7, XXVI
  National Agricultural Library                   7, XLI
  National Agricultural Statistics Service        7, XXXVI
  National Institute of Food and Agriculture      7, XXXIV
  Natural Resources Conservation Service          7, VI
  Operations, Office of                           7, XXVIII
  Procurement and Property Management, Office of  7, XXXII
  Rural Business-Cooperative Service              7, XVIII, XLII, L
  Rural Development Administration                7, XLII
  Rural Housing Service                           7, XVIII, XXXV, L
  Rural Telephone Bank                            7, XVI
  Rural Utilities Service                         7, XVII, XVIII, XLII, L
  Secretary of Agriculture, Office of             7, Subtitle A
  Transportation, Office of                       7, XXXIII
  World Agricultural Outlook Board                7, XXXVIII
Air Force Department                              32, VII
  Federal Acquisition Regulation Supplement       48, 53
Air Transportation Stabilization Board            14, VI
Alcohol and Tobacco Tax and Trade Bureau          27, I
Alcohol, Tobacco, Firearms, and Explosives,       27, II
     Bureau of
AMTRAK                                            49, VII
American Battle Monuments Commission              36, IV
American Indians, Office of the Special Trustee   25, VII
Animal and Plant Health Inspection Service        7, III; 9, I

[[Page 1152]]

Appalachian Regional Commission                   5, IX
Architectural and Transportation Barriers         36, XI
     Compliance Board
Arctic Research Commission                        45, XXIII
Armed Forces Retirement Home                      5, XI
Army Department                                   32, V
  Engineers, Corps of                             33, II; 36, III
  Federal Acquisition Regulation                  48, 51
Bilingual Education and Minority Languages        34, V
     Affairs, Office of
Blind or Severely Disabled, Committee for         41, 51
     Purchase from People Who Are
Broadcasting Board of Governors                   22, V
  Federal Acquisition Regulation                  48, 19
Bureau of Ocean Energy Management, Regulation,    30, II
     and Enforcement
Census Bureau                                     15, I
Centers for Medicare & Medicaid Services          42, IV
Central Intelligence Agency                       32, XIX
Chemical Safety and Hazardous Investigation       40, VI
     Board
Chief Financial Officer, Office of                7, XXX
Child Support Enforcement, Office of              45, III
Children and Families, Administration for         45, II, III, IV, X
Civil Rights, Commission on                       5, LXVIII; 45, VII
Civil Rights, Office for                          34, I
Court Services and Offender Supervision Agency    5, LXX
     for the District of Columbia
Coast Guard                                       33, I; 46, I; 49, IV
Coast Guard (Great Lakes Pilotage)                46, III
Commerce Department                               2, XIII; 44, IV; 50, VI
  Census Bureau                                   15, I
  Economic Affairs, Under Secretary               37, V
  Economic Analysis, Bureau of                    15, VIII
  Economic Development Administration             13, III
  Emergency Management and Assistance             44, IV
  Federal Acquisition Regulation                  48, 13
  Foreign-Trade Zones Board                       15, IV
  Industry and Security, Bureau of                15, VII
  International Trade Administration              15, III; 19, III
  National Institute of Standards and Technology  15, II
  National Marine Fisheries Service               50, II, IV
  National Oceanic and Atmospheric                15, IX; 50, II, III, IV, 
       Administration                             VI
  National Telecommunications and Information     15, XXIII; 47, III, IV
       Administration
  National Weather Service                        15, IX
  Patent and Trademark Office, United States      37, I
  Productivity, Technology and Innovation,        37, IV
       Assistant Secretary for
  Secretary of Commerce, Office of                15, Subtitle A
  Technology, Under Secretary for                 37, V
  Technology Administration                       15, XI
  Technology Policy, Assistant Secretary for      37, IV
Commercial Space Transportation                   14, III
Commodity Credit Corporation                      7, XIV
Commodity Futures Trading Commission              5, XLI; 17, I
Community Planning and Development, Office of     24, V, VI
     Assistant Secretary for
Community Services, Office of                     45, X
Comptroller of the Currency                       12, I
Construction Industry Collective Bargaining       29, IX
     Commission
Consumer Financial Protection Bureau              12, X
Consumer Product Safety Commission                5, LXXI; 16, II
Copyright Office                                  37, II
Copyright Royalty Board                           37, III
Corporation for National and Community Service    2, XXII; 45, XII, XXV
Cost Accounting Standards Board                   48, 99
Council on Environmental Quality                  40, V
Court Services and Offender Supervision Agency    5, LXX; 28, VIII
   for the District of Columbia
[[Page 1153]]

Customs and Border Protection                     19, I
Defense Contract Audit Agency                     32, I
Defense Department                                2, XI; 5, XXVI; 32, 
                                                  Subtitle A; 40, VII
  Advanced Research Projects Agency               32, I
  Air Force Department                            32, VII
  Army Department                                 32, V; 33, II; 36, III, 
                                                  48, 51
  Defense Acquisition Regulations System          48, 2
  Defense Intelligence Agency                     32, I
  Defense Logistics Agency                        32, I, XII; 48, 54
  Engineers, Corps of                             33, II; 36, III
  National Imagery and Mapping Agency             32, I
  Navy Department                                 32, VI; 48, 52
  Secretary of Defense, Office of                 2, XI; 32, I
Defense Contract Audit Agency                     32, I
Defense Intelligence Agency                       32, I
Defense Logistics Agency                          32, XII; 48, 54
Defense Nuclear Facilities Safety Board           10, XVII
Delaware River Basin Commission                   18, III
District of Columbia, Court Services and          5, LXX; 28, VIII
     Offender Supervision Agency for the
Drug Enforcement Administration                   21, II
East-West Foreign Trade Board                     15, XIII
Economic Affairs, Under Secretary                 37, V
Economic Analysis, Bureau of                      15, VIII
Economic Development Administration               13, III
Economic Research Service                         7, XXXVII
Education, Department of                          5, LIII
  Bilingual Education and Minority Languages      34, V
       Affairs, Office of
  Civil Rights, Office for                        34, I
  Educational Research and Improvement, Office    34, VII
       of
  Elementary and Secondary Education, Office of   34, II
  Federal Acquisition Regulation                  48, 34
  Postsecondary Education, Office of              34, VI
  Secretary of Education, Office of               34, Subtitle A
  Special Education and Rehabilitative Services,  34, III
       Office of
  Vocational and Adult Education, Office of       34, IV
Educational Research and Improvement, Office of   34, VII
Election Assistance Commission                    2, LVIII; 11, II
Elementary and Secondary Education, Office of     34, II
Emergency Oil and Gas Guaranteed Loan Board       13, V
Emergency Steel Guarantee Loan Board              13, IV
Employee Benefits Security Administration         29, XXV
Employees' Compensation Appeals Board             20, IV
Employees Loyalty Board                           5, V
Employment and Training Administration            20, V
Employment Standards Administration               20, VI
Endangered Species Committee                      50, IV
Energy, Department of                             2, IX; 5, XXIII; 10, II, 
                                                  III, X
  Federal Acquisition Regulation                  48, 9
  Federal Energy Regulatory Commission            5, XXIV; 18, I
  Property Management Regulations                 41, 109
Energy, Office of                                 7, XXIX
Engineers, Corps of                               33, II; 36, III
Engraving and Printing, Bureau of                 31, VI
Environmental Protection Agency                   2, XV; 5, LIV; 40, I, IV, 
                                                  VII
  Federal Acquisition Regulation                  48, 15
  Property Management Regulations                 41, 115
Environmental Quality, Office of                  7, XXXI
Equal Employment Opportunity Commission           5, LXII; 29, XIV
Equal Opportunity, Office of Assistant Secretary  24, I
     for
Executive Office of the President                 3, I
  Administration, Office of                       5, XV

[[Page 1154]]

  Environmental Quality, Council on               40, V
  Management and Budget, Office of                2, Subtitle A; 5, III, 
                                                  LXXVII; 14, VI; 48, 99
  National Drug Control Policy, Office of         21, III
  National Security Council                       32, XXI; 47, 2
  Presidential Documents                          3
  Science and Technology Policy, Office of        32, XXIV; 47, II
  Trade Representative, Office of the United      15, XX
       States
Export-Import Bank of the United States           2, XXXV; 5, LII; 12, IV
Family Assistance, Office of                      45, II
Farm Credit Administration                        5, XXXI; 12, VI
Farm Credit System Insurance Corporation          5, XXX; 12, XIV
Farm Service Agency                               7, VII, XVIII
Federal Acquisition Regulation                    48, 1
Federal Aviation Administration                   14, I
  Commercial Space Transportation                 14, III
Federal Claims Collection Standards               31, IX
Federal Communications Commission                 5, XXIX; 47, I
Federal Contract Compliance Programs, Office of   41, 60
Federal Crop Insurance Corporation                7, IV
Federal Deposit Insurance Corporation             5, XXII; 12, III
Federal Election Commission                       5, XXXVII; 11, I
Federal Emergency Management Agency               44, I
Federal Employees Group Life Insurance Federal    48, 21
     Acquisition Regulation
Federal Employees Health Benefits Acquisition     48, 16
     Regulation
Federal Energy Regulatory Commission              5, XXIV; 18, I
Federal Financial Institutions Examination        12, XI
     Council
Federal Financing Bank                            12, VIII
Federal Highway Administration                    23, I, II
Federal Home Loan Mortgage Corporation            1, IV
Federal Housing Enterprise Oversight Office       12, XVII
Federal Housing Finance Agency                    5, LXXX; 12, XII
Federal Housing Finance Board                     12, IX
Federal Labor Relations Authority                 5, XIV, XLIX; 22, XIV
Federal Law Enforcement Training Center           31, VII
Federal Management Regulation                     41, 102
Federal Maritime Commission                       46, IV
Federal Mediation and Conciliation Service        29, XII
Federal Mine Safety and Health Review Commission  5, LXXIV; 29, XXVII
Federal Motor Carrier Safety Administration       49, III
Federal Prison Industries, Inc.                   28, III
Federal Procurement Policy Office                 48, 99
Federal Property Management Regulations           41, 101
Federal Railroad Administration                   49, II
Federal Register, Administrative Committee of     1, I
Federal Register, Office of                       1, II
Federal Reserve System                            12, II
  Board of Governors                              5, LVIII
Federal Retirement Thrift Investment Board        5, VI, LXXVI
Federal Service Impasses Panel                    5, XIV
Federal Trade Commission                          5, XLVII; 16, I
Federal Transit Administration                    49, VI
Federal Travel Regulation System                  41, Subtitle F
Financial Crimes Enforcement Network              31, X
Financial Research Office                         12, XVI
Financial Stability Oversight Council             12, XIII
Fine Arts, Commission on                          45, XXI
Fiscal Service                                    31, II
Fish and Wildlife Service, United States          50, I, IV
Food and Drug Administration                      21, I
Food and Nutrition Service                        7, II
Food Safety and Inspection Service                9, III
Foreign Agricultural Service                      7, XV
Foreign Assets Control, Office of                 31, V
Foreign Claims Settlement Commission of the       45, V
     United States
Foreign Service Grievance Board                   22, IX

[[Page 1155]]

Foreign Service Impasse Disputes Panel            22, XIV
Foreign Service Labor Relations Board             22, XIV
Foreign-Trade Zones Board                         15, IV
Forest Service                                    36, II
General Services Administration                   5, LVII; 41, 105
  Contract Appeals, Board of                      48, 61
  Federal Acquisition Regulation                  48, 5
  Federal Management Regulation                   41, 102
  Federal Property Management Regulations         41, 101
  Federal Travel Regulation System                41, Subtitle F
  General                                         41, 300
  Payment From a Non-Federal Source for Travel    41, 304
       Expenses
  Payment of Expenses Connected With the Death    41, 303
       of Certain Employees
  Relocation Allowances                           41, 302
  Temporary Duty (TDY) Travel Allowances          41, 301
Geological Survey                                 30, IV
Government Accountability Office                  4, I
Government Ethics, Office of                      5, XVI
Government National Mortgage Association          24, III
Grain Inspection, Packers and Stockyards          7, VIII; 9, II
     Administration
Harry S. Truman Scholarship Foundation            45, XVIII
Health and Human Services, Department of          2, III; 5, XLV; 45, 
                                                  Subtitle A,
  Centers for Medicare & Medicaid Services        42, IV
  Child Support Enforcement, Office of            45, III
  Children and Families, Administration for       45, II, III, IV, X
  Community Services, Office of                   45, X
  Family Assistance, Office of                    45, II
  Federal Acquisition Regulation                  48, 3
  Food and Drug Administration                    21, I
  Human Development Services, Office of           45, XIII
  Indian Health Service                           25, V
  Inspector General (Health Care), Office of      42, V
  Public Health Service                           42, I
  Refugee Resettlement, Office of                 45, IV
Homeland Security, Department of                  2, XXX; 6, I
  Coast Guard                                     33, I; 46, I; 49, IV
  Coast Guard (Great Lakes Pilotage)              46, III
  Customs and Border Protection                   19, I
  Federal Emergency Management Agency             44, I
  Human Resources Management and Labor Relations  5, XCVII
       Systems
  Immigration and Customs Enforcement Bureau      19, IV
  Immigration and Naturalization                  8, I
  Transportation Security Administration          49, XII
HOPE for Homeowners Program, Board of Directors   24, XXIV
     of
Housing and Urban Development, Department of      2, XXIV; 5, LXV; 24, 
                                                  Subtitle B
  Community Planning and Development, Office of   24, V, VI
       Assistant Secretary for
  Equal Opportunity, Office of Assistant          24, I
       Secretary for
  Federal Acquisition Regulation                  48, 24
  Federal Housing Enterprise Oversight, Office    12, XVII
       of
  Government National Mortgage Association        24, III
  Housing--Federal Housing Commissioner, Office   24, II, VIII, X, XX
       of Assistant Secretary for
  Housing, Office of, and Multifamily Housing     24, IV
       Assistance Restructuring, Office of
  Inspector General, Office of                    24, XII
  Public and Indian Housing, Office of Assistant  24, IX
       Secretary for
  Secretary, Office of                            24, Subtitle A, VII
Housing--Federal Housing Commissioner, Office of  24, II, VIII, X, XX
     Assistant Secretary for
Housing, Office of, and Multifamily Housing       24, IV
     Assistance Restructuring, Office of
Human Development Services, Office of             45, XIII

[[Page 1156]]

Immigration and Customs Enforcement Bureau        19, IV
Immigration and Naturalization                    8, I
Immigration Review, Executive Office for          8, V
Independent Counsel, Office of                    28, VII
Indian Affairs, Bureau of                         25, I, V
Indian Affairs, Office of the Assistant           25, VI
     Secretary
Indian Arts and Crafts Board                      25, II
Indian Health Service                             25, V
Industry and Security, Bureau of                  15, VII
Information Resources Management, Office of       7, XXVII
Information Security Oversight Office, National   32, XX
     Archives and Records Administration
Inspector General
  Agriculture Department                          7, XXVI
  Health and Human Services Department            42, V
  Housing and Urban Development Department        24, XII, XV
Institute of Peace, United States                 22, XVII
Inter-American Foundation                         5, LXIII; 22, X
Interior Department                               2, XIV
  American Indians, Office of the Special         25, VII
       Trustee
  Bureau of Ocean Energy Management, Regulation,  30, II
       and Enforcement
  Endangered Species Committee                    50, IV
  Federal Acquisition Regulation                  48, 14
  Federal Property Management Regulations System  41, 114
  Fish and Wildlife Service, United States        50, I, IV
  Geological Survey                               30, IV
  Indian Affairs, Bureau of                       25, I, V
  Indian Affairs, Office of the Assistant         25, VI
       Secretary
  Indian Arts and Crafts Board                    25, II
  Land Management, Bureau of                      43, II
  National Indian Gaming Commission               25, III
  National Park Service                           36, I
  Natural Resource Revenue, Office of             30, XII
  Ocean Energy Management, Bureau of              30, V
  Reclamation, Bureau of                          43, I
  Secretary of the Interior, Office of            2, XIV; 43, Subtitle A
  Surface Mining Reclamation and Enforcement,     30, VII
       Office of
Internal Revenue Service                          26, I
International Boundary and Water Commission,      22, XI
     United States and Mexico, United States 
     Section
International Development, United States Agency   22, II
     for
  Federal Acquisition Regulation                  48, 7
International Development Cooperation Agency,     22, XII
     United States
International Joint Commission, United States     22, IV
     and Canada
International Organizations Employees Loyalty     5, V
     Board
International Trade Administration                15, III; 19, III
International Trade Commission, United States     19, II
Interstate Commerce Commission                    5, XL
Investment Security, Office of                    31, VIII
James Madison Memorial Fellowship Foundation      45, XXIV
Japan-United States Friendship Commission         22, XVI
Joint Board for the Enrollment of Actuaries       20, VIII
Justice Department                                2, XXVIII; 5, XXVIII; 28, 
                                                  I, XI; 40, IV
  Alcohol, Tobacco, Firearms, and Explosives,     27, II
       Bureau of
  Drug Enforcement Administration                 21, II
  Federal Acquisition Regulation                  48, 28
  Federal Claims Collection Standards             31, IX
  Federal Prison Industries, Inc.                 28, III
  Foreign Claims Settlement Commission of the     45, V
       United States
  Immigration Review, Executive Office for        8, V
  Offices of Independent Counsel                  28, VI
  Prisons, Bureau of                              28, V
  Property Management Regulations                 41, 128

[[Page 1157]]

Labor Department                                  5, XLII
  Employee Benefits Security Administration       29, XXV
  Employees' Compensation Appeals Board           20, IV
  Employment and Training Administration          20, V
  Employment Standards Administration             20, VI
  Federal Acquisition Regulation                  48, 29
  Federal Contract Compliance Programs, Office    41, 60
       of
  Federal Procurement Regulations System          41, 50
  Labor-Management Standards, Office of           29, II, IV
  Mine Safety and Health Administration           30, I
  Occupational Safety and Health Administration   29, XVII
  Office of Workers' Compensation Programs        20, VII
  Public Contracts                                41, 50
  Secretary of Labor, Office of                   29, Subtitle A
  Veterans' Employment and Training Service,      41, 61; 20, IX
       Office of the Assistant Secretary for
  Wage and Hour Division                          29, V
  Workers' Compensation Programs, Office of       20, I
Labor-Management Standards, Office of             29, II, IV
Land Management, Bureau of                        43, II
Legal Services Corporation                        45, XVI
Library of Congress                               36, VII
  Copyright Office                                37, II
  Copyright Royalty Board                         37, III
Local Television Loan Guarantee Board             7, XX
Management and Budget, Office of                  5, III, LXXVII; 14, VI; 
                                                  48, 99
Marine Mammal Commission                          50, V
Maritime Administration                           46, II
Merit Systems Protection Board                    5, II, LXIV
Micronesian Status Negotiations, Office for       32, XXVII
Millennium Challenge Corporation                  22, XIII
Mine Safety and Health Administration             30, I
Minority Business Development Agency              15, XIV
Miscellaneous Agencies                            1, IV
Monetary Offices                                  31, I
Morris K. Udall Scholarship and Excellence in     36, XVI
     National Environmental Policy Foundation
Museum and Library Services, Institute of         2, XXXI
National Aeronautics and Space Administration     2, XVIII; 5, LIX; 14, V
  Federal Acquisition Regulation                  48, 18
National Agricultural Library                     7, XLI
National Agricultural Statistics Service          7, XXXVI
National and Community Service, Corporation for   2, XXII; 45, XII, XXV
National Archives and Records Administration      2, XXVI; 5, LXVI; 36, XII
  Information Security Oversight Office           32, XX
National Capital Planning Commission              1, IV
National Commission for Employment Policy         1, IV
National Commission on Libraries and Information  45, XVII
     Science
National Council on Disability                    34, XII
National Counterintelligence Center               32, XVIII
National Credit Union Administration              12, VII
National Crime Prevention and Privacy Compact     28, IX
     Council
National Drug Control Policy, Office of           21, III
National Endowment for the Arts                   2, XXXII
National Endowment for the Humanities             2, XXXIII
National Foundation on the Arts and the           45, XI
     Humanities
National Highway Traffic Safety Administration    23, II, III; 47, VI; 49, V
National Imagery and Mapping Agency               32, I
National Indian Gaming Commission                 25, III
National Institute for Literacy                   34, XI
National Institute of Food and Agriculture        7, XXXIV
National Institute of Standards and Technology    15, II
National Intelligence, Office of Director of      32, XVII
National Labor Relations Board                    5, LXI; 29, I
National Marine Fisheries Service                 50, II, IV

[[Page 1158]]

National Mediation Board                          29, X
National Oceanic and Atmospheric Administration   15, IX; 50, II, III, IV, 
                                                  VI
National Park Service                             36, I
National Railroad Adjustment Board                29, III
National Railroad Passenger Corporation (AMTRAK)  49, VII
National Science Foundation                       2, XXV; 5, XLIII; 45, VI
  Federal Acquisition Regulation                  48, 25
National Security Council                         32, XXI
National Security Council and Office of Science   47, II
     and Technology Policy
National Telecommunications and Information       15, XXIII; 47, III, IV
     Administration
National Transportation Safety Board              49, VIII
Natural Resources Conservation Service            7, VI
Natural Resource Revenue, Office of               30, XII
Navajo and Hopi Indian Relocation, Office of      25, IV
Navy Department                                   32, VI
  Federal Acquisition Regulation                  48, 52
Neighborhood Reinvestment Corporation             24, XXV
Northeast Interstate Low-Level Radioactive Waste  10, XVIII
     Commission
Nuclear Regulatory Commission                     2, XX; 5, XLVIII; 10, I
  Federal Acquisition Regulation                  48, 20
Occupational Safety and Health Administration     29, XVII
Occupational Safety and Health Review Commission  29, XX
Ocean Energy Management, Bureau of                30, V
Offices of Independent Counsel                    28, VI
Office of Workers' Compensation Programs          20, VII
Oklahoma City National Memorial Trust             36, XV
Operations Office                                 7, XXVIII
Overseas Private Investment Corporation           5, XXXIII; 22, VII
Patent and Trademark Office, United States        37, I
Payment From a Non-Federal Source for Travel      41, 304
     Expenses
Payment of Expenses Connected With the Death of   41, 303
     Certain Employees
Peace Corps                                       2, XXXVII; 22, III
Pennsylvania Avenue Development Corporation       36, IX
Pension Benefit Guaranty Corporation              29, XL
Personnel Management, Office of                   5, I, XXXV; 45, VIII
  Human Resources Management and Labor Relations  5, XCVII
       Systems, Department of Homeland Security
  Federal Acquisition Regulation                  48, 17
  Federal Employees Group Life Insurance Federal  48, 21
       Acquisition Regulation
  Federal Employees Health Benefits Acquisition   48, 16
       Regulation
Pipeline and Hazardous Materials Safety           49, I
     Administration
Postal Regulatory Commission                      5, XLVI; 39, III
Postal Service, United States                     5, LX; 39, I
Postsecondary Education, Office of                34, VI
President's Commission on White House             1, IV
     Fellowships
Presidential Documents                            3
Presidio Trust                                    36, X
Prisons, Bureau of                                28, V
Procurement and Property Management, Office of    7, XXXII
Productivity, Technology and Innovation,          37, IV
     Assistant Secretary
Public Contracts, Department of Labor             41, 50
Public and Indian Housing, Office of Assistant    24, IX
     Secretary for
Public Health Service                             42, I
Railroad Retirement Board                         20, II
Reclamation, Bureau of                            43, I
Recovery Accountability and Transparency Board    4, II
Refugee Resettlement, Office of                   45, IV
Relocation Allowances                             41, 302
Research and Innovative Technology                49, XI
     Administration
Rural Business-Cooperative Service                7, XVIII, XLII, L
Rural Development Administration                  7, XLII

[[Page 1159]]

Rural Housing Service                             7, XVIII, XXXV, L
Rural Telephone Bank                              7, XVI
Rural Utilities Service                           7, XVII, XVIII, XLII, L
Saint Lawrence Seaway Development Corporation     33, IV
Science and Technology Policy, Office of          32, XXIV
Science and Technology Policy, Office of, and     47, II
     National Security Council
Secret Service                                    31, IV
Securities and Exchange Commission                5, XXXIV; 17, II
Selective Service System                          32, XVI
Small Business Administration                     2, XXVII; 13, I
Smithsonian Institution                           36, V
Social Security Administration                    2, XXIII; 20, III; 48, 23
Soldiers' and Airmen's Home, United States        5, XI
Special Counsel, Office of                        5, VIII
Special Education and Rehabilitative Services,    34, III
     Office of
Special Inspector General for Iraq                5, LXXXVII
     Reconstruction
State Department                                  2, VI; 22, I; 28, XI
  Federal Acquisition Regulation                  48, 6
Surface Mining Reclamation and Enforcement,       30, VII
     Office of
Surface Transportation Board                      49, X
Susquehanna River Basin Commission                18, VIII
Technology Administration                         15, XI
Technology Policy, Assistant Secretary for        37, IV
Technology, Under Secretary for                   37, V
Tennessee Valley Authority                        5, LXIX; 18, XIII
Thrift Supervision Office, Department of the      12, V
     Treasury
Trade Representative, United States, Office of    15, XX
Transportation, Department of                     2, XII; 5, L
  Commercial Space Transportation                 14, III
  Contract Appeals, Board of                      48, 63
  Emergency Management and Assistance             44, IV
  Federal Acquisition Regulation                  48, 12
  Federal Aviation Administration                 14, I
  Federal Highway Administration                  23, I, II
  Federal Motor Carrier Safety Administration     49, III
  Federal Railroad Administration                 49, II
  Federal Transit Administration                  49, VI
  Maritime Administration                         46, II
  National Highway Traffic Safety Administration  23, II, III; 47, IV; 49, V
  Pipeline and Hazardous Materials Safety         49, I
       Administration
  Saint Lawrence Seaway Development Corporation   33, IV
  Secretary of Transportation, Office of          14, II; 49, Subtitle A
  Surface Transportation Board                    49, X
  Transportation Statistics Bureau                49, XI
Transportation, Office of                         7, XXXIII
Transportation Security Administration            49, XII
Transportation Statistics Bureau                  49, XI
Travel Allowances, Temporary Duty (TDY)           41, 301
Treasury Department                               5, XXI; 12, XV; 17, IV; 
                                                  31, IX
  Alcohol and Tobacco Tax and Trade Bureau        27, I
  Community Development Financial Institutions    12, XVIII
       Fund
  Comptroller of the Currency                     12, I
  Customs and Border Protection                   19, I
  Engraving and Printing, Bureau of               31, VI
  Federal Acquisition Regulation                  48, 10
  Federal Claims Collection Standards             31, IX
  Federal Law Enforcement Training Center         31, VII
  Financial Crimes Enforcement Network            31, X
  Fiscal Service                                  31, II
  Foreign Assets Control, Office of               31, V
  Internal Revenue Service                        26, I
  Investment Security, Office of                  31, VIII
  Monetary Offices                                31, I
  Secret Service                                  31, IV
  Secretary of the Treasury, Office of            31, Subtitle A

[[Page 1160]]

  Thrift Supervision, Office of                   12, V
Truman, Harry S. Scholarship Foundation           45, XVIII
United States and Canada, International Joint     22, IV
     Commission
United States and Mexico, International Boundary  22, XI
     and Water Commission, United States Section
Utah Reclamation Mitigation and Conservation      43, III
     Commission
Veterans Affairs Department                       2, VIII; 38, I
  Federal Acquisition Regulation                  48, 8
Veterans' Employment and Training Service,        41, 61; 20, IX
     Office of the Assistant Secretary for
Vice President of the United States, Office of    32, XXVIII
Vocational and Adult Education, Office of         34, IV
Wage and Hour Division                            29, V
Water Resources Council                           18, VI
Workers' Compensation Programs, Office of         20, I
World Agricultural Outlook Board                  7, XXXVIII

[[Page 1161]]



List of CFR Sections Affected



All changes in this volume of the Code of Federal Regulations that were 
made by documents published in the Federal Register since January 1, 
2001, are enumerated in the following list. Entries indicate the nature 
of the changes effected. Page numbers refer to Federal Register pages. 
The user should consult the entries for chapters and parts as well as 
sections for revisions.
For the period before January 1, 2001, see the ``List of CFR Sections 
Affected, 1949-1963, 1964-1972, 1973-1985, and 1986-2000'' published in 
11 separate volumes.

                                  2001

12 CFR
                                                                   66 FR
                                                                    Page
Chapter IX
915.3 (b) introductory text and (3) revised.........................8307
915.4 Revised.......................................................8307
915.5 Revised.......................................................8308
915.6 (a)(3) revised................................................8308
915.7 (b)(2) amended................................................8308
917 Authority citation revised......................................8308
917.3 (b)(1) revised................................................8308
917.9 Existing text designated as (a); (b) added....................8308
918.7 Revised; interim.............................................24264
    Regulation at 66 FR 24264 confirmed............................54918
925.24 Revised......................................................8308
925.25 Removed......................................................8309
925.26 Revised......................................................8309
    (b) revised....................................................54107
925.27 Revised......................................................8309
    (c) revised....................................................54107
925.28 Removed......................................................8310
925.29 Revised......................................................8310
925.30 Revised......................................................8310
930 Added...........................................................8310
930.1 Amended......................................................54107
    Amended; eff. 3-27-02..........................................66728
931 Added...........................................................8310
931.4 (a) amended..................................................54108
931.6 Amended......................................................54108
931.7 (a) amended..................................................54108
931.8 Existing text redesignated as (a); heading and new (a) 
        heading revised; (b) added.................................54108
932 Added...........................................................8310
932.4 (d) heading and (f)(1) Table 2 revised; (e)(2)(ii)(E) 
        amended....................................................54108
932.9 Revised; eff. 3-27-02........................................66728
933 Added...........................................................8310
933.2 (e), (f) and (g) redesignated as (f), (g) and (h); new 
        (f)(4), (5) and (6) redesignated as (f)(5), (6) and (7); 
        new (f)(3) revised; new (e) and (f)(4) added...............54108
933.5 Added........................................................54109
950.1 Amended......................................................50295
951 Nomenclature change............................................50301
951.3 (a)(1) revised...............................................50301
951.4 (a), (b), (f)(1) and (3) amended.............................50302
951.5 (a)(7)(iii) amended..........................................50302
951.8 (c)(3) amended; (c)(3)(i) designation and heading removed; 
        (c)(3)(ii) redesignated as (c)(4); new (c)(4) heading 
        revised....................................................50302
951.10 (a)(1)(ii) revised; (a)(2)(ii) amended; (b)(2)(i) 
        designation and (ii) removed...............................50302
951.15 (a)(2)(ii) amended; (a)(2)(iii) added; concluding text 
        designated as (a)(3).......................................50302
952.2 Amended......................................................50295
952.3 Amended......................................................50295
952.5 (a)(3), (c), (d) heading, (2), (3), (5) and (6)(i) amended 
                                                                   50296
952.7 (a) and (c) amended..........................................50296
956 Authority citation revised......................................8320
956.1 Amended.......................................................8320
956.3 (b) amended...................................................8320
956.5 Added.........................................................8320
956.6 Added.........................................................8321

[[Page 1162]]

966.8 (d) added.....................................................8321

                                  2002

12 CFR
                                                                   67 FR
                                                                    Page
Chapter IX
900 Revised........................................................12841
905 Authority citation revised.....................................12843
905.1 Removed......................................................12843
905.2 (b) and (c) revised..........................................12843
905.4 Revised......................................................12843
905.5 Removed......................................................12843
905.1--905.5 (Subpart A) Appendix A amended........................12843
905.25 Redesignated from 905.51 and amended........................12843
905.26 Redesignated from 905.54 and revised........................12843
905.50--905.54 (Subpart D) Redesignated as Subpart C; new heading 
        added......................................................12843
905.50 Removed.....................................................12843
905.51 Redesignated as 905.25......................................12843
905.52 Removed.....................................................12843
905.53 Removed.....................................................12843
905.54 Redesignated 905.26.........................................12843
906 Authority citation revised.....................................12843
906.1 Amended......................................................12844
906.2 (b)(3) amended...............................................12844
906.3 Revised; eff. 1-27-03........................................78961
906.4 (a), (b)(2) and (3) amended..................................12844
    Removed; eff. 1-27-03..........................................78961
906.5 (b)(1) and (c)(2)(iv) amended................................12844
907 Nomenclature change............................................12844
907.1 Amended......................................................12844
907.6 (b)(2) amended...............................................12844
907.16 Added........................................................9903
908 Added...........................................................9903
908.61 (c)(2) corrected............................................34990
910 Authority citation revised.....................................12844
910.1 Amended......................................................12844
910.4 (d)(2) amended...............................................12844
910.9 (d)(3)(i) introductory text amended..........................12844
911.1 Introductory text amended....................................12844
911.3 (d) amended..................................................12844
912.1 Redesignated as 912.2; new 912.1 redesignated from 912.2 and 
        amended....................................................12844
912.2 Redesignated as 912.1; new 912.2 redesignated from 912.1; 
        new (a) amended............................................12844
912.4 (a)(3) introductory text and (8) amended.....................12844
912.5 (a)(5), (6)(ii), (b)(1) and (c)(2) amended...................12844
912.6 (a)(1), (2), (b) and (c) amended.............................12845
913 Nomenclature change............................................12845
913.1 Redesignated as 913.2; new 913.1 redesignated from 913.2.....12845
913.2 Redesignated as 913.1; new 913.2 redesignated from 913.1.....12845
913.3 (b) amended..................................................12845
913.5 (b)(2)(iv) and (c) amended...................................12845
913.9 (c)(1)(iii), (2)(v) and (d) introductory text amended........12845
915 Authority citation revised; nomenclature change................12845
915.1 Amended......................................................12845
915.3 (a), (b)(5) and (d) amended..................................12845
915.5 (c) amended..................................................12845
915.7 (c) introductory text, (1), (i), (ii), (2), (3) and 4 
        redesignated as (c)(1) introductory text, new (c)(1)(i), 
        (A), (B), (ii), (iii) and (2); (b)(2), new (c)(1)(i)(B), 
        (ii), (2) and (d)(2) amended...............................12845
    Corrected......................................................39791
915.8 (b) amended..................................................12845
915.10 (b) amended.................................................12845
915.12 (a) amended.................................................12845
915.15 Amended.....................................................12846
915.16 (e) amended.................................................12846
915.17 (a)(1) amended..............................................12846
917.1 Amended......................................................12846
917.3 (b)(3)(i) amended............................................12846
917.4 (a)(1) amended...............................................12846
917.5 (a) introductory text and (4) amended; (c) heading 
        designated.................................................12846
917.6 (c) introductory text amended................................12846
917.7 (e)(8) amended...............................................12846
918.3 (a)(1) amended...............................................12846
918.5 Amended......................................................12846
918.7 Amended......................................................12846
918.9 Amended......................................................12846
925.1 Revised......................................................12846
925.3 (c) amended..................................................12848
925.4 (c)(2) amended...............................................12848
925.5 (a)(2) amended...............................................12848
925.7 Amended......................................................12848
925.8 Amended......................................................12848
925.9 Amended......................................................12848

[[Page 1163]]

925.10 Amended.....................................................12848
925.11 (a), (b) introductory text, (3) and (c) amended.............12848
925.12 Introductory text amended...................................12848
925.13 (a) amended.................................................12848
925.14 Revised.....................................................12848
925.16 Amended.....................................................12849
925.17 (a), (b) and (f) heading amended............................12849
925.18 (e) amended.................................................12849
925.22 (b)(2) and (c) amended......................................12849
925.24 (b)(5), (c) and (d) amended.................................12849
925.26 (d) amended.................................................12849
925.31 (a) and (b) amended.........................................12849
926.1 Amended......................................................12849
926.4 (a), (c)(1) and (d) amended..................................12849
930.1 Amended......................................................12849
932.4 (g)(1)(i) amended............................................12850
940.1 Revised......................................................12850
940.2 Introductory text and (a) amended............................12850
    Corrected......................................................39791
944 Authority citation revised.....................................12850
944.1 Revised......................................................12850
944.2 (b)(2) introductory text and (i) amended.....................12850
944.3 (b)(2), (c)(1)(i), (ii)(B), (C) and (2) amended..............12850
944.5 (b), (d)(1)(i) and (3) amended...............................12850
944.6 (a)(3), (4) and (5)(iii) amended.............................12850
944.7 Amended......................................................12850
950 Authority citation revised.....................................12850
950.1 Amended......................................................12850
950.2 Heading amended..............................................12851
950.4 (e)(1), (2), (g)(2)(i) and (ii) amended......................12851
950.7 (a)(1)(ii)(D), (2)(i) and (e)(3) revised.....................12851
950.8 (a) amended..................................................12851
950.9 (a)(1) amended...............................................12851
950.11 (b)(1) amended..............................................12851
950.14 (b)(2)(i)(A), (C), (c)(2)(i), (ii), (e)(2) and (3) revised 
                                                                   12851
950.25 (b) amended.................................................12852
951.1 Amended...............................................12852, 18804
951.3 (a)(2) revised; (b)(1)(vii) and (viii) amended; (b)(1)(ix) 
        added......................................................18804
    (a)(1) revised.................................................58981
951.4 Amended......................................................12852
    Corrected......................................................15011
951.5 (b)(2)(i)(A), (7)(i) and (ii) amended........................12852
    (a)(2)(iii) revised; (a)(3) amended............................58982
951.6 (b)(1) and (4)(i) amended; (b)(4)(iv)(A) and (D) revised.....18804
951.7 Heading, (a) introductory text amended.......................18804
951.8 (b)(2) introductory text, (i) and (iii) revised; (c)(5) 
        added......................................................18804
951.9 Introductory text amended....................................12852
    Removed........................................................18804
951.10 (c)(1) introductory text amended............................12852
    (a)(1)(ii) amended; (b)(1)(ii) introductory text, (c)(1) 
introductory text, (2) introductory text and (i) revised...........18804
951.12 (h) amended.................................................12852
    (a)(1)(ii), (2)(i)(B) and (b)(2) amended; (e) revised..........18805
951.13 (d)(1)(ii), (iii) and (iv) revised..........................18805
950.16 Amended.....................................................12852
952 Authority citation revised.....................................12852
952.1 Redesignated as 952.2; new 952.1 redesignated from 952.3 and 
        amended....................................................12852
952.2 Redesignated as 952.3; new 952.2 redesignated from 952.1 and 
        amended....................................................12852
952.3 Redesignated as 952.1; new 952.3 redesignated from 952.2 and 
        revised....................................................12852
952.5 (a)(3), (4), (d)(1), (4)(ii) and (6)(i) amended..............12852
955.1 Revised......................................................12852
955.3 (b)(2)(ii) and (3) amended...................................12852
956.1 Revised......................................................12853
956.2 (c) and (d) amended..........................................12853
956.3 (a)(4)(iii) amended..........................................12853
956.4 Introductory text amended....................................12853
956.5 (b) and (e) amended..........................................12853
960 Removed; new 960 redesignated from 961; new authority cite 
        amended....................................................12853
960.1 Amended......................................................12853
960.2 (b) amended..................................................12853
960.4 (c) amended..................................................12853
960.5 (b)(1) amended...............................................12853
961 Redesignated as 960............................................12853
965 Authority citation revised.....................................12853
965.1 (3)(ii) and (iii) amended....................................12853

[[Page 1164]]

965.2 (b) amended..................................................12853
966 Authority citation revised.....................................12853
966.1 Revised......................................................12853
966.2 (a) and (b)(2) amended.......................................12853
966.3 (a)(1) amended...............................................12853
    (a)(2) revised.................................................35715
966.8 (a) amended..................................................12853
966.10 Amended.....................................................12854
975.1 Redesignated as new 975.2; new 975.1 redesignated from 975.2 
        and revised................................................12854
975.2 Redesignated as 975.1; new 975.2 redesignated from 975.1; 
        new (a) and (b) amended....................................12854
975.3 Revised......................................................12854
975.4 Introductory text amended....................................12854
978.1 Amended......................................................12854
978.2 Amended......................................................12854
978.4 Amended......................................................12854
978.7 Amended......................................................12854
980.3 (a)(3)(iii) and (iv) amended.................................12854
985 Authority citation added.......................................12854
985.1 Revised......................................................12854
985.3 (d) amended..................................................12855
985.6 (d) amended..................................................12855
985.8 (d)(4)(i) amended............................................12855
    (b) revised....................................................18807
987.1 Amended......................................................12855
987.5 (a) amended..................................................12855
989 Authority citation revised.....................................12855
989.1 Amended......................................................12855
995 Authority citation revised.....................................12855
995.1 Revised......................................................12855
995.3 Amended......................................................12855
995.4 (b) amended..................................................12855
995.7 (b) amended..................................................12856
995.8 (b)(2)(i), (3)(i), (ii), (c)(1) and (d)(1) amended...........12856
995.10 Amended.....................................................12856
996.1 Redesignated as 996.2; new 996.1 added.......................12856
996.2 Redesignated as 996.3; new 996.2 redesignated from 996.1 and 
        amended....................................................12856
996.3 Redesignated from 996.2 and amended..........................12856
997 Authority citation revised.....................................12856
997.1 Amended......................................................12856

                                  2003

12 CFR
                                                                   68 FR
                                                                    Page
Chapter IX
900.1 Amended......................................................38169
905.2 (b) revised..................................................38169
905.2-905.4 (Subpart A) Appendix A amended.........................38170
905.10 Revised.....................................................38170
905.11 Revised.....................................................38170
905.12 Revised.....................................................38170
905.13 Revised.....................................................38170
905.14 Revised.....................................................38170
905.15 Revised.....................................................38170
    Correctly removed..............................................67789
905.16 Removed.....................................................38170
905.17 Removed.....................................................38170
905.18 Removed.....................................................38170
905.19 Removed.....................................................38170
910.9 (f)(2), (4) and (g) revised; (f)(6) added; interim...........39812
913 Revised; interim...............................................39812
913.7 (c)(1)(vii) redesignated as (c)(1)(vi).......................59309

                                  2004

12 CFR
                                                                   69 FR
                                                                    Page
Title 12 Nomenclature change.......................................18803
Chapter IX
900.3 Amended......................................................38811
998 (Subchapter M) Added...........................................38811

                                  2005

12 CFR
                                                                   70 FR
                                                                    Page
Chapter IX
905 Authority citation revised......................................9508
905.27 Added........................................................9508
906 Revised.........................................................9509
925.2 Amended.......................................................9510
925.3 Amended.......................................................9510
925.5 Amended.......................................................9510
925.6 Amended.......................................................9510
925.7 Amended.......................................................9510
925.8 Amended.......................................................9510
925.9 Amended.......................................................9510
925.11 Amended......................................................9510
925.12 Amended......................................................9510
925.13 Amended......................................................9510
925.15 Amended......................................................9510
925.16 Amended......................................................9510
925.17 Amended......................................................9510
925.18 Amended......................................................9510
925.22 Amended......................................................9510
925.24 Amended......................................................9510
925.26 Amended......................................................9510
925.31 Amended......................................................9510
926.4 Amended.......................................................9510
926.5 Amended.......................................................9510

[[Page 1165]]

926.6 Amended.......................................................9510
931.3 Amended.......................................................9510
931.7 Amended.......................................................9510
933.2 Amended.......................................................9510
944.2 Amended.......................................................9510
944.3 Amended.......................................................9510
944.4 Amended.......................................................9510
944.5 Amended.......................................................9510
950.17 Amended......................................................9510
951.1 Amended.......................................................9511
951.3 Amended.......................................................9511
951.4 Amended.......................................................9511
951.6 Amended.......................................................9511
951.7 Amended.......................................................9511
951.8 Amended.......................................................9511
951.10 Amended......................................................9511
951.11 Amended......................................................9511
951.13 Amended......................................................9511
951.15 Amended......................................................9511

                                  2006

12 CFR
                                                                   71 FR
                                                                    Page
Chapter IX
900.2 Amended......................................................35499
    Amended; eff. 1-29-07..........................................78050
910.1 Amended; interim.............................................60812
910.9 (f)(2) and (g) revised; interim..............................60812
913.1 Amended; interim.............................................60812
913.2 (a) revised; interim.........................................60812
913.3 (e)(1) and (2)(i) revised; interim...........................60812
913.4 (a) and (b) revised; interim.................................60812
913.5 (e)(1) and (3) revised; interim..............................60813
913.7 (b)(1) introductory text revised; interim....................60813
913.8 Added; interim...............................................60813
913.9 Added; interim...............................................60813
913.10 Added; interim..............................................60813
914 Added..........................................................35499
915.6 (a)(3) and (4) redesignated as (a)(4) and (5); new (a)(3) 
        added; new (a)(4) revised..................................40647
915.7 (a) revised..................................................35500
915.8 (a) revised; (b) through (e) redesignated as (c) through 
        (f); new (b) added.........................................40647
915.9 Revised......................................................40647
915.12 (a) revised.................................................35500
915.16 (e) amended.................................................40648
915.17 (b)(1) amended..............................................40648
917.9 Revised; eff. 1-29-07........................................78051
925.20 (e) revised.................................................35500
925.23 Revised; eff. 1-29-07.......................................78051
930 Authority citation revised.....................................78051
930.1 Amended; eff. 1-29-07........................................78051
950.4 (e) revised..................................................35500
951 Revised........................................................59286
955.4 Revised......................................................35500
955 Appendices A and B removed.....................................35500

                                  2007

12 CFR